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May 16, 2008

TV Upfront Season Poses Long-Term Risks

The broadcast TV networks made their upfront presentations this week. As I've written before, this year's upfront is going to be problematical for the broadcast networks (ABC/Disney, CBS, FOX/News Corp, and NBC/General Electric). During the upfront, the networks sell advertising time for the upcoming TV season, in this case the 2008-09 season that begins in September.

I don’t think the upfront is tradable on a short-term basis but trends established as ad sales are completed over the next month definitely have ramifications for the stocks of broadcast and cable networks owners over the next six months and into 2009.

The combination of very poor ratings, the writer's strike, and the weak economy makes this a bad time for the broadcast networks to be selling advertising. Most observers expect the upfront to be down this year which means revenue is less predictable for the owners of the networks. Raising the risk further is the possibility that in order to generate greater upfront sales the networks may liberalize cancellation terms.

The pain to the broadcast network owners will be somewhat mitigated by what is expected to be a good upfront for cable networks. Cable networks have gained in ratings and their narrow genres translate better online. Broadcast and cable networks are both packaging online ads with TV ads. One caveat is that if the most cautious views of the broadcast upfront come true (down mid-teens), even the cable networks will suffer from spillover.

Among the broadcast network owners....

....Disney gets relief thanks to strength at its cable networks. ESPN continues to produce strong ratings especially and more sponsorship/promotion spending at the Disney Channel also will provide a boost.

News Corp also probably doesn't have much to worry about thanks to the leading ratings performance from FOX. Idol may no longer be a growth engine but FOX broadened success across its nightly schedule and gets hit show 24 back next season.

CBS has problems. Ratings stink. Long-time favorites like CSI, Cold Case, and Survivor are down more than 20% this year. CBS acknowledged that crime may no longer pay when it unveiled six new shows and a comedy heavy lineup at is upfront presentation.

Pure play cable network companies are better positioned. Winners include Viacom, Time Warner, Discovery Communications, and EW Scripps.

Posted by Steve Birenberg at May 16, 2008 09:50 AM in Media