Prices Up Effectiveness Down - Network TV and Auto Makers Will Showdown

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NEW YORK, May 11, 2004; Michele Gershberg writing for Reuters reported that top advertisers will fire warning shots next week in a showdown with U.S. television networks over buying commercial time, but their discontent over rising prices and falling ratings won't translate yet into a major shift of budgets, ad executives and media watchers said.

As a group, in surveys and through their media buyers, top ad spenders expressed outrage over steep price increases commanded by the top four networks during last year's upfront marketplace for buying commercial time.

"It would be a huge mistake to see the kind of crazy, 15 percent plus increases this year," John Rinek, director of media and agency management at automaker Nissan North America, told Reuters.

Few advertisers will elaborate on plans to trim their ad budgets at networks CBS, NBC, ABC or Fox during the 2004/2005 season. But some expect this year's upfront negotiations will mark the start of change for a decades-old business model.

"A number of companies are going to feel they have to show they are serious in not paying unconscionably high increases year after year," said Aaron Cohen, director of broadcast at media buyer Horizon Media. "There may be some people who will redirect some of their investment in order to send a message."

While broadcast TV still draws far larger audiences than other media, that grip is steadily slipping as viewers migrate to cable channels, video games and the Internet.

"We're going where the audiences are," said Rinek, adding that Nissan has invested more in cable for certain product lines, like its upscale Infiniti models, and raised online spending.

Nissan Motor Co. spent over $960 million on advertising last year, according to tracking firm TNS Media Intelligence/CMR.

Media analysts expect the television networks will on average reap single-digit price gains per ad unit. But total revenue could slide more than 2 percent to $9 billion, according to a forecast by industry commentator Jack Myers.

SLOW SHIFT

Myers, editor of media newsletter the Jack Myers Report, said initial wrangling was under way before official upfront presentations, with media buyers readying deals and hoping to close quickly despite the public posturing.

"There'll be a very quick initial surge of quiet deals and then I think the networks are going to play hardball," Myers said. It would take a surprise slide of 5 percent or more in total revenues to "look back at this year and say advertisers put their money where their mouths are."

Media buyers said they expect a gradual shift into diverse outlets rather than a watershed triggered by a few big spenders moving budgets. But clients will demand novel ways to reach consumers, using more than a traditional prime-time TV buy.

"The challenge I've leveled to broadcasters is how can you guys step up at this point and buck the trend?" said Richard Taylor, senior vice president of brand marketing at Internet service America Online, part of Time Warner Inc.

Perennial big spender General Motors Corp. which spent $2.49 billion in measured media last year -- said it raised ad budgets in 2004 to launch a bevy of new auto lines, but aimed to reaching consumers in unexpected ways.

"We're throwing more gas on the fire with more non-traditional media," Roger Adams, executive director of advertising and marketing at GM, told reporters last month.

Even General Electric Co., which owns the NBC network, took a big step into print and online ads this year for its "Imagination at Work" campaign to provide a unifying concept for diverse businesses -- from light bulbs to financial services -- in consumers' minds. The ads play on themes seen in the campaign's television commercials, including a popular Kung Fu-fighting version of Lassie the dog.

"We've done online advertising that may sometimes very directly follow from the television ad creatively, but other times takes it a little further and pushes the envelope," said Judy Hu, GE's executive director of advertising and branding.

"We feel strongly that the mix (of media) we've got is working," she said, adding that if further tracking showed "online advertising is more effective to a certain target audience, we will adjust the budget accordingly."