Advertisement

NBC Lowers Fall Ad Rates

Advertisement

Looking to jump-start commercial sales for the fall television season, NBC has broken ranks with rival networks and is lowering its rates, which may force its competitors to do the same.

As a result, NBC has been able to wrap up about half of its so-called upfront business, putting it ahead of other networks in a lackluster ad-sales season.

Traditionally, the broadcast networks try to sell 75% to 80% of their ad inventory during the upfront season, and the market usually wraps up around the start of June. However, this year's upfront market has dragged on with few deals getting done. Concerned about the economy, advertisers have resisted rate increases for ad time, leading to a standoff with the networks.

While rival networks are grumbling that NBC caved in to pressure from media buyers, the network has more room than rivals to lower prices and get deals done. Because the General Electric Co. (GE) unit finished first last season in the highly coveted adults-aged-18-to-49 demographic, its rates were set higher in the first place; so even with lower prices, it will end up taking in more upfront dollars than its rivals.

"We had to give some price concessions to get an even bigger share of the market," said NBC Television Network President Randy Falco. He said the network's decision allows it to get more dollars than agencies had been prepared to spend there.

Another factor may have been that NBC's new fall schedule hasn't been given high marks by media buyers, so it wanted to ensure that it would get a solid share of the market by moving before its competitors. NBC, because of the cost of its hits "Friends," "ER" and "Frasier," has a very expensive lineup that may also have motivated its sales department.

Keith Turner, the network's president of sales, said, "Going forward, there will be fewer price concessions because so much of our important business has already been written."

NBC's move is likely to prove a reality check for others. "All of the networks will now acknowledge that supply indeed outstrips demand -- because they really haven't until this week," said Dan Rank, managing partner at Omnicom Group Inc.'s (OMC) media-buying giant OMD.

The only network still actively resisting price cuts is Viacom Inc.'s (VIA) CBS. Mel Karmazin, president of Viacom, has said the network is willing to hold back inventory if it can't get the pricing it wants.

While CBS hasn't jumped into the upfront dance yet, it did take part in a broad $300 million ad deal that Viacom struck with Procter&Gamble Co. (PG) and has sold the bulk of its inventory for its hit reality show "Survivor."

Last year, the broadcast networks enjoyed a robust upfront season, together writing more than $8 billion in business. NBC sold $2.2 billion of ad inventory in the upfront market, second only to Walt Disney Co.'s ABC, which sold more than $2.3 billion of commercial time. Of course, what the networks sold in last year's upfront market didn't automatically go to the bottom line as many advertisers later exercised options to get out of their commitments when the market went soft.

This year, the networks aren't expected to fare as well. In a report on the upfront market, Spencer Wang, an analyst at ABN Amro Inc. (ABN), projected that NBC would unload $1.75 billion in ad inventory for the 2001-02 season, a drop of 22% compared with last year. However, CBS's take is expected to be up slightly from the $1.6 billion it sold last year, and News Corp. Ltd.'s (NWS) Fox is projected to be flat at $1.3 billion. ABC is expected to take the biggest decline in this year's upfront market, as its ratings dropped sharply this past season.

Copyright (c) 2001 Dow Jones & Company, Inc.