The Wall Street Journal reported that TV networks, advertisers, and ad buyers are all saying the upfront ad market will be strong this year. The writer’s strike lead to lots of speculation that the upfront would be scrapped or altered but it appears to be going on as usual. Not only is it going on as usual but it looks good.
In English, a strong upfront that means that advertisers will spend more than last year and will be paying a higher price per ad. Strength in this year’s market is not really surprising. Broadcast and cable TV networks have been selling ads for many months at a large premium to the prices paid in last year’s upfront. This is known as the scatter market. Higher prices this year in the upfront just reflect the pricing currently in the scatter marketplace. Also contributing to the anticipated strength is the fact the this was the second year in a row where scatter pricing was at a big premium to upfront. As a result, advertisers are anxious to lock in a greater amount of inventory than the past two years.
Of course, selling more inventory at higher prices for the upcoming fall TV season does not guarantee that the total TV advertising will grow vs. last season. Advertisers have the option to cancel upfront purchases and next season’s scatter market may be weaker than the upfront. Weak scatter in the 2008-09 season is more likely if the economy remains weak or weakens further. Several analysts have noted that advertising lags the economy going into a recession based on recent recessions. This means that current economic weakness won’t hurt TV ad markets until the summer or fall.
TV ad markets have been surprisingly strong over the last few months even as the economy has weakened. This has been evident in results reported from Disney, News, Corp, Viacom, and others. A strong upfront is certainly a positive as station and network owners hope to continue to buck the economic headwinds. I wouldn’t look for upside at individual companies due to the upfront but it does suggest that network owners have lower risk in their 2H08 financial performance. And that is a good thing if you are long DIS, NWS, CBS, VIA, SSP, TWX, or DISCA.