Advertisers say network TV is still the best way to meet the masses.
Not only did the six broadcast networks take in a record $9.3 billion in upfront ad dollars for the 2003-2004 season, but financial analysts are predicting that just about all of the networks will improve their profit pictures over the coming year. Despite hefty increases in pricing for 30- second commercials, advertisers still believe that broadcast television is the most immediate way to reach a mass number of consumers, even if there is some wasted audience outside the demos they are trying to reach.
Advertisers in categories such as fast food, automotive, telecommunications, soft drinks, retail and credit cards are not willing to let their competitors get a leg up on them by allowing them to run a network TV campaign while they sit out.
So the category wars like Coke vs. Pepsi, McDonald's vs. Burger King and Wendy's, Target vs. Wal-Mart, AT&T vs. Verizon and Cingular, Visa vs. American Express and MasterCard, and all the U.S. automakers vs. the foreign manufacturers, are filling the networks' coffers with ad dollars, often at the expense of other media.
"Mass audiences are a scarce commodity," says Lee Westerfield, managing director of the media sector of Jefferies & Co. "Companies in these categories need to continually market their brands across the country, and the broadcast networks are the only place that can provide them with the levels of geographic scale and demographic scale they are looking for."
Westerfield contends that the upcoming broadcast television season will yield better cash flow for the networks not only because they have more advertising dollars coming in but also because with the influx of reality programming, they will be able in the short term to cut down on the more hefty production costs of scripted shows.
"Programming costs are not rising as fast as the revenues the networks are taking in," Westerfield says.
Westerfield adds that the growing use of product integration in programming and the increase in the number of ad spots per commercial pod will also contribute to more dollars to the networks' revenue picture.
"This will be broadcast television's best year for revenue increases and increased cash flow in a long time," Westerfield predicts.
Despite the war in Iraq earlier this year, which had a negative impact on broadcast television advertising due to program preemptions, and without the massive amount of Olympic advertising revenue from the previous year, media investment firm Veronis Suhler Stevenson is projecting that broadcast television ad revenue will still rise by 3.6 percent to $16.9 billion this year. And with the summer Olympics back next year, plus the strong upfront, Veronis is projecting a 10 percent increase in advertising revenue for 2004 to $18.5 billion.
And Veronis, like most industry observers, points out that the broadcast television industry's advertising revenue growth is occurring, amazingly, as ratings and viewership continue to decline. "Spending on broadcast television advertising increased in 2002 despite the continuing erosion of audience base," the Veronis annual Communications Industry Forecast & Report says. "A lack of enough new breakout hits, diminishing interest in reality television, and increasing competition from cable channels all contributed to the decline in network TV viewership."
While the cable TV industry has tried to promote the fact that the six broadcast networks continue to lose their cumulative share of audience to cable, media buyers still point out that the lowest-rated broadcast networks—UPN and the WB—still bring in larger audiences each night than the biggest individual commercially supported cable networks. And Veronis research numbers point out that "although viewers have a growing array of programming choices available to them, more channels do not necessarily lead to increased viewing."
Veronis notes that in households that receive in excess of 120 channels, on average, only 17.9 of them are watched. In most instances, the six broadcast networks are more frequently among them.
With the broadcast networks expected to convert 98 percent of the $2.6 billion in ad dollars promised by advertisers in the upfront for fourth quarter of this year [which is the first quarter of the new fall television season] into actual orders, the stage is being set for another strong year.
"There is no indication that 2004 will not be another big year for the broadcast networks," says David Poltrack, executive vp of research for CBS.
"It looks like double-digit increases for the fourth quarter, and things will only get better with the Olympics and the quadrennial elections in 2004. The broadcast TV audiences were as stable as they have been in a long time this past season, and advertiser demand has been at an all-time high. On top of that, the stock market appears to be bouncing back slightly. We have no worries right now." John Consoli writes about network television for Mediaweek.