They discovered a business
Once haphazard, local cable ad-sales effort is now taking from local stations
By John M. Higgins -- Broadcasting & Cable, 6/16/2002 8:00:00 PM
In January, a team of staffers from the Television Bureau of Advertising (TVB) went down to Philadelphia for a special meeting with local advertisers and agencies. You know the drill. Usually, such presentations by the trade group would be focused on touting the strength of local broadcast stations' ability to deliver the consumers whom supermarket and furniture retailers want to bring into their stores. This pitch, however, was a little different. TVB executives exerted a lot of effort picking apart the arguments of what is becoming an increasing threat: local cable television:
In great detail these days, the TVB PowerPoint presentation challenges cable systems' audience measurement, sales methods and pricing with the unsurprising bottom line that ad- vertisers are overpaying for cable ads at a time when they think they are actually getting a bargain.
"We don't say don't buy it," TVB President Christopher Rohrs said. "Our stations buy local cable in some markets. We're saying be very careful about how you make the distinction between national cable and local cable. The things that they built the national business on—targeting and low CPMs—don't hold up in the local market."
The association has traveled to make similar presentations to advertisers in Philadelphia and San Antonio and is helping its member stations to adapt the data.
Certainly, many of the TVB's arguments about the quality of local cable are worth examining. But what executives believe is most interesting is how fiercely broadcast stations now feel they have to fight local cable off—because, after years as a disjointed jumble of wires when it came to delivering local commercials, cable systems have now become a serious threat to broadcasters in "their" backyard: local advertising. Operators have resolved many of the technology hurdles impeding sales, increased their concentration in many large markets, and simply made ad sales a higher priority at a time when they can't raise basic subscription rates aggressively.
"The fact that they have a campaign says a lot," said Judi Heady, senior vice president of Media Services for AT&T Broadband, adding that "five or six years ago, we were more on crumb patrol. But now when you own all the systems in Chicago or San Francisco, suddenly you're competitive with the broadcasters."
There's little that broadcasters can do to stop cable, says Joe Ostrow, chairman of the Cabletelevision Advertising Bureau (CAB), TVB's opposite number. "This week, cable has absolutely clobbered broadcast in absolute viewership," he says, pointing to data that shows the seven broadcast networks with 40% of the prime time audience and cable with 50%. "Translate that on a local basis, and tons of stations' audience disappears."
Systems face plenty of headaches. One-stop shopping for entire DMAs can be hard, even in markets with interconnects that sell on behalf of several local operators. (The New York market's interconnect, for example, won't get you cable subs in Manhattan, much of Brooklyn or Queens. MSO AOL Time Warner dropped out and decided to go it alone. San Diego and Cincinnati have no interconnect at all.) Partly because much of the audience to "cable" networks comes from DBS subscribers, sifting through systems' actual audience delivery requires, in the words of one agency ad buyer, "lessons in numerology." And while national cable networks almost always sell at discount to broadcasters, the CPM (cost per thousand viewers) for local cable spots often exceeds comparable time on TV stations.
Some buyers harshly complain that many cable sales reps misrepresent their numbers. Echoing many of the criticisms of the TVB, Cate Gerber, senior vice president of ad buyer Initiative Media, said Initiative's staff often gets presented plans that presume the system or interconnect reaches every multichannel home in a market, folding in the reach of overbuilders and sometimes even DirecTV and EchoStar. ESPN can sell those homes, but cable operators cannot deliver local commercials into them.
"Some people are doing it right, some are doing it wrong," said Gerber, who blames cable salespeople for being sloppy and failing to carefully extract data from ratings software.
"I just think there's a lot of confusion and stupidity and deception on the sellers' part and buyers' part," Gerber said.
Jonathan Lichter, executive vice president of Chicago agency Kelly Scott & Madison, said that he largely ignored local cable because ad prices were higher than broadcasters' for comparable demos. But, in 1998, the firm agreed to allocate 8% of its Chicago TV spending to the local interconnect after it guaranteed schedules that would match TV stations' costs. He has now bumped that to 15%.
To cite one major client, Chicago-hubbed airline ATA, "we get a better dispersion of our impressions to reach the entire market. It would be to their detriment not to use cable."
Cable systems' argument for growth is pretty straightforward. Basic-cable networks have drained a tremendous number of viewers from broadcasters, securing 48% or so of the prime time audience, spiking some weeks past 50%, Nielsen data show. Broadcasters' audience has been sinking for years. Basic cable's prime time audience share is up from 23% a decade ago and 34% five years ago.
Cable-network executives contend that advertisers should be giving them ad dollars at a rate that more closely matches their success in securing eyeballs. Investment banker Veronis Suhler & Associates estimates that cable networks grabbed 37% share of the $31 billion spent on national TV advertising last year.
