Broadcasters Hit Cable Where It LivesForward-thinking station groups, seeking zoned ad money, are taking their first competitive steps to addressing specific slices of their markets 12/24/2012 12:01:00 AM Eastern
One of the nation's biggest broadcasters says in
order to compete against cable, stations need to be able
to sell addressable advertising that reaches selected
parts of their markets.
The quick path to doing that is by working with local cable operators,
but it is unclear how cooperative those operators will be in sharing
their biggest competitive advantage in ad sales.
Traditionally, broadcasters have offered advertisers larger audiences
and broader reach than cable could, resulting in stations garnering
higher prices and the lion’s share of local TV advertising. But advertisers
increasingly want to reach their customers in more precise geographic
areas or to target them by income, family status or purchase behavior.
New technology that enables that kind of zoned or addressable advertising
on TV now belongs to cable, whose share of local ad dollars is
growing. In some cases, the local cable operator has joined forces with
overbuilders, telcos and satellite companies to provide advertisers with
zoned ads that reach all of their subscribers in a market, broadening
their reach and intensifying the pressure at a time when broadcasters’
ability to form joint sales agreements is being limited by regulators.
David Smith, CEO of Sinclair Broadcast Group, the nation’s fastestgrowing
station owner, said zoned and addressable advertising is the
future, and it’s a business broadcasters need to be in if they want to
survive in an environment that favors cable.
“If I am to compete, it is essential for me to
be able to sell zoned advertising,” said Smith,
who has an engineering background and stays
on top of technology issues. To do that, broadcasters
like Sinclair need to get permission
from the cable, satellite and telco distributors
who carry their signals.
“We plan to ask all the cable operators and
satellite operators and phone companies with
which we do business for the right to zone-sell
in exactly the same manner that they do,” Smith
said. Cable operators can sell ads that appear in
speci! c areas, or zones, within a market, and
are working to perfect the ability to select which
spot appears in which individual home.
Retrans as Bargaining Chip
Broadcasters have leverage when their
retransmission-consent deals are expiring and
they can pull popular shows off cable systems.
In recently negotiated retrans agreements, Sinclair has gotten
permission from Dish and Mediacom, but those are relatively small
players. Smith said he expects less cooperation from larger operators
that are starting to make big money in local sales, especially without
the threat of a retrans blackout.
“If I were to pick up the phone and call Time Warner [Cable] tomorrow,
or Cox or somebody else, and say, ‘Would you let me please
send you 12 different feeds for 12 different zones?’ I’d be curious to
see what their answer is,” said Smith, whose company has grown to
84 stations in 46 markets following the purchase of six stations from
Newport TV and a seventh, WHAM-TV Rochester (N.Y.), this year.
“We’ll know the answer to that shortly. My gut is they would say, ‘Why
would we want to let you compete against us?’”
Smith is not the only broadcaster who thinks this way.
“We see a lot of value in advertising at the zoned level,” said Michael
Bologna, managing partner for emerging communications at GroupM,
one of the largest media buyers. “Would it be great if the local broadcasters would be able to do that? Yeah. But I
don’t think they’re going to be able.”
Bologna said zoned advertising is more efficient for advertisers, and making it available on
the water-cooler shows the networks broadcast
would bring in national ad dollars. But he said
he thinks it’s unlikely that broadcasters will be
able to create alliances with cable operators,
their competitors on a local level.
Mediacom con! rmed it had made a new retransmission
deal with Sinclair, but declined
to discuss its terms.
But a source said that while there hasn’t
been enough time to start doing zoned advertising
in markets Mediacom and Sinclair
share, Mediacom has been doing zoned advertising
with some broadcasters in markets
in Iowa since early this year. Hearst TV’s KCCI
Des Moines, for example, has been using the zoning initiative with
Mediacom for the past six months. Mediacom, an advertiser on KCCI,
can run separate ad campaigns for subscribers and non-subscribers
to its cable TV service. “It’s a huge benefit to the client,” said Amanda
Hull, general sales manager at KCCI.
