Premium Prices Charged for Limited Spots on Popular Series Like ‘Fringe’ Weren’t Enough to Avert a Revenue Shortfall
Viewers of the sci-fi series “Fringe” will soon have to watch something even scarier than brains leaking out of people’s ears: more commercials.
Fox Broadcasting decided this week to discontinue its year-old strategy of regularly airing fewer advertisements, at higher prices, during some TV shows, Fox executives say.
“Fringe,” one of the series in which the approach was tested, will for the most part air a normal complement of ads beginning next season. Fox is a unit of News Corp., which also owns The Wall Street Journal.
The decision comes as Fox and its broadcast-TV rivals gird for broader battles with advertisers over rates in the “upfront” ad-sales marketplace, where broadcast networks traditionally sell about three-quarters of their ad inventory for the coming TV season.
In recent weeks, analysts have predicted that the upfront marketplace could shrink 15%, as slack consumer spending encourages advertisers keep a tight hold on their purse-strings.
Fox’s experiment with airing full seasons of shows with fewer ads, dubbed “Remote-Free TV,” was one of the industry’s more ambitious attempts to combat ad clutter and keep viewers from zapping through commercials.
Some advertisers paid premiums of 40% or more for the spots, according to ad buyers and network executives. But the prices weren’t high enough to match what Fox would have made selling more ads at standard prices, says Jon Nesvig, Fox’s president of ad sales.
“Advertisers liked it,” Mr. Nesvig says. “But it doesn’t seem to be economically viable in a year where there is the emphasis on price that there seems to be.”
Still, Fox plans to use the strategy in limited instances, such as for special events or premieres, a network spokeswoman says.
In the upfront market, meanwhile, the face-off over prices has already started. Jon Moeller, chief financial officer for Procter & Gamble, one of the nation’s biggest advertisers, said in an April 30 earnings conference call that the current climate provides “an opportunity to increase share of voice” while “spending fewer dollars in the absolute.” Some analysts have predicted prices on broadcast networks could decline between 1% and 5%.
Network executives, including CBS Corp. Chief Executive Leslie Moonves, have said publicly that they could hold the line on prices by waiting to sell more ads in the “scatter” market for commercials sold close to airtime, reducing upfront supply. Fox’s Mr. Nesvig says that is also an option for Fox.
“We can’t afford to start out the year at those kinds of price levels,” he says.
If broadcast networks hold back inventory, some ad buyers say they could shift money to cable TV and other media, like online video, movie theaters and video screens on gas pumps. “There is a whole host of other places you can buy video,” says Jackie Kulesza, a broadcast buyer for Publicis Groupe’s Starcom USA.
Lower ad revenue, along with higher license fees for its returning TV series, led to wider operating losses at the Fox network for the quarter ended March 31, David DeVoe, News Corp.’s chief financial officer, said on a May 6 conference call with analysts.
News Corp.’s TV segment, which includes 27 local TV stations and Fox Broadcasting, had operating income of $4 million in the quarter, down sharply from $419 million a year earlier.
The network, which plans to unveil its first fall schedule under newly installed entertainment chairman Peter Rice on May 18, leads broadcasters among prime-time viewers between the ages of 18 and 49, and its “American Idol” is the most-watched series in the U.S.
But that lead has diminished, and Fox’s same-night prime-time viewers in the 18-to-49 group this season through May 10 have fallen 17% from a year earlier. Excluding the week of the Super Bowl, which aired on Fox in 2008 but not 2009, the decline was 11%.
“We need a new hit or two, which can help turn things around,” says Mr. Nesvig.
Two new shows Fox has already ordered, according to people familiar with the matter: “Human Target,” about a man who protects people by assuming other identities, and “Sons of Tucson,” a comedy about boys who hire a con man to impersonate their dad, who is in prison.
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