Network TV: Eroding, but not going away

Despite declining audience shares and increased competition from cable, the broadcast network business will remain healthy for the near future. The reason: In an age when TV viewers have dozens of options, the easiest way for advertisers to reach large national audiences is to buy spots on the broadcast networks. Critics of the broadcast networks refer to ABC, NBC, CBS and even Fox as dinosaurs that will become extinct due to the rise of cable and other viewing options. This summer, total basic cable ratings were slightly higher than ABC, CBS and NBC combined. However, even though broadcast network viewership erosion can't be denied, the networks are still the only way to reach 10 million to 20 million people with one commercial. "I've seen articles about the decline of the networks for the last 12 years," says Gene Jankowski, a former president of CBS and currently a managing director at Veronis, Suhler & Associates. "The networks are the only trump card for reaching 100 percent of the audience." Adds Neil Braun, president of the NBC Network, "It's the economic law of scarcity. The harder it is to reach everybody, the medium that can reach everyone is finite and more valuable." Advertisers certainly agree with this sentiment and have proved it with their spending. In June, the broadcast networks (including the Big Four plus UPN and The WB) broke the record for upfront sales, topping $6 billion for the first time. And Veronis, Suhler projects a 4.9 percent compound annual rate of growth in ad spending for the networks over the 1996-2001 period. Veronis estimates that ad revenue will grow from $13.7 billion in 1996 to $17.3 billion in 2001. Media buyers predict that, like this year's scatter market, next year's scatter will remain strong. If the economy remains robust, buyers say CPMs will increase anywhere from 10 to 25 percent. The increases will be on the higher end of the range if network shares continue to erode because inventory will tighten due to more makegoods. Despite cable stealing viewers from broadcast television, Zenith Media also believes network ad sales will continue to be robust. Zenith originally predicted the sector's revenue to grow by 4.5 percent this year but recently bumped its estimate to a 7 percent increase. It based its revision on the strength of the current scatter marketplace which "has proved to be remarkably robust despite well-documented audience erosion." Fourth-quarter scatter is selling at CPMs 25 percent above upfront prices, which were already at all-time highs, notes Joe Abruzzese, president of sales for CBS. As of the last week of August, CBS had already booked more than $25 million in prime-time scatter. A potential problem for the network sales business, according to Zenith, is the networks' practice of jamming more and more commercials into their programming. Advertisers complain that this practice creates so much clutter that their clients' messages have less impact on viewers. Another obstacle for the networks could be the recently introduced ratings system which warns viewers about violent or sexually explicit content. Some ad-agency buyers believe that programs labeled for extreme violence or sex will scare away certain sponsors. "Nobody knows what the effect of the program content ratings system will be because they won't come out with full force until this fall," says one media buyer. "The reaction from consumer groups could cause advertisers to change their in-house guidelines." Despite potential roadblocks, bullish sentiment remains intact. "Until the economy stalls, there is an excess demand for television," says Gene DeWitt, president of media-buying firm DeWitt Media. "That will continue to drive solid pricing. Until cable can consistently get high numbers, the broadcasters don't have too much to worry about." Because of today's seller's market, DeWitt says that advertisers without sizable budgets at their disposals will suffer. "The huge budgets will have access to the big sponsorships like the Super Bowl and Thursday night on NBC," says DeWitt. "The guys who don't [have big budgets] will have to do without spots in the higher-rated stuff. People will find that $50 million to $60 million is not a lot of bucks anymore." The strong U.S. economy has driven demand for broadcast network time through the roof. Car manufacturers are launching more new models and need to buy ads on the networks, says Jon Nesvig, president of sales for Fox. The same holds true for financial services companies and high-tech firms, he adds. While the fast-food companies' businesses are not growing significantly, the increased competition in the sector has meant increased ad spending. Also, a loosening of the restrictions for prescription-drug ads should result in hundreds of millions of dollars flowing toward the broadcast networks. "There should be plenty of money to go around," sums up CBS' Abruzzese. However, if the economy does go south, the networks' advantage of universal audience reach does not guarantee continued revenue growth. "It's a safety net but not a strategy," says NBC's Braun of the networks' superior distribution system. In recent years, the four broadcast networks have adopted unique strategies rather than simply being the broad-based entertainment vehicles of the past. Braun says NBC is "trying to brand ourselves as the true broadcasting mass medium that transcends fragmentation." The network has the advantage of using its "tentpole" programming-such as Seinfeld, ER and the Olympics-to attract large audiences and steer them into new shows. "It's going to be harder than ever to introduce the next round of programming," says Braun. Both media buyers and NBC's network competitors believe that NBC will remain the No. 1-rated network next year. Buyers point out that NBC is gambling a bit by scheduling so many female-skewed sitcoms on Monday night. "Will NBC be successful with 'Must-She TV'?" asked one media buyer, who spoke on the condition of anonymity. Stay tuned to find out. ABC, which is trying to brand itself as the family network, has suffered the largest audience erosion of the Big Four, and 1998 will be a telling year for the Walt Disney Co.-owned network. Will ABC stem its viewership losses or continue its downward spiral? "ABC won't do well," offers DeWitt. "Fox's [young] audience duplicates ABC's quite a bit. Fox is siphoning audience away from them." While ABC's schedule-which features the return of The Wonderful World of Disney on Sunday night-is moving toward a family strategy, some industry observers believe its new promotional campaign conflicts with this branding because the campaign revolves around irreverent, sarcastic slogans. "They're sending out some confusing messages," says Fox's Nesvig. ABC also angered Southern Baptists by turning Ellen into a show about a gay character. The huge religious organization has advocated a boycott of all things Disney, but it is unknown if the boycott will have any negative effect on ABC. The network's new fall show Nothing Sacred, a drama about a rebellious young priest, has angered several large Catholic groups. It's too early to predict how this situation will turn out. Contrarian Jankowski says that ABC's new schedule has more strength than it's given credit for. He adds that if ABC gets a break or two-such as good performance from its Monday Night Football-the network's fortunes could turn around. "Exciting games," he says, "could boost ABC's schedule." Unlike ABC, industry insiders agreed that CBS has positive momentum going into this season. Abruzzese concedes that the network needs to attract more younger viewers-CBS' average viewer is 49-but says the network is in a good position to grow its total audience. "We can be a real strong No. 2," says Abruzzese. Buyers praised CBS' fall schedule and its architect, network entertainment president Les Moonves, whose responsibilities were recently expanded to make him the de facto CBS president. As for Fox, buyers predict that the Rupert Murdoch-owned network will maintain its grip on the young audiences advertisers crave most. "Fox could do particularly well this year," says DeWitt. "They've done a good job of branding." Weblets UPN and The WB should gradually grow, say TV observers, but their limited distribution systems will continue to make it difficult to garner ratings competitive with the Big Four. "They have the problem of getting sampling," says NBC's Braun, who nonetheless acknowledges that "they have hurt us more than any single cable channel. It's hard to launch a new show with a 6 share," he adds. Even though UPN has generally beat The WB in ratings, media buyers say The WB now has a better competitive position over its rival. It recently poached five Sinclair Broadcasting affiliates in midsize to large markets from UPN, a deal that left both weblets with equal distribution power. In addition, buyers prefer The WB's programming strategy. "WB wants to be a family network and has a clear idea how to get there," says DeWitt. "UPN is a little at sea."

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Network TV: Eroding, but not going away

Richard Katz

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