TV's $9 billion spring fling

NEW YORK (CNNMoney.com) -- Ahhh spring. With apologies to Lord Alfred Tennyson, it's a time when many a TV executive's fancy lightly turns to thoughts of advertising dollars.

Next month, the major TV networks will hold their so-called upfront presentations, a spring mating ritual where broadcasters woo marketers by showcasing the programming on their upcoming fall schedules.

"Heroes" has been a big hit for NBC but that hasn't been enough to save the Peacock Network from another dismal season.

Fox is on track to win the ratings battle for the most coveted demographic for the third straight year thanks to the continued success of reality juggenaut "American Idol."

Last year, according to various estimates, the six national networks --News Corp.'s (Charts, Fortune 500) Fox and the new MyNetwork TV, Walt Disney (Charts, Fortune 500)-owned ABC, GE's (Charts, Fortune 500) NBC, CBS (Charts, Fortune 500) and the CW, which is jointly owned by CBS and CNNMoney.com's parent company Time Warner (Charts, Fortune 500), took in about $9 billion in upfront advertising sales, down from around $9.1 billion in 2005.

It's uncertain whether or not broadcasters will be able to boost their tally this year. But even if they do, many in the industry wonder if the networks, like the line in the Bruce Springsteen song goes, have let the glory days pass them by.

"Demand for TV time will be strong this year. We're probably looking at similar demand as a year ago. But it won't be the kind of growth that we saw earlier in the decade," said Harry Keeshan, executive vice president of national broadcast with PHD, a media buying and planning firm in New York.

Broadcasters set a record with $9.3 billion in advertising sales during the 2003 upfronts. But in the past few years, technology has wreaked havoc on the industry, as more viewers are using TiVos (Charts) or other digital video recorders to fast forward through commercials.

Although TV ratings tracker Nielsen Media Research counts people who watch TV shows within a week via their DVR, a figure known as "live-plus" ratings, advertisers prefer the so-called "live" ratings figure, i.e. people who watch the show the night it aired.

Marketers balked last year at paying for commercials based on "live-plus" numbers. That may happen again. At the very least, media buyers expect tough negotiations between the networks and advertisers.

"The evolving dynamics in the media landscape as well as the new opportunities in media measurement mean that this year's upfront will be more complex and more important than ever," said John Rash, senior vice president and director of media negotiations with Campbell Mithun, a media buying firm based in Minneapolis.

The marketers' argument is that people watching on a DVR aren't as valuable to them since they are probably skipping their ads. For this reason, Nielsen has been in the process of developing commercial ratings data for networks and advertisers. These ratings were supposed to debut in the fall of 2006 but have been delayed until the end of May.

"The issue that I don't believe has been resolved is exactly what currency we're going to use for negotiating deals, which ratings will be the standard," said Bill Carroll, a vice president and director of programming with Katz Television Group, a consulting and media buying firm based in New York.

"It doesn't appear that commercial ratings will be the way things are judged this go-around but the debate will be over whether ratings should include delayed airings or be based on live ratings," he added.

In addition to DVRs, more and more viewers are flocking to the Internet, sites like Google's (Charts, Fortune 500) YouTube, for entertainment. So far this TV season, ratings, as measured both by total households and in the key 18-49 demographic which advertisers crave, are down at each network except Fox.

To combat this, the networks are making much of their programming available online for free with ads embedded in the video streams. So that, some say, could open up a lucrative new revenue stream for the broadcasters.

Hamet Watt, chief executive officer of NextMedium, a privately held firm based in Los Angeles that works on alternative advertising strategies, said he expects marketers and networks to discuss more non-traditional advertising opportunities like digital video and so-called "in content" advertising, i.e. product placement.

"There is going to be a tremendous focus on not just branded integration but interactive extensions during this year's upfront," Watt said.

"The DVR phenomenon is an obvious push to make advertisers and networks think more aggressively. But there also could be a growing realization that people are tuning out ads even without the use of technology. More broadly, we're not as interested in being overtly sold," Watt added.

Still, Watt said that in many respects, the upfronts won't change that much. Advertisers might be looking for new ways to raise awareness for their products but they will continue to do so by focusing on the most popular programs or ones with desirable demographics.

To that end, Katz's Carroll said that Fox is likely to be the big winner in this year's upfront and could wind up seeing an increase from last year's take of about $1.8 billion in upfront sales.

The network is on track to finish this season in first place among 18-49 year-olds for the third consecutive year, thanks largely to the ratings success of "American Idol."

CBS, which is currently in first place in total viewers and second place with 18-49 year-olds, will probably hold steady in terms of upfront ad sales, Carroll said. CBS sold about $2.4 billion in ads last spring.

But he thinks ABC and NBC may face some challenges. ABC has seen a big ratings decline in the 18-49 demographic this season after a hot start in the fall. ABC brought in about $2.3 billion in upfront sales a year ago.

And NBC, despite new hit "Heroes" and the success of Sunday night National Football League telecasts, remains in fourth place with both total viewers and 18-49 year olds. According to weekly ratings figures from Nielsen, NBC hit a nearly 20-year low in total viewers two weeks ago and another new low last week. The network took in about $1.9 billion in upfront ad sales last year.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan.