ABC to Hold Back Inventory From Upfront

ABC on Thursday announced it will hold back more of its upfront inventory for scatter than usual, echoing a theme that was raised by rival NBC earlier in the month.

In a series of remarks delivered during the front end of Walt Disney Co.’s fiscal-year third-quarter earnings call, chief financial officer and senior executive vp Tom Staggs said that while ABC is “still in the midst of the upfront process … we anticipate selling less of our inventory in this year’s upfront than in recent years.”

Staggs, who noted that Disney is “comfortable with the rates that ABC has been achieving,” did not offer a sense of where the network’s CPMs were falling versus last year’s bazaar. Sources said the network is writing deals at low-single-digit negatives.

Disney also declined to quantify how much inventory it would hold back. Barclays Capital analyst Anthony DiClemente estimates that ABC sold 83 percent of its air time in last year’s bazaar, bringing in around $2.46 million for all day parts. This spring, Barclays estimated ABC would sell around 75 percent of its inventory in the 2009-10 upfront.

“We are comfortable with the rates ABC has been achieving,” said Staggs, adding that the net was well positioned for scatter, given its programming slate. He also noted that “some major advertisers remain on the sidelines in this upfront.”

On July 17, GE chief financial officer Keith Sherin told investors that NBC would follow a similar tack, saying the network was “planning on retaining more inventory as we go into the 2010 season.”

Typically, the networks sell between 75 percent and 80 percent of their prime time inventory during the upfront, but contracting viewership, a wobbly advertising market and the recession have put a squeeze on CPMs. As such, the Big Four are expected to hold back as much as 30 percent of their inventory this year.

ABC notched better than expected ad revenue results in FY Q3, as the net’s sales declined “in the mid-single digits,” versus analysts’ estimates of a 10 percent drop-off. Advertising at ABC’s owned-and-operated stations declined 26 percent in the quarter, showing sequential improvement from the prior three-month period, when sales fell 30 percent.

All told, the broadcaster’s overall revenue fell 4 percent to $1.4 billion. Operating income dropped 34 percent to $204 million.

While Staggs did not go into great detail about how Disney’s cable networks were faring in the upfront, he noted that ESPN’s Q3 ad revenues “were just under 10 percent below last year.” He added that ESPN had begun to level out, and that Q4 was likely to play out like Q3. “We don’t see dramatic shifts. … We continue to see the signs of stabilization overall in the businesses but that it’s a little early for us to call signs of a recovery, or to make any predictions about the pace of that.”

President and CEO Robert Iger noted that marketers continued to buy time closer to air date, adding that “part of that is a function of the fact that a lot of what ESPN is out selling is football and that commences in a relatively short period of time.”
Ad sales revenue at ESPN declined by “just under 10 percent,” roughly in line with FY Q2. With its pronounced exposure to the automotive and financial services categories, ESPN took a bigger hit in the quarter than fellow cable giants Viacom (down 6 percent versus the prior-year period) and Turner, which saw domestic ad sales grow 5 percent.

The Disney cable nets brought in total revenue of $2.56 billion in the quarter, a 1 percent dip versus the year-ago period, as higher affiliate fees at Disney Channel and ABC Family went a long way toward offsetting the advertising decline. The Mouse noted that the decrease in ad sales dollars at ESPN was a result of a reduction in units sold, although roll-back that was partially offset by higher rates.  

Operating income at the cable unit fell 8 percent to $1.12 billion.