Cable systems would like to see a rerun in the local market. Systems are expected to generate about $4 billion in ad sales this year, about 13% of the $28 billion spent with local TV outlets. Cable operators' share of the market is up from 8% of the market in 1995. Systems are stealing some of their business from radio and newspaper, particularly from smaller businesses that wouldn't ordinarily advertise on TV. But a big chunk is money being siphoned out of TV stations.
"It should be a significant concern to the broadcasters," said Sanford Bernstein media analyst Tom Wolzien. "If you're the No. 1- or No. 2-rated station in the market, it's nothing more than an irritant. If you're not, cable is a big problem."
He believes that cable systems' share of local TV ad spending will increase to 20%-25% within five years. It's increasingly important to cable operators. Local ad revenue accounts for about 8% of cable operators' total sales, up from 4%-5% five years ago.
It wasn't too long ago that local cable was pretty haphazard. Even cable systems owned by the same operator weren't physically linked together, so commercials airing on, say, all the Cox properties had to be "bicycled" to several different offices in the same market. And not all the systems might insert local commercials on the same lineup of networks.
Everybody selling ads would offer spots on the very biggest networks, like ESPN or USA Network. But if you wanted to buy MTV, some systems in the market might insert; some might not. That could be true even if the systems were on the same interconnect.
Worse was the back office. TV stations spend enormous effort on "trafficking": getting a commercial, ensuring it runs during the right program, and offering verification for the advertiser. But broadcast managers handle only one channel. Cable systems were inserting commercials on a dozen different channels. The technology was sloppy, and so were operators.
The biggest change is consolidation of local markets among cable operators. Because systems were franchised suburb by suburb, most major markets splintered among several operators; just five years ago, the largest local player might serve only 40% to 50%.
But the long series of system takeovers and swaps left many markets dominated by one operator. Data from national ad rep National Cable Communications show that AOL Time Warner controls 90% of the subscribers in the Orlando, Fla., market and 80% of Milwaukee. Comcast controls 70% of Indianapolis.
Chicago is a prime example of the kind of changes that operators are going through. In the past four years, AT&T has rolled together properties owned by seven other cable operators, all of which were in the Chicago interconnect but had different—sometimes conflicting—insertion and billing systems. AT&T now serves 93% of the market's cable subs, the only holes being systems owned by two overbuilders.
Peter B. Heisinger, general manager of AT&T Media Services for Chicago, said that the rollup has allowed AT&T to hardwire interconnect all of the local systems and to switch to a single billing and trafficking system. That means allowing a central facility to insert throughout the market. Advertisers can cherry-pick among 42 different zones. BMW can buy commercials just in the ritziest areas. A restaurant in suburban Schaumburg can deliver ads only in nearby towns. Or advertisers can buy the whole market in a narrow demo—say, MTV's teens—for the whole market.
"It was a couple of years of heavy lifting," Heisinger observed.
The next big advance for local cable will be ratings. Nielsen and Arbitron are experimenting with new people- meters that promise a better measurement of local ratings.
Early results indicate that smaller cable networks particularly benefit by replacing handwritten diaries with automated measurement of viewership.
Adcom has rolled out a local ratings service in three markets, employing a much larger sample of homes than Nielsen's local sample, offering detail that the company contends is more consistent. But, since launching its service in Jacksonville, Fla., six years ago, Adcom hasn't built tremendous traction.
"Broadcast stations have reason to be nervous," said CAB's Ostrow. "They've been getting away with poor audience measurement for years, and it's catching up to them."
| Local ad sales nibble away | ||||
|---|---|---|---|---|
| Cable systems generate far fewer ad dollars than TV stations, but they're steadily gaining ground. Counting both national spot and local commercials, MSOs chisel off about a percentage point of local- market share every year. | ||||
| Cable systems | TV stations | Total local | Cable's | |
| Year | (millions) | (millions) | (millions) | share |
| *Projected Source: Veronis Suhler & Associates |
||||
| 1995 | $1,634 | $19,104 | $20,738 | 7.9% |
| 1996 | $1,893 | $20,747 | $22,640 | 8.4% |
| 1997 | $2,191 | $21,435 | $23,626 | 9.3% |
| 1998 | $2,538 | $22,828 | $25,366 | 10.0% |
| 1999 | $3,026 | $23,180 | $26,206 | 11.5% |
| 2000 | $3,507 | $25,601 | $29,108 | 12.0% |
| 2001 | $3,656 | $24,815 | $28,471 | 12.8% |
| 2002* | $4,082 | $26,259 | $30,341 | 13.5% |
| 2003* | $4,570 | $26,696 | $31,266 | 14.6% |
| 2004* | $5,080 | $28,371 | $33,451 | 15.2% |
| 2005* | $5,654 | $28,822 | $34,476 | 16.4% |
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