Apocalypse Later for TV Marketplace

Buyers and sellers see pricing flat to slightly up and cancellation options moving at a normal pace for early quarters

While many network advertising sales executives undoubtedly were relieved to watch 2011 recede in the rearview mirror, the television market’s bumpy road is showing signs of smoothing out.

Buyers and sellers report that the scatter market has begun to rouse itself from its fourth-quarter torpor, and while the days of double-digit premiums are just a happy memory, pricing is holding (and in some cases, improving). Perhaps most importantly, cancellations of upfront commitments have been minimal.

“The first-quarter cancellation options weren’t significant at all—certainly nowhere near as impactful as they may have been given the stasis in scatter and the giant question mark hanging over the economy,” said one national TV buyer. “And while there’s still time on the clock, there are no indications that we’re going to see any nasty surprises in the second quarter.”

No more than 5 percent of the upfront dollars earmarked for the first three months of 2012 were recalled. Clients can cancel up to 25 percent of first-quarter commitments and as much as 50 percent in the second quarter, although a client that elects to pull back a large chunk of its buy can almost certainly expect to pay through the nose once they decide it’s time to reconnect with television.

“You can’t game the system by pulling your upfront money out and then turning around to buy scatter on the cheap,” said one ad sales boss. “We have elephants’ memories.” Scatter pricing is currently in the mid- to high-single digits over upfront rates, with volume down 15 percent year over year.

“With the slowdown in scatter, mid-single-digit Q4 ad sales growth may be aspirational,” said Time Warner CFO John Martin. “But things seem to be picking up. Our cancellations are at very, very low levels.”

Sharp ratings declines will also impact Q4 earnings at Viacom, Time Warner and Walt Disney Co. “We worry that the potential mix of lower scatter vs. scatter inflation and volatile cable ratings could create negative earnings revisions,” said Nomura Securities analyst Michael Nathanson.