10:34am EDT 15-May-00 Merrill Lynch MEDIA-BROADCASTING:Upfront Dollars Begin to Flow
Reason for Report: Industry Update
Investment Highlights:
o The broadcast network upfront has broken early, ahead of the formal presentations of the fall primetime schedules to the advertising community. We have confirmed that NBC and CBS are getting cpm increases in the 11% to 15% range, as expected.
o The cable upfront is largely completed, with total advertising volume up 25% to 30%, in the aggregate.
o Powerful increases in the network scatter market of 25% to 50% throughout the past year have set the stage for a very strong upfront marketplace.
o The upfront offers great visibility, as advertisers are making commitments that extend into September 2001.
o The biggest beneficiaries of the hot upfront marketplace should be: Viacom (VIAB; $56; B-1-1-9), with an array of leading cable, broadcast and
syndicated television properties; Disney (DIS; $40; A-2-1-) with its growing ratings in cable and ABC television; FOX (FOX; $28; C-1-1-9) with its broadcast, cable and syndicated properties; and Time Warner (TWX; $81; D-1-1-7)
and Liberty (LMGA; $44; C-1-1-9), with their leading portfolios of cable networks. In the mid-cap area, the principal beneficiaries are USA Networks (USAI; $23; NR), TV Guide (TVGIA; $28; NR) and Paxson (PAX; $8; NR).
Fundamental Highlights:
o For broadcast television networks, we are projecting a 10+% increase in total upfront dollar volume, with the four-networks rising from $6.4 billion $7.0 billion, on estimated cost per thousand (cpm) increases of 10% to 15%.
o For cable television, we are projecting a 27% increase to $4.7 billion, or up $1 billion, in aggregate upfront advertising commitments.
o For syndicated television, we are projecting a 10% gain to $2.8 billion.
o ABC may be up 25% in total dollars, led by Millionaire.
o In the aggregate, audience delivery has been surprisingly strong, with three-network broadcast television up 2% season-to-date and basic cable up 5%.
Households using television (HUT) levels rose 1% last year.
Upfront Is Up, Up And Away
The broadcast network upfront has broken early, ahead of the formal presentations of the fall primetime schedules to the advertising community.
And, the cable upfront is largely completed, with total advertising volume up 25% to 30%, in the aggregate. We have confirmed that NBC and CBS are getting cpm increases in the 11% to 15% range, as expected. This week, broadcast
networks will present their respective 2000/01 primetime schedules to advertisers, the week of May 15(**th). Powerful increases in the network scatter market of 25% to 50% throughout the past year have set the stage for a
very strong upfront marketplace. The upfront offers great visibility, as advertisers are making commitments that extend into September 2001.
For broadcast television networks, we are projecting at least a 10% increase in total upfront dollar volume. We are estimating the four-network economy increases from $6.4 billion to $7.0 billion and the six-network total increases
from $7.0 billion to $7.7 billion, all on cost per thousand (cpm) increases of 10% to 15%. For cable television, we are projecting a 27% increase to $4.7 billion in aggregate upfront advertising commitments. For syndicated television, we are projecting a 10% gain to $2.8 billion.
The biggest beneficiaries of the hot upfront marketplace will be: Viacom (VIAB; B-1-1-9), with an array of leading cable, broadcast (CBS and UPN) and syndicated television properties; Disney (DIS; A-2-1-9) with its growing
ratings in cable and ABC television; FOX (C-1-1-9) with its broadcast and cable networks; and Time Warner (TWX; D-1-1-7) and Liberty (LMGA; C-1-1-9), with their leading portfolios of cable networks. In the mid-cap area, the principal beneficiaries are USA Networks (USAI; NR), TV Guide (TVGIA; NR) and Paxson (PAX; NR).
In the upfront market, in addition to price guarantees, advertisers get audience-delivery guarantees, time-slot guarantees and cancellation options (of up to 50% of the upfront buy in the last nine months of the broadcast year).
The cable marketplace typically occurs after the broadcast network upfront; but cable sales executives this year are trying to get ahead of the broadcasters in order to get a bigger piece of the upfront pie. Upfront advertising
commitments constitute approximately 75%-85% of all primetime advertising sold for the broadcast television year, running, in this case, from October 2000 to
September 2001.
The network marketplace, cable and broadcast, is benefiting from a number of factors in addition to strong scatter pricing. In the aggregate, audience delivery has been surprisingly strong, with three-network broadcast television
up 2% season-to-date and basic cable up 5%. Households using television (HUT) levels rose 1% last year and does not appear to be negatively affected by growing internet usage. Pharmaceutical, wired and wireless telecom, and
financial are all strong categories. Dot-com advertising also was not a significant factor in the 1999/00 upfront. This year, however, we expect several top-tier dot-com companies, including Priceline, Ameritrade, E-Trade
and Yahoo, among others, to emerge as significant upfront players. Another emergent category is wireless telecom, as consolidation has created several new national wireless carriers, with vigorous national advertising campaigns.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S).
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