Local Cable Wins War, Loses Election
Even without a bump from political spending, 2004 spot cable is expected to jump 14%
Even without a bump from political spending, 2004 spot cable is expected to jump 14%
Demand and Supply
Comcast Takes Bold Steps
Results aren't all in yet, and fourth-quarter business is alarmingly weak, but cable operators appear to have dodged a bullet this year. Somehow, they pulled off healthy