2009 Recession is No Worse for Network TV Upfront Than 1991 and 2001

Broadcast and cable networks are FINALLY wrapping up their Upfront deals, although a surprisingly low percentage of fourth quarter Upfront commitments have been firmed up even as the fourth quarter network scatter market begins to generate some heat. A consistent pattern is emerging: advertisers will avoid making budget commitments until absolutely necessary; they will extend options periods as long as possible to avoid locking in their spending; and they will hold off on scatter buys until as close to air dates as they possibly can. This promises to put increased pressure on agency planners and buyers and to drive network sales, financial planning and traffic departments crazy. And efforts to accurately assess market conditions using historic patterns will be challenging at best. It's in this context that Jack Myers Media Business Report has taken a look back at historic patterns in hopes of gaining insights into 2009/2010 network TV Upfront spending. Looking back at Upfront spending patterns in the recession years of 1991 and 2001 uncovers some surprising and hopeful evidence that this year's Upfront declines are consistent with these past two recession-impacted Upfronts and that future prospects are brighter than many analysts anticipate.

You are receiving this e-mail as a corporate subscriber to Jack Myers Media Business Report. Re-distribution in any form, except among approved individuals within your company, is prohibited. Subscribers are welcome to call me at (646) 402-5707 or e-mail me at jm@jackmyers.com to discuss this report and to share your viewpoints.

As the new television season swings into high gear, television networks remain cautiously optimistic. With an estimated 14% to 16% less broadcast and cable network inventory sold in this year's Upfront, networks are counting on a rebounding economy and a return of key advertiser categories to boost scatter market spending. There is some cause for optimism. At last week's Goldman Sachs' Communacopia conference, reports GS analyst Mark D. Weinkes, "CBS … repeated positive comments regarding TV network ad sales. Viacom noted 3Q's y-o-y ad decline is pacing somewhat better than 2Q's (-6%), implying -4 to -5%. Discovery noted the scatter market is stronger than the Upfront market would indicate, leading it to sell only about 45% of inventory upfront. Time Warner and Scripps Networks noted general improvement in the condition of the market across a broad range of advertising categories."

Although secular issues are impacting the industry, core economic patterns are proving to be surprisingly consistent with prior recessionary patterns. The 1991/1992 broadcast network television Upfront registered a 21.4% decline compared to 1990/1991. Cable, still in early stages as a viable ad medium, grew 1.4%, a combined loss of 18.1%. In the 2001/2002 Upfront, broadcast network spending declined 13.8% and cable network advertising declined 16.7%, for a combined 14.8% year-to-year loss. In this year's network Upfront, Jack Myers Media Business Report estimates that combined broadcast and cable network television spending declined 16.5%, the exact average of the declines during the past two major recessions. (Jack Myers Media Business Report estimates that broadcast network Upfront investments declined 20% from $8.2 billion last year to $6.56 billion in this year's Upfront. For cable network advertising, JM-MBR reports 12.5% spending reductions from $7.2 billion to $6.3 billion.)

Source: Jack Myers Media Business Report 9/21/09

There are key differences, of course, and in both 1991 and 2001 networks increased their available inventory to compensate for downward pricing pressure exerted by agency buyers. This enabled them to generate increased demand as advertisers and agencies sought to take advantage of lowered advertising rates. In both the earlier periods, while sell-out levels declined somewhat, there was considerably greater impact on costs-per-thousand, which declined only an estimated average 3.0% to 6.0% in this year's Upfront.

It's this reality of reduced network TV costs in past recessions that created the many success stories that networks and agencies use to prove that increased advertising during a recession helps build market share. Both low cost advertising and concentrated audience reach were available and advertisers who capitalized received the benefits. That's not the case in 2009. Additionally, the recovery from both these recessions was relatively quick, sustained and led by consumers. Marketers were in a period of sustained and aggressive brand expansion strategies. Retail malls and off-price outlets exploded. Established marketers introduced multiple product extensions and a steady stream of new advertiser categories emerged, filling an expanding media supply chain.

In the Great Recession of 2009 and 2010, recovery will be slower and it's highly unlikely it will be consumer-led. Brand extensions have been reversed; new product introductions are at a standstill. But direct response advertisers, as discussed at last week's Electronic Retailers Association conference in Las Vegas, are already responsible for an estimated 25% of cable network revenues; they are likely to continue to prop up the industry and can be expected to expand their presence in broadcast network non-primetime dayparts. It is inevitable that interactive TV technologies will eventually be embraced by networks, cable distributors, TV stations and advertisers (although the reality has been painfully slow and arduous). The convergence of direct response advertising, integration of consumer sales promotion tactics into traditional brand advertising, and interactive media expansion offers the promise of long-term health and viability for the post-recession television industry.

Jack Myers consults with media, agencies and marketers on transformative business models and revenue growth strategies. He can be contacted at jm@jackmyers.com.