June is typically the time of year when the broadcast networks ring up billions of dollars in commercial sales for the coming television season. But this hasn't been a typical year.
Declining audiences, an extremely fragile economy and bankruptcy filings by cash-strapped U.S. automakers -- traditionally among the biggest TV advertisers -- have made it more difficult for network advertising executives this spring to sell commercial time.
A month after unveiling their new fall shows as bait, the networks still haven't hooked any big-fish advertisers. Network executives declined Wednesday to discuss it at length, but acknowledged selling hadn't begun.
In recent years, ABC, CBS, Fox, NBC and the small CW by now had sold the bulk of their commercial time for the season that begins in September. Last June, the networks wrote more than $9 billion in prime-time advertising commitments within a few days.
"It's definitely a different atmosphere than what we are used to," said Andrew Donchin, a major ad buyer at Carat. "It's much more of a buyers' market. And there is more pressure on the ad agencies this year to realize greater value for their clients."
In preliminary negotiations, advertisers have demanded the networks slash their rates by as much as 15% compared with last year, according to people familiar with the discussions. Network executives have balked, hoping to hold the line on last year's prices.
The stalemate is responsible for delaying the kickoff of the important market known as the upfront. Networks typically sell as much as 80% of their commercial inventory for the coming year during the auction.
"There has been a lot of talk between the agencies and the networks on what the market should be," Donchin said, adding that he expected serious negotiations to begin within a couple of weeks.
The upfront market is closely watched by Wall Street and Hollywood because it provides insight into the strength of the advertising business and health of media companies that rely on the revenue. In addition, the anemic ad sales this summer could force TV show producers, many of whom have already trimmed their program budgets, to make even deeper cuts.
Wall Street analysts estimate that upfront sales of prime-time commercials could total $7.4 billion, down 15% from last year's nearly $9.2 billion.
In a recent report, Banc of America Securities-Merrill Lynch analyst Jessica Reif Cohen wrote that "the confluence of ratings declines, economic uncertainty, the Leno effect and limited visibility should make this year's upfront the most challenging of the past decade."
NBC's decision, for example, to move Jay Leno to 10 p.m. could cost the network $100 million in advertising revenue because the show is expected to get lower ratings than a scripted drama -- and thus command lower ad rates.
"We believe [the Leno move] should directly benefit CBS and ABC, as well as further accelerate the shift of viewers to cable networks," Cohen wrote. She added that CBS should be in the strongest position for the market because it was the only major English-language broadcaster to improve its prime-time ratings during the just-concluded TV season.
(NBC, however, will benefit through dramatically lower production costs by scheduling Leno across the 10 p.m. hour on weeknights instead of five costly dramas in that time slot).
Another hurdle comes from General Motors, which is expected to sharply curtail its advertising and sponsorships. Chrysler Group, which has just emerged from bankruptcy, is not planning to buy commercial time during the upfront, according to industry publication Advertising Age. In addition, traditionally free-spending Hollywood movie studios, which advertise heavily Tuesday through Thursday before weekend movie openings, have been trying to rein in marketing costs. That slackens demand from buyers for commercial time and weakens the hand of the networks, which have long relied on the studios to drive higher pricing.