Warning Lights On Over TV Ad Rates

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 price hikes commanded by the top four networks during last year’s “upfront” market, when commercial time is sold.

“It would be a huge mistake to see the kind of crazy, 15%-plus increases this year,” said John Rinek, director of media and agency management at automaker Nissan North America.

Few advertisers will elaborate on plans to trim their ad budgets at networks CBS, NBC, ABC or Fox during the 2004-05 season. But some expect that this year’s upfront negotiations will mark the start of a change in business.

“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 Inc. “There may be some people who will redirect some of their investment in order to send a message.”

Broadcast TV draws far larger audiences than other media, but that grip is 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, such as its upscale Infiniti models, and raised online spending.

Nissan Motor Co. spent more than $960 million on advertising last year, tracking firm TNS Media Intelligence/CMR said.

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

Myers, editor of media newsletter the Jack Myers Report, said wrangling was underway before official 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% 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 expected a gradual shift to 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 Time Warner Inc. unit America Online.