25-May-00
The 2000/01 Upfront: Exceeding High Expectations
Investment Highlights:
o The broadcast network upfront is booming, with total dollars approaching
$8bn, ahead of expectations. The Big-Four networks should complete their
upfront selling activity by Friday of this week.
o ABC is likely to be the top-biller, taking in an estimated $2.3bn in
upfront commitments, up from $1.7bn a year ago, based on CPM gains of 18%-20%,
and driven by the success of Who Wants to be a Millionaire.
o NBC may be near $2.2bn, up from $2.1bn last year, with CPM gains of 15%-
17%, helped by its Olympic Summer Games and XFL broadcasts.
o CBS is estimated to be $1.6bn, up from $1.35bn a year ago, with CPM gains
of 15%-17%, aided by its well-received upfront presentation to advertisers.
o FOX is projected to be near $1.3 billion, with CPM gains of 15%-17%.
o WB wrote approximately $0.425bn, down from last year's $0.45bn. Estimated
CPM gains of 20%-25% were offset by lower ratings.
o UPN is expected to be $0.2bn, up from $0.15bn.
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 will be: Viacom
(VIAB; $53; B-1-1-9), with an array of leading cable, broadcast and syndicated
television properties; Disney (DIS; $39; A-2-1-7) with its growing ratings in
cable and ABC television; FOX (FOX; $25; C-1-1-9) with its broadcast, cable and
syndicated properties; and Time Warner (TWX; $74; D-1-1-7) and Liberty (LMGA;
$39; C-1-1-9), with their leading portfolios of cable networks.
Fundamental Highlights:
o In the aggregate, audience delivery was surprisingly strong for the now
completed 1999/00 broadcast season (the 35 weeks from September to May), 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 is booming, with total dollars approaching $8bn,
ahead of our earlier expectations of $7.7bn. The Big-Four networks should
complete their upfront selling activity by Friday of this week. The upfront
offers great visibility, as advertisers are making commitments that extend into
September 2001.
ABC is likely to be the top-biller, taking in an estimated $2.3bn in upfront
commitments, up from $1.7bn a year ago, based on CPM gains of 18%-20%, and
driven by the success of Who Wants to be a Millionaire.
NBC may be near $2.2bn, up from $2.1bn last year, with CPM gains of 15%-17%,
helped by its Olympic Summer Games broadcast, as well as new XFL coverage.
CBS is estimated to be $1.6bn, up from $1.35bn a year ago, with CPM gains of
15%-17%, aided by its well-received upfront presentation to advertisers. A big
jump in pharmaceutical advertising plays toward CBS's older demographic
delivery.
FOX is projected to be near $1.3 billion, with CPM gains of 15%-17%. Ratings
were helped at mid-season by the debut of Malcolm in the Middle.
WB wrote approximately $0.425bn, down from last year's $0.45bn. Estimated CPM
gains of 20%-25% were offset by lower ratings.
UPN is expected to be $0.2bn, up from $0.15bn.
The biggest beneficiaries of the hot upfront marketplace will be: Viacom (VIAB;
$53; B-1-1-9), with an array of leading cable, broadcast and syndicated
television properties; Disney (DIS; $39; A-2-1-7) with its growing ratings in
cable and ABC television; FOX (FOX; $25; C-1-1-9) with its broadcast, cable and
syndicated properties; and Time Warner (TWX; $74; D-1-1-7) and Liberty (LMGA;
$39; 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).
Upfront Advertising Projections
Chg Chg
2000/01 1999/00 Gross $ CPM
ABC 2.30 1.70 35% 19%
CBS 1.50 1.35 11% 16%
NBC 2.20 2.10 5% 16%
FOX 1.30 1.25 4% 16%
4-Net 7.30 6.40 14%
UPN 0.17 0.13 36% 25%
WB 0.43 0.45 -6% 25%
6-Net 7.90 6.98 13%
Source: Merrill Lynch estimates
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 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, entertainment, 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.
Merrill Lynch is acting as a financial advisor to America Online Inc., in
connection with its acquisition of Time Warner Inc., announced on January 10,
2000. America Online has agreed to pay a fee to Merrill Lynch for its
financial advisory services.
(FOX, TWX, BLC, ACME) MLPF&S was a manager of the most recent public offering
of securities of this company within the last three years.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). |
