Scatter Bleak as Economic Doubts Mount

Both buy- and sell-side execs see softness in Q4 TV mart that could signal worse conditions to come

Despite the stubbornly high unemployment rate, the debt crisis in Europe, and deteriorating consumer confidence, the U.S. advertising market over the last several quarters has displayed a breezy sort of pluck, whistling past the graveyard that is the world economy. But now television is starting to feel the bite, and its troubles could herald the beginning of a downturn for the industry as a whole.

According to TV network sales executives and media buyers, in recent weeks the ad market has begun buckling under the weight of economic uncertainty, and the price for scatter—the ad inventory left over after the upfronts—has dropped precipitously.

“The scatter market is soft as hell,” says one senior ad sales executive. “There just isn’t much demand for the available fourth-quarter inventory. The phones aren’t ringing.” The seller adds that while the long-term picture won’t truly be clear until after the holidays, budgets already are being revised downward. “We’re projecting a 20 percent drop in scatter in the first half. We could lose a lot of the gains we made in the upfront.”

Except in truly terrible advertising markets, like the post-tech bust TV season of 2001-02, scatter always sells for a premium over the discounted rates networks offer during the upfronts. That’s still the case, but those premiums have fallen dramatically from the levels they were at earlier this year. In August, CBS said its third-quarter scatter pricing was up 40 percent over the upfront rates; last week, CBS Corp. president and CEO Les Moonves told investors Q4 pricing was up “in the mid-teens.”

The current situation looks disturbingly like the market at the beginning of the recession. One national TV buyer characterizes the scatter market as “a carbon copy of Q4 2008, but smudgier.” During the worst of the recession, premiums plunged from 30 percent to nothing.

The current downturn may, in part, be more of a normalization than anything, a correction to the abnormally strong upfront market. “A lot of advertisers got burned on inflated pricing,” the TV buyer says. “They’ll remember that in June when it’s time to negotiate [2012-13 upfront rates].”

But if the market drop is just a correction, it’s a correction being made in anticipation of a weak market to come. The diminished demand appears to be a function of a more cautious client base.  “Any money that is there is coming in week by week,” says Donna Speciale, president of investment and activation at MediaVest. “The clients are playing it close to the vest just in case the bottom suddenly falls out. What with the inconsistencies in the stock market, the situation in Greece—there’s just a sense of uncertainty that we haven’t seen in awhile.”

It’s not all wrack and ruin. So far, advertisers aren’t scrambling to cancel spots they’d already bought. “The first-quarter options weren’t nearly as bad as they might have been given how quiet the scatter market has been,” Speciale says. “But everyone’s concerned about the second quarter,” when clients can cancel up to half of their commitments.

The holiday season will be the real test. “Christmas will be huge as far as getting our heads around next year,” says one ad sales boss. “There are forecasts about retail being flat versus last year, but we won’t know until the sales figures are in.”

There could be some help coming next year with the spend from the presidential election. But big influxes of spending can end up hurting as well as helping, as they tend to destabilize the market. And a huge influx is coming up next summer. “The Olympics can be a real trial,” says one television ad sales chief. “You’re looking at $1 billion getting sucked out of the market in two weeks. That’s disruptive, to say the least, especially if the bottom’s already falling out.”