Strike Could Cost Networks $600 Million in Ad Revenues. Where Will It Go?

www.JackMyers.com: As broadcast networks experience a sold-out inventory situation and in the event of a continued writers' strike, what media will advertisers turn to? As the Writers Guild of Americastrike moves into a pivotal week (both sides have agreed to re-open negotiations), marketers have begun asking their media agencies for recommendations on alternative strategies in the event there is no settlement. In the past, advertisers would double down their bet in the face of network ratings erosion. There is no comparable precedent, but historical context would suggest the most viable alternative is simply buying more broadcast network inventory to compensate for lost ratings. This year, however, that's not a viable option. Network inventory is virtually sold out. Broadcast networks are experiencing continuing erosion (8% among adults 18 to 49 this season to date) and networks still have audience deficiency units (ADU) due from last season's under delivery.

So where are advertisers likely to turn, and are they likely to exercise "options," those little-used agreements allowing advertisers to "opt-out" of a percentage of their commitments made during Upfront negotiations, provided they give advance notice. In recent years the few options have been exercised and advertisers have lined up to acquire any quality inventory that became available. Even in the event of significant options taken, networks will need that inventory for ADUs.

If the strike continues past mid-January (which it will if no progress is made in the next three weeks), marketers will be confronted by a clear challenge. In the face of inevitable broadcast network erosion and an inability to acquire compensating make-up inventory from the networks, will they at least keep what they have, or opt-out of their Upfront commitments in search of more efficient alternatives? The majority will keep what they have, avoiding an economic disaster for the networks. But if they opt-out and need to further compensate for lost network ratings, how much of their budgets will they shift and where will they go?

Their first option will be programming that is least impacted by writers, including news, sports and reality programming, where available. Since the Upfront markets were strong, little of the highest quality inventory remains available during peak advertising seasons. The next option would be cable, but much of the quality inventory marketers would want is also impacted by the writers' strike or has already been purchased. Advertisers also place frequency limitations on their commitments to individual networks and network categories. So while cable can expect an infusion of money, it will not be as much as the industry might hope for. Jack Myers Media Business Report currently forecasts cable network 2008 ad spending growth at 7.0% and broadcast network growth at 3.2%. A sustained strike into next Summer would reduce 2008 network ad revenues to flat (losses will be offset by reduced production costs) and increase cable revenues to an estimated 8.0%. The 3.2% gains that will be lost by broadcasters represent slightly more than $600 million. Cable will gain an estimated $175 to $250 million. That leaves $350 to $425 million up for grabs. Assuming advertisers decide to recapture some of that spending and move it to the bottom line in a softening economy, there will be a shift of an additional $300 to $400 million ad dollars in play for 2008 after cable takes its share. National TV syndication will take as much as it can, but probably no more than $20 to $30 million. Spanish language television networks Univision and Telemundo (plus other Spanish-language media) will also be a first-line alternative for media agencies.

According to new Myers Emotional Connections™ Research on Audience Attentiveness to Advertising (measuring 63 different media types), newspapers offer the highest value in terms of audience attentiveness to advertising. More than 50% of Myers' respondents who read newspapers say they are likely to pay attention to advertising messages in their daily newspaper. Newspapers also offer flexibility and are more appreciated by marketers in tough economic times. Cinema advertising through National Cinemedia and Screenvision are likely to become quickly sold-out at higher rates. In the Myers Attentiveness Study, cinema pre-movie video delivers higher attentiveness to advertising than all other media types except newspapers and Spanish-language media.

Advertisers are also likely to turn to emerging placed-based and out-of-home digital video options such as elevator and office building video, retail in-store video, and public video kiosks. Videogame advertising is likely to witness an infusion of investments for major game releases throughout 2008. Radio is also well positioned to be a beneficiary, with music, news, news talk and sports-talk stations delivering the highest ad attentiveness levels. Among 25 television programming genres measured, live professional sports delivers the highest rate of ad attentiveness (35% among adults 18 to 49 and 40% among males 18 to 49). Ranking second are local TV station newscasts, which can also expect an infusion of ad spending. If signs appear in the first quarter that the strike is likely to continue, magazines are likely to see gains.

For all 25 TV categories, the average percentage of the 18 to 49 audience who say they are "likely to pay attention to advertising" is 28%. Thirty-two percent say they are attentive to advertising in prime time drama series; 31% are attentive to ads in situation comedies. The full Myers Emotional Connections™ Research on Audience Attentiveness to Advertising will be delivered to underwriters later this week and is available at JackMyers.com. The full research methodology is also available at no cost.

Myers 2007 Emotional Connections™
Research on Audience Attentiveness to Advertising
Based on a Study of 8,000 Americans Aged 15 to 64
% of Respondents who Use Each Medium saying They are Likely to Pay Attention to Advertising Messages (5/6/7 on 7 pt. scale). Parentheses note number of media options measured within each category)

Source: Myers Emotional Connections Research on Audience Attentiveness to Advertising, conducted online June 2007 by OTX. 8,000 respondents 15 to 64 in multichannel homes with 60+ TV channels and viewing TV at least one hour per day.