Neck And Neck At The Networks

Twenty million American households tuned in last week to see J. R. Ewing slither off into the land of reruns. It was truly a last gasp: Most viewers had stopped watching Dallas years ago. Indeed, the CBS series had dropped so far in the ratings that by his 356th and final episode, J. R. had become less pop icon than hardy relic.

Uncharitable sorts might say the same about his network: CBS Inc. and its two chief rivals surely are past their prime, too. But unlike J. R., they're still in business. When it comes to selling ads, CBS, NBC, and ABC have been able to extract hefty rate increases from advertisers even though their share of total TV revenues keeps eroding (chart).

FOX FACTOR. That, too, is now history. The lingering recession and a lackluster prime-time season have robbed the nets of their usual sway over advertisers. As they sell ad time for the 1991-92 season, the networks are adjusting to a new reality: Where once they reigned supreme, they must now battle with Fox Broadcasting Co. and other media for their ad dollars. The early word on the market for next season's ad time? It's "a looming disaster for the networks," says top media buyer Gene DeWitt.

The president of DeWitt Media recently canvassed 75 companies about their spending plans. He found that more than 60% will spend the same or less than they did last year. Only 4% plan to spend more. Several other media buyers say Chrysler Corp. and Apple Computer Inc. may skip the buying season altogether. Both companies say it's too soon to tell. By buying ad time piecemeal once the season gets under way, they may be aiming to get better deals. For these advertisers and others, the networks' plight could have a long-term impact on the way they promote their products.

A series of trends have coalesced to give advertisers the upper hand over the Big Three nets. For one thing, viewership continues to shrink: In 1990, the three networks lost an additional two percentage points of prime-time TV audience. Network share is now 63%, vs. 91% in 1979. All by itself, Fox has grabbed 11% of the prime-time audience.

Fleeing viewers may be an old refrain, but consider this new riff: The networks finished last season's prime-time ratings race in a virtual dead heat. That means a potentially profit-nipping dogfight to win advertisers. Says Peter Lund, executive vice-president of CBS Broadcast Group: "Parity works to the advertisers' advantage because there is no one network to drive pricing."

And there's more: Several mega-advertisers, including Nestle and Grand Metropolitan PLC, recently consolidated their media buying at one ad agency. McCann-Erickson Worldwide will place $250 million to $300 million worth of advertising for Nestle. The upshot, say media buyers and network executives, is that these agencies will have unprecedented clout in negotiating rates.

Add it all up, and CBS, NBC, and ABC must race uphill just to win as much business as they got last year. The networks count on advance ad sales for much of their revenue. Last year, they raked in $3.8 billion, or 75% of their total prime-time ad revenue, in the so-called up-front buying season, which extends through June. Fox, which expanded to five nights of programming last fall, snared roughly $500 million. This year's up-front market could earn the four networks $200 million to $400 million less, according to several media buyers.

These demons are conspiring at an especially bad time. The recession and the gulf war have already hammered profits. First-quarter earnings at CBS and Capital Cities/ABC Inc. plunged 73% and 45%, respectively. CBS, whose Chairman Laurence A. Tisch now admits that he paid too much for his $1.06 billion, four-year contract with Major League baseball, says its TV network will lose money for the entire year. ABC and NBC will eke out a profit. Still, NBC Inc. says the war alone cost $55 million--half in news costs and half in lost ad revenue.

SCRAMBLING. All this is a far cry from a year ago. Last May, the networks irked advertisers by abandoning the practice of tying ad rates to A. C. Nielsen Co.'s measures of viewership. Advertisers charged that the networks were gouging them and threatened to spend their money elsewhere. But when push came to shove, they coughed up a record $4.25 billion in up-front revenue. NBC and CBS have since reinstated the Nielsen guarantees, and ABC is expected to adhere to them as well.

But advertisers who spent big last year now are retrenching. General Motors Corp., hooked on such standby hits as The Cosby Show and Cheers, in 1990 signed a $500 million, multiyear deal with NBC. Rival network executives say the auto giant is asking NBC to lower its rates because of its weakening ratings. GM won't comment, but NBC acknowledges that it may have to renegotiate the deal.

Media buyers are also chary of NBC's once golden programming record: Only two of the nine shows it introduced last September are still on the air. Programming guru Brandon Tartikoff's departure to run Paramount Pictures has only deepened those concerns. ABC's programming record is not much better--four new shows, one survivor--but it now has the most youthful demographics of the three. And hopes are high for ABC's Dinosaurs, a program designed to appeal to younger viewers. CBS, while still last in the ratings, stands to fare the best in negotiating ad rates, since it was the only one to boost its audience. All three networks will announce their new prime-time programming schedules at the end of May.

Meantime, the networks are scrambling to stay competitive in other ways. CBS's Lund says he is more willing to sell advertisers packages that include several sports events. They're also fashioning long-term deals and tie-ins such as the CBS joint promotion with K mart Corp. Says Lund: "Advertisers used to deal with three pretty arrogant characters. We're becoming more responsive."

Tough times also are prompting advertisers to experiment with other, cheaper media. If these tests prove effective, the networks could be left out even after marketing budgets start growing again. GM, for example, recently signed a deal with Turner Broadcasting System Inc. to place commercials on TV monitors in airport waiting lounges. If the ads work, the carmaker will spend more money from its network budget on them, according to Philip Guarascio, GM's executive director of advertising services. He worries that declining revenues could jeopardize the networks: "Less revenue leads to worse programming, which leads to loss of audience, which leads to less revenue. You wonder where the cycle ends."

For some network veterans, it ends with a tactical retreat. Jerry Dominus last month resigned from CBS after 25 years as its top ad salesman. Now, as a senior vice-president at J. Walter Thompson, he's buying network ads for clients such as Unilever and Eastman Kodak. Explains Dominus: "My daughter talks about the four networks in a way that tells me she never knew there used to be only three." Advertisers are fast forgetting those days, too.

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