09:57am EDT 8-May-00 Merrill Lynch Research
Up, Up and Away: The 2000/01 Upfront Marketplace
Reason for Report: Industry Update
Investment Highlights:
o The upfront television network marketplace is already underway and it appears to be hot. The upfront markets for syndication and kids are largely completed, and cable network upfront negotiations have started.
o In our opinion, the biggest beneficiaries of the hot upfront marketplace will be: Viacom (VIAB; $55 1/8; B-1-1-9), with an array of leading cable, broadcast and syndicated television properties; Disney (DIS; $39 7/8; A-2-1-9)with its growing ratings in cable and ABC television; FOX (FOX; $27 1/8; C-1-1- 9) with its broadcast, cable and syndicated properties; and Time Warner (TWX; $82 1/2; D-1-1-7) and Liberty (LMGA; $47 13/16; C-1-1-9), with their leading portfolios of cable networks. In the mid-cap area, the principal beneficiaries are USA Networks (USAI;$22 1/2; NR), TV Guide (TVGIA; $29; NR) and Paxson (PAX;
$8 1/8; NR).
o The upfront offers great visibility, as advertisers are making commitments that extend into September 2001 (subject to certain cancellation rights).
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 Powerful increases in the television network scatter market of 25% to 50% throughout the past year have set the stage for a very strong upfront marketplace.
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 network marketplace, both cable and broadcast, should benefit 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. Olympic advertising is sold separate from the upfront.
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.
The only complicating factor this year is the late start of the Sydney Summer Olympic Games airing on NBC. The Summer Games run September 15(**th) to October 1(**st). The broadcast year typically begins the third week of September. As a result, the first weeks of the new season will be disrupted by Olympic coverage, and Nielsen has opted to begin measurement of the new season on October 4(**th). NBC hopes to air over 600 hours of Olympic coverage on a variety of outlets, including NBC, MSNBC and CNBC. With the later start date, NBC's Olympics will take additional gross ratings points from its competitors.
In terms of the upfront, NBC will be selling two fewer weeks than the prior year, as Olympic dollars are sold separately from the primetime upfront. However, NBC, we believe, still has Olympic spots available, which are likely to be packaged with primetime entertainment inventory. Nonetheless, we are projecting a very bullish upfront, especially if one adjusts for the combined
primetime upfront and Olympic dollars.
We are projecting a 10% increase in total upfront dollar volume, or an increase of $7.0 billion $7.7 billion, on cost per thousand (cpm) increases of 10% to 15%. The biggest winner should be ABC, led by Who Wants to be a Millionaire and the network's 15% ratings gain in the current season. We are projecting a significant share shift, with ABC's primetime dollar volume rising from $1.6
billion to $2.0 billion, up 25%. The smash hit Who Wants to be a Millionaire did not debut until last August; it was a surprise hit, and as such did not affect ABC's 1999/00 upfront take. Under this scenario, we would again raise
our Disney estimates.
Based on our polling of networks and ad agencies, we believe that the broadcast networks are capable of achieving cost per thousand (CPM) gains of 10% to 15%,
with ABC at the high end and CBS, NBC and FOX at the low end of the range. Except for ABC, unit pricing gains should be somewhat lower than CPM gains, as we doubt that any network is guaranteeing higher audience levels, among the Big 4 networks.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). |