Hull is looking into how the technology can bring new advertisers
into the broadcast fold. “The smaller mom and pops may not be able
to afford advertising in the whole DMA,” she said. “The technology
will only get better, so it’s got some potential.”
Mediacom also plans to try zoned advertising with Citadel Communications’
WOI in Des Moines and WHBF in the Quad Cities
“Historically, we have a good working relationship with Mediacom,”
said Ray Cole, president of Citadel, adding that it remains to be seen
if Mediacom will move forward with more elaborate zoned advertising
plans, which would allow the cable operator to send a different
message to satellite homes than it does to subscribers when it buys
broadcast advertising. “It’s an interesting concept,” Cole said.
One situation where local broadcasters and cable operators might
be able to cooperate is in markets in which Comcast owns both the
cable system and the local NBC affiliate.
“We’re certainly interested in offering advertisers additional ways
to communicate to consumers in an even more relevant way,” said
a spokeswoman for the NBC Owned Stations. “That’s a win-win for
marketers and consumers alike. As of now, there are no specific plans.”
Comcast was not as positive. “We have no current plans on that
front, but we’re always looking for ways to offer more convenience
and value to clients,” a spokesman said.
Representatives from Time Warner Cable, the No. 2 MSO in the
nation, declined to comment.
Smith said he would view a refusal by cable
operators to allow broadcasters to participate
in zoned advertising as anti-competitive.
“If the discussions don’t yield the proper result,
then we’ll seek whatever relief is necessary
in order to create a competitive landscape,”
Smith said. Allowing broadcasters to compete
with cable on zoned selling would lower prices
for the advertisers and benefit consumers: “We
think it’s a worthwhile venture for the industry.
“Every broadcaster should be saying they
want to compete exactly like the cable guys
do on a house-by-house, zone-by- zone basis,”
Smith said. “I think it would behoove
the NAB and all trade organizations, TVB and
all of them, anybody who’s in the business of
selling broadcast, should be insisting that the
cable companies provide the ability to send them multiple feeds for
A spokesman for the NAB said its legal team is looking into the
complexities of entering the zone advertising business. “We’re considering
the pros and cons of micro-targeting, and there’s an ongoing
discussion in the industry about that,” the spokesman said. After that,
the NAB will decide whether to make the issue a priority.
The TVB, which represents local broadcasters, had no comment
for this story. (Sinclair is not a member of the TVB.) Neither did the
Cabletelevision Advertising Bureau.
Daniel Brenner, a partner in the law ! rm of Hagan Lovell and a former
senior VP for law and regulatory policy for the NCTA, said while
cable operators might decide to work with broadcasters on zoned
advertising as part of a retransmission agreement, he didn’t think that
was an access requirement under which cable operates. “They compete
for advertising,” Brenner said. “It’s not clear to me that it’s a restraint
of trade.” He added that even a voluntary arrangement to split
a broadcast signal might not comply with the compulsory copyright
that allows cable to carry broadcast programming.
Many broadcasters were unwilling to discuss the subject because
they are still in the process of formulating plans to get into the addressable
advertising business. Observers also note that stations are
coming off a year in which revenue was pumped up by election-year
spending, making generating revenue from zoned sales less urgent.
Smith, often a maverick in the increasingly corporate local broadcast
business, said while he would go to the government to address the zoned
advertising issue, right now the regulatory environment favors cable.
“Either the regulatory agencies look at that and say, ‘That’s not serving
the public interest because competition would drive down prices
for the consumer,’ or maybe they don’t,” Smith said. He
contended technology could allow broadcasters to do advanced
advertising using their digital signals, but the need
for government permission holds them back.
“But again, it’s a larger industry issue people need to
be cognizant of and thoughtful about because the competitive
landscape today advantages the cable industry
and the satellite industry, and we want the ability just to
compete on a level playing field,” Smith said. “That’s all:
Unshackle us and let us do business.”