P&G Leads Retreat From Upfront Commitments

When the economy rattles, advertisers roll out of their TV commitments. High oil prices, a devalued dollar and other economic pressures have raised the cost of doing business for clients. As a consequence, first-quarter cancellations hit some TV networks a little harder this year, with the biggest cut coming from Procter & Gamble.The largest packaged-goods advertiser exercised its option to cancel as much as 25 percent of the commercial inventory it purchased for first-quarter 2005 during the upfront, equaling at least $35 million across cable and broadcast networks, including TNT, TBS, Hallmark, AMC, Lifetime, NBC, CBS and ABC, according to network sales executives.Cable networks reported a 5-9 percent cancellation rate in first quarter, while broadcast networks reported a lower 3-4 percent. "The first-quarter cancellation rate exercised by advertisers overall was lower than we expected," said one broadcast- network exec, adding that he believes new-product launches in the first quarter will bolster the market.Aside from P&G, the bulk of first-quarter cancellations came from retail and pharmaceutical clients. Auto advertisers, meanwhile, are evaluating their planning budgets as they cope with stagnant sales at their dealerships. The perennially "hot" categories—electronics, movies and wireless—did not pull money out. "Movies will always spend, as will wireless," said one buyer. A P&G rep did not confirm or deny the amount cancelled, but acknowledged the client "turned back" some of its inventory. (The rep noted that P&G is actually spending more money to advertise in the first quarter compared with the same period last year.)P&G told several broadcast networks the rising cost of doing business was the reason why the company was trimming some of its upfront holds in the first quarter. More specifically, the high price of oil is affecting major advertisers—from packaged goods to automobiles. Several marketers, media buyers and network execs pointed to the impact of oil prices (currently hovering around $46 a barrel) on distribution and raw materials like plastics. Bottom line: If companies can't fill the tank, they can't transport the goods. The devaluation of the dollar in international markets isn't helping matters, either. The U.S. dollar in recent weeks dropped to a record low against the Euro and a 12-year low against the Canadian dollar.As for cars, the more-than-$2-per-gallon price tag at the pump has turned people off to gas-guzzling trucks and large sport utility vehicles, which have the highest profit margins for automakers. Production has not slowed, however, so the trucks sit at the dealerships, forcing dealers to discount prices. For example, General Motors' "inventory is swelling very rapidly," said Todd Turner, an analyst for Car Concepts, based in Thousand Oaks, Calif. "They are offering incentives, but it is more difficult to pull people into the market that aren't predisposed to it."An executive at General Motors media arm GM Mediaworks declined comment."I am very happy not to be a big player in the full-size SUV at the moment," said Ian Beavis, svp of marketing, product planning for Mitsubishi Motors North America.The average length of time that light trucks sit on the lot is about 66 days. "Sixty days is excessive," Turner said. "We are at the breaking point [with trucks], but the fact of the matter is that trucks aren't swelling inventory any more than cars."Auto marketers cautioned against too much alarm. Consumers are going to keep driving the cars they want to drive, one executive argued. But that doesn't mean advertisers aren't adjusting media budgets to ensure the biggest promotional bang for their buck. "The fact is, everyone is looking at the supply and slowing of demand," Beavis said. "Attention is being paid to using media that can give you the quickest return.""No one's dying, but there is a little concern," said Bruce Lefkowitz, evp of Fox Cable Entertainment Sales. "There wasn't the post-election pop that people were hoping for. And the fact that one of the largest advertisers in the country exercised options at the first chance they had is a little disconcerting."

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P&G Leads Retreat From Upfront Commitments

John Consoli

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John Consoli