Japan Catastrophe Causing Tremors for U.S. TV Ad Market

Auto inventory delays a blemish on bull market

With about a month to go before the broadcast networks ring up the curtain on their fall programming slates, ad sales execs are getting ready to tuck into what should prove to be the most lucrative upfront market in history.

And while marketers are resigned to the reality of double-digit price increases, the aftermath of the catastrophe in Japan and a stateside labor crisis could have a chilling effect on the 2011-12 bazaar. Earlier this month, Toyota acknowledged that a disruption in its auto parts supply chain may cause it to lose production of as many as 35,000 vehicles at its North American plants. In a bid to conserve the parts they do have on hand, Honda and Subaru are also expected to curb assembly operations in the U.S. Industry analysts say Detroit automakers, which also depend on parts from Japanese suppliers, will begin making production cuts as well.

Already, some auto clients have begun reducing their ad spending in order to have enough cars for the lots. For example, while Toyota isn’t choking off its $800 million TV budget, the automaker has curtailed its Toyotathon incentive spots.

"With supply chain issues likely to persist into fall of this year, automakers will need to conserve their vehicle inventory and will temporarily pull back on ad spend," said Barclays Capital’s Anthony DiClemente, who stopped short of predicting a decline in auto dollars in the upfront. Auto in large part fueled the blockbuster 2010-11 upfront. Broadcast networks combined for $8.3 billion in commitments, while cable networks grabbed just over $8 billion.

And the auto parts issue could prove secondary to the quandary posed by the NFL lockout. In a worst-case scenario, the loss of all regular- and post-season games would take $3 billion off the books. "If we're at a place where . . . it doesn't seem that they're any closer to a resolution, then I expect you’ll see a lot of dollars moving into other areas," said Shane Ankeney, managing director, Initiative U.S.

Still, given that scatter premiums are up between 25 and 40 percent, only another global calamity may let the air out of the upfront's tires.  "There's some caution in the marketplace, especially with respect to auto," said RBC Capital Markets analyst David Bank. "But at this point there is nothing visible that would indicate any sort of slowdown."