Report: Advertisers Set To Cancel TV Deals

Big advertisers from General Motors Co. to PepsiCo Inc. to General Mills Inc. are seeking to walk back spending commitments they made to broadcast and cable networks, a dynamic that is testing the industry’s five-decade-old way of doing business, The Wall Street Journal reports.

TV ad spending fell in the initial weeks of the coronavirus pandemic, but was insulated from an even bigger drop. That is because the majority of the roughly $42 billion spent on national TV ads in the U.S. is bound by contractual commitments that are made well in advance of a new TV season, which starts each September.

Under those “upfront” deals, the first real opportunity since the pandemic struck for advertisers to cut back future spending commitments began May 1. Companies now have the option to cancel up to 50% of their third-quarter ad spending.

Many companies are seeking to take advantage of that option to varying degrees, including General Motors, PepsiCo, Cracker Barrel Old Country Stores Inc., General Mills, Domino’s Pizza Inc. DPZ 0.12% and pharmaceutical giant Sanofi SA, according to people familiar with the discussions.

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Ad buyers estimate that roughly $1 billion to $1.5 billion in commitments for third-quarter ad spending could be canceled. “The cuts are going to be pretty deep,” said Dave Campanelli, chief investment officer at media buyer Horizon Media.

Advertisers have had these options in their contracts for years, but exercising them to this extent is unusual, ad buyers said.

Marketers are worried about the ability to sell their products in a prolonged economic downturn, and aren’t certain what programming networks can put on the air, given the near-total shutdown of production in Hollywood. Fox on Monday became the only major broadcaster so far to put out a fall schedule.

Owners of broadcast and cable networks are trying to prevent big cracks in a major pillar of their businesses and are struggling to forecast what will happen to ad spending in coming months. ViacomCBS Chief Executive Bob Bakish said on a quarterly earnings call last week “it’s not pretty,” while AMC Networks Inc. cautioned ad revenue would drop about 30% in the second quarter.

Beyond the “upfront” ad market, companies can also buy ads closer to when they air, and that spending has also taken a big hit.

Some ad executives expect the pandemic will accelerate the shift of TV ad dollars to other marketing channels including streaming-video services and tech giants such as Alphabet Inc.’s Google and Facebook Inc. “We’ve seen a lot of great returns with Facebook and Instagram,” said Chris Brandt, chief marketing officer at Tex-Mex chain Chipotle Mexican Grill Inc., which has shifted some dollars out of TV.