Four years ago, CBS, ABC, NBC and Fox collectively sold a record $9.3 billion in upfront ad time and a total $16.7 billion in ad revenues.
This year's advertising rebound will simply help the Big 4 broadcast networks claw their way back from a 20 percent decline in upfront sales a year ago during the depths of the recession. Upfront ad sales in 2009 plummeted to $7.2 billion and full-year broadcast network advertising barely cleared $14 billion, according to analysts.
The real news will be when -- or if -- broadcast network ad revenues will organically grow again in a transformed and fragmented media market. Bouncing off last year's bottom is not the same as real growth.
Streaming video and other nascent digital businesses are single digits revenue sources as the networks continue learning from online ventures such as Hulu.com (co-owned by NBC, ABC and Fox) and CBS' TV.com. Their only notable non-advertising revenues come from retransmission fees paid by cable operators.
The Big 4 remain advertising dependent even as they continue losing an average annual 6.5 percent of audience as consumers increasingly bypass appointment television to view video on mobile Internet devices whenever they want. The broadcast networks can only hope to command mega prices and audiences for events such as the Super Bowl, the Academy Awards and the upcoming 24 finale, when one 30-second commercial could go for $650,000.
Just how well CBS, ABC, NBC and Fox make out financially from their upfront ad sales in May and June for new fall programming depends on pricing, percentage of total inventory and ratings guarantees negotiated with marketers. Advertisers are all too eager these days to spend their money on new media which provides more accurate, accountable user measurement. Still, the Big 4 will stage their usual Hollywood-styled productions for Madison Avenue the week of May 17 to laud new fall prime time series, a majority of which will be canceled within months of their premiere.
The networks' parent companies - News Corp. (Fox), General Electric (NBC), Walt Disney (ABC) and CBS - will continue boasting in their quarterly earnings calls this week about the thriving broadcast TV business even though most US companies' current results are booming compared with last year's disastrous numbers.
In fact, these media conglomerates have been betting against the broadcast business more than a decade, buying and building cable networks which now generate more buzz and profits.
Credit Suisse analyst Spencer Wang predicts cable networks will sell $8.2 billion in upfront advertising this spring compared with $8.7 billion for the broadcast networks.
Cable networks will grow advertising revenues at a steady, albeit slower rate of more than 5 percent annually while continuing to rely mostly on subscription fees. The best the broadcast networks can hope for in the future is flat to low single digital ad growth, analysts say.
In fact, Wang predicts that total 2010 advertising revenues for CBS, ABC, NBC and Fox will collectively decline 10 percent to $14.7 billion, about $8.7 billion of which will be sold upfront. Even without the benefit of political election and Olympic spending in 2011, broadcast network ad revenues could top $15 billion.
Needham analyst Laura Martin estimates $160 billion in advertising spending and more than $800 billion in corporate enterprise value are at stake for media players as values shift from traditional media to online, mobile and social media.
On the strong chance the broadcast networks will never regain their financial footing, the Big 4 had best reinvent their business model before they lose it all to the changing orientation of advertising dollars and audiences. Here are eight ways how:
- Price and sell programs on demand across all media platforms
- Reserve digital broadcasting for premium-priced live events including sports and awards shows.
- Accelerate interactive television on all screens by integrating social media and give consumers what they want.
- Reinvent advertising by offering marketers the opportunity to simultaneously pitch and sell their goods and services by combining commercials and e-commerce.
- Require program producers to create interactive video for mobile Internet and social media adoption.
- Loosely employ a continuous Google-like advertising auction for the pricing and placement of commercials across all digital broadcast, online, mobile and social platforms.
- Begin charging consumers for sneak previews of hotly anticipated new series, premier and finale episodes, and made-for-TV events for all devices.
- Stop thinking of themselves as being tethered to TV. Consumers increasingly view all video interchangeably on lap tops, smart phones and other connected mobile devices. Video is part of a universal interactive experience. Even now, a lot of people are asking, what the heck is a TV set?!