Is This The Year Local Cable Ads Make Their Surge?
Some analysts say yes, but buyers are still skeptical
By David Kaplan -- Broadcasting & Cable, 6/6/2004 8:00:00 PM
For the past few years, local cable could depend on getting about 15% of the annual $28 billion spot-TV market. But this year, a number of developments could boost local cable's ability to grab a greater share of that pie, say analysts and media buyers.
For one thing, the number of "hard" interconnects—a physical, direct link, usually through a T1 line, among several cable systems in the same market—is increasing rapidly. For another, the number of "insertable" cable networks that offer spot advertising avails for cable-system operators to sell is growing as well.
In hard interconnects, systems are directly linked by cable, microwave relays, or satellite; the signal is then fed to the entire interconnect by one headend. In "soft" interconnects, there is no direct operational connection between the participating systems, but the same commercial is run simultaneously by each system.
Either way, the goal is the same. Interconnects primarily maximize the effectiveness of an advertising schedule by offering an advertiser "one-stop shopping," with only one contract to be negotiated with several cable companies.
In 2000, the average cable interconnect had the ability to insert spot advertising into 16 networks. The number now stands at around 40.
But a third advance that promises to give local cable its due is Nielsen's plan to use local people meters to measure local viewing by the end of this year. That will end the guessing game between cable companies and media buyers for good.
The dynamic confluence of these three developments will help increase local cable's share of total spot-TV advertising to as high as 33% by 2005, or more than double its share today, says Jessica Reif Cohen, senior vice president and media and entertainment analyst for Merrill Lynch.
"These structural changes will radically reshape spot-TV advertising," she says. She first made the prediction last fall and insists that her thesis is being borne out by the changes now happening. "The result will be not only the rise of local cable's share of spot-TV advertising but, overall," she says, "competition is going to intensify in the entire spot-TV marketplace."
HOLD YOUR HORSES
Even so, while media buyers acknowledge the certain growth of local cable's ability to grab more spot advertising, they are not as sanguine as Cohen that the industry's attractiveness will overwhelm advertisers when it comes to competing with broadcast.
"I would say that they're probably getting around 10%, on average, of most clients' budgets," says Jean Pool, executive vice president and chief operating officer, Universal-McCann North America. "I think automotive is probably going to represent a higher percentage because local dealers are very aggressive and have so much to sell.
"But," she asks, "is [local cable] going to get 5% or 10% more this year? No. They have 30 channels. Ten of them are considered Tier 1; with the other 20, the food chain goes down from there. [Operators] get two minutes an hour on each of their channels, but really what media buyers want are the top 10."
The lack of inventory is one area that can't be addressed by Nielsen people meters or interconnects, says Maribeth Papuga, senior vice president and director, local broadcast, MediaVest. "Local cable still has limited inventory to sell," she says. "But I do think there's been a much more aggressive push on the local-cable side to be as competitive as possible with broadcast."
WHERE ALL THOSE BUYERS AREN'T
Furthermore, Papuga and other media buyers aren't sure that the advent of local people meters will make much of a difference in terms of highlighting an unknown ratings bonanza for local cable.
"Supposedly, Nielsen will have the local people meters out by the end of the year," Papuga says. "What we saw with people meters in general is that the numbers do show up much better, but you're still not seeing dramatic increases in ratings. Now, when you're looking at a Nielsen book, you can understand where all those zero-sells went."
Merrill Lynch's Cohen considers such doubts about the impact of the local people meters unfounded. "In Boston, in Nielsen's first trial market for the local people meter in 2002, cable's share of gross ratings points moved from roughly 30%-40%, with cable rising 23% and broadcast declining 10%," she says. Other localities, she suggests, would likely have similar results.
Still, Papuga, Pool, and other media buyers praise the aggressive selling tactics and efforts to make local cable more attractive. "The [cable operators] have revamped their backroom operations; they've streamlined the process where the buying and selling can be done online," Papuga says. "The bill comes in on an electronic data interface transfer basis. So it's a much cleaner process. They are leaps and bounds ahead of the broadcast-station groups right now, especially in the area of back-office maintenance."
Cable operators basically started over, so they're not supported by some of these legacy systems the way a lot of local broadcasters are. A lot of them use old traffic systems, which are not as adaptable to new technology. But because the operators had to invest in new digital systems, they have a direct advantage.
It will require local people meters to take hold in major markets for media buyers to be able to judge how local cable fares in its contest for spot-TV revenue. To be competitive, especially in softer years, when there isn't the huge number of political ads draining the system, locals will need to devise ways to increase their inventory. If operators can boost the number of spots they can sell, they can price them much more efficiently, say media buyers.
"It's not true in every market, but, by and large, you can't buy local cable efficiently without packaging it with the good, the bad, and the ugly," says one media buyer, referring to the highly variegated blocks of local-spot avails that cable networks create. "Until that happens, local-cable spot buys will continue to leave many of us cold."
Nevertheless, analysts and system operators believe that the changes currently under way—and the data that underlie those changes—should do enough to overcome media buyers' skepticism.
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