TV nets, ad buyers face shaky future at upfronts.

As they have done for years, this May, the U.S. broadcast networks will once again present their new line-up of primetime shows to an audience of hungry ad buyers. But this year's edition of the traditional advertiser/advertisee institution faces quite a few changes and unanswered questions, the most pertinent among them being the effect of new TV network the CW -and of the limited-reach Fox-owned, MyNetworkTV *--on TV ratings and ad dollars, as well as the relevance of DVR ratings when working out the ratings-to-ad-dollar equation.

Last year's broadcast network upfronts brought in $9 billion in ad sales revenue, accounting for almost half of the year's total ad spends. Thanks to a smaller-than-feared increase in broadcast advertising prices, and a larger-than-expected increase in cable advertising prices, the dreaded exodus to cable that net heads had so feverishly feared never became a reality. But this year, the loss of two networks--the WB and the UPN--and the creation of two new channels in their place--the Warner Bros./CBS Corp. hybrid, the CW, and the Fox-owned MyNetworkTV--could alter the market drastically.

Now that the UPN and WB will no longer claim ad dollars, the question of where that "18-34 age group money" will go remains unanswered. Most experts say the money will likely gravitate toward cable and the Internet, as younger audiences continue to move away from traditional TV. "There are so many opportunities out there to reach younger viewers, that you may start to see some dollars that would have been earmarked for network TV going to other communication channels," said Brad Adgate, svp, Corporate Research director of marketing-driven media services company Horizon Media.

Adgate was doubtful that the loss of the two younger-skewing nets will give the other nets a huge boost. Part of the reason is that the UPN and WB together only accounted for 10 percent of the total money spent at the upfronts last year, and divided between the other nets, that's not a whole lot of money. Another issue is that the major networks are geared toward an older demo. "[The other nets] all have median ages that skew much higher than the WB and UPN. Fox might get a few extra dollars for its Sunday night animated block," Adgate suggested.

"If the dollars are going to stay on television, they are going to go to cable or syndication," Adgate predicted. "Otherwise, they'll go outside of traditional television to broadband television." He added, "It'll probably have an impact on Internet advertising, since a lot of youth-targeted networks, like MTV and E!, are providing content on the Internet."

On the ad buyer side, Andy Donchin, evp and director, National Broadcasting at ad-buying company Carat USA, said, "The combined total income of the UPN and the WB can't be absorbed by one network [the CW], and that being the case, the question is, what do we do with the money that we're not spending on those networks?

"I'm sure there are a lot of cable networks--and a second Fox network--that would like to get some of that younger-skewing money. It could also go to the other broadcast networks."

Mitch Burg, president of the Syndicated Network Television Association, stressed the likelihood that a good amount of the up-for-grabs money will go to syndication. "The loss of the WB and UPN provides new reason for people to take a look at syndication." Burg pointed out that the two audiences the WB and UPN reached best--the youth market and the minority demographic--are also targeted by syndication. "Our age averages are lower than the nets and we have a great number of programs that appeal to ethnic audiences; we have every reason to believe syndication should benefit [from the loss of the two nets]." Burg explained that the $3 billion annual syndication upfronts work very much like the nets' upfronts, where agencies register their budgets in sequential ways. But, he said, one difference is that ad buying tends to be more program specific when it comes to syndication.

As for the CW's upfront future, experts seemed unsure. "There will be a stronger program line-up because they are going to have program development from two networks to choose from in order to make up 13 hours of primetime programming," Adgate said. "I think overall the programs will be better, but I don't think you'll be able to double the ratings. The ratings aren't going to double, so then how can you double the rates?" asked Brad Adgate rhetorically.

According to Carat's Donchin, "We still have to determine how much we can spend on the CW, we have to see what the programming is, we have to see what the network looks like. I don't want to just assume that we're going to spend as much as we can. I think everyone's in agreement that having a strong fifth network is better than having two less strong networks, we're all behind that. We just want to see what kind of programming it is."

Yet another issue causing furrowed eyebrows at this year's advertising market is whether or not DVR playback numbers should be taken into account when advertisers decide where to allot their money. The penetration of DVRs in U.S. households stands somewhere between seven and 10 percent, with pundits expecting that number to increase to about 40 percent in a decade.

But, if Nielsen's ratings measurements are any indication of advertiser actions (and they usually are), ad buyers (and, therefore, networks, too) are starting to recognize the existence of DVRs. In late December, Nielsen began dividing its ratings measurements into three categories: live (traditional); live plus 24 hours (counting how many people watched a show within 24 hours of recording it on DVR); and live plus seven days.

Unlike VCR numbers (which ad buyers now take into account when deciding how they'll dole out their money) that only count recording, DVRs offer more specific data. "The value placed on VCRs is in the recording. If you're recording a show, that counts as a program rating--even if you never play it back or play it back 100 times. This is the first time Nielsen is measuring minute-by-minute programming playback," said Adgate.

The networks have shown an almost universal reluctance to charge for DVR numbers ... or at least to admit that they do. One network exec--who chose to remain anonymous--suggested that more networks are doing it than meets the eye. And the fact that almost every network chose not to speak on the record, but rather to "discuss the options with ad buyers," seems to support that theory.

So far, ABC is the only net that has been vocal about its decision to count DVR ratings and use a live plus seven days system when charging clients. Of course, ABC'S willingness to embrace DVR numbers can probably be attributed to the fact that a good number of the most-recorded shows air on ABC.

"You are starting to see broadcasters and buyers putting lines through the sand about the value of DVR playback," said Adgate. "This is just the opening of negotiations among advertisers."

Carat's Donchin stressed the importance of getting everyone on the same page when it comes to the DVR assessment issue. "We would very much like to have an industry-wide consensus on how we should approach this as we move into the '06-'07 upfront. Right now you have a lot of diverse opinions, not only between the agencies and the sales side, but also within the sales side, within the agencies.

"There are a lot of questions about it. Obviously DVRs are used as commercial avoidance machines, so the question is how valuable that is to advertisers. Also, there's doubt as to how effective a seven-day playback measurement is for very time sensitive clients. I'm not taking a side on it, I'm just saying that there are a lot of questions," Donchin stressed.

"We're just stating our position for what we think is fair. TV is under scrutiny right now, every client is asking us to put a value on television. We are being held to a much higher degree of return-on-investment and accountability, so that we can make sure whatever we tell them they are getting, they truly are getting," Donchin said. "I am still a big believer in the power of network television and want us all to come to an agreement, so that we can maintain this medium."

And the question of who will be the winner at this year's upfronts--and claim the biggest bounty for themselves--still seems up for grabs. "It'll come down to who's the top rated," said Adgate. "Last year, everyone thought ABC would ask for major hikes, but surprisingly, they didn't. Every upfront is different. It could be ABC, CBS or FOX. Dollars will probably shift to cable and Spanish-language TV, and syndication will do alright cause they've had remarkably solid ratings despite all this fractionalization."

* While the Fox-owned network will undoubtedly cause a stir in the upfront game, at press time, the issue of whether or not the net would have an upfront was still being discussed, and the network's coverage across the U.S. was still small. So, the focus for this story remains on the CW.