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TV networks pay back advertisers as ratings drop

LOS ANGELES (Reuters) - Faced with ratings declines since the start of the fall TV season, three major networks are compensating advertisers with extra commercial time, and at least one, NBC, is taking the rare step of giving back cash, media buyers and network officials said on Wednesday.

Striking writers picket outside the studios of NBC's "The Tonight Show with Jay Leno" in Burbank, November 5, 2007. Late-night TV series first hit by the 5-week-old strike, including NBC's "The Tonight Show with Jay Leno" and the CBS "Late Show with David Letterman," already have suffered double-digit ratings drops for the month of November. REUTERS/Fred Prouser

The growing use of digital video recorders (DVRs) such as TiVo Inc’s system, which allow audiences to easily tape their favorite shows and watch them when convenient, has led to a sharp drop in live viewership of programs as they are broadcast.

But media experts say that even accounting for increased DVR usage, prime-time ratings overall are down for other reasons, with the absence of any breakout hits this fall and with waning interest in many returning shows.

The fall TV season began in September.

Ratings are expected to take a further hit early next year as networks load up their schedules with reality TV and reruns to replace shows knocked out of production by striking Hollywood writers.

Late-night TV series first hit by the 5-week-old strike, including NBC’s “The Tonight Show with Jay Leno” and the CBS “Late Show with David Letterman,” already have suffered double-digit ratings drops for the month of November.

Contract talks between the studios and the Writers Guild of America broke off in acrimony last week, dashing hopes that a settlement to the labor dispute could be reached quickly.

“Some of the networks owe advertisers because the ratings delivery came below what they guaranteed, but NBC couldn’t make it all up in units, so it’s paying it back in cash,” said one executive for a major media buying firm.

In a statement, NBC, majority owned by General Electric Co, said the refunds represent “an extremely small portion of NBC’s business and accommodate the changing needs of our clients’ marketing plans.”

The trade publication MediaWeek first reported that NBC had begun reimbursing advertisers for fourth-quarter prime-time ratings shortfalls, averaging about $500,000 per advertiser, marking the first time in years a network has taken such a step because it had already sold much of its available commercial inventory.

Aaron Cohen, an executive vice president for Horizon Media, a media planning and buying company, said NBC, ABC, and CBS -- all the major broadcast networks except News Corp’s Fox -- have begun to give free commercial time to advertisers for the first, second and third quarters of 2008 due to the ratings shortfalls of the last few months.

Sponsors often seek more commercial time, referred to as “make-goods,” as compensation for ratings shortfalls. But NBC’s move to offer cash was seen by many as a possible precursor of things to come should the strike persist, since advertising inventory is said to be extremely tight across the board.

Walt Disney Co’s ABC declined to comment on the situation, while CBS Inc said it did not face the same issues as NBC. “We don’t have a ‘make-good’ problem,” a CBS spokesman said.

STRIKING FEAR

Horizon’s Cohen and Shari Anne Brill, senior vice president and director of programming for media buying agency Carat USA, said advertisers are growing increasingly worried about the ratings impact of a prolonged strike.

“Clients are in an upset state without knowing what’s six weeks away. We have (programming) schedules through January, but nothing is really set for the month of February,” Cohen said.

“Ad agencies have to negotiate with networks for revised schedules based on current strike replacement programming and get client approval for the revised schedule. We’re working on a month-to-month basis,” he added.

Brill said the advertisers placed their money on different expectations.

“If the networks are in this ratings under-delivery situation now, it could only worsen in the event of a prolonged strike,” Brill said.

“Advertisers generally prefer to be in scripted content, and will not readily accept being put into lower-quality reality fare when their upfront dollars were spent on the expectation of being placed in quality scripted content,” she said.

Editing by Richard Chang and Gerald E. McCormick

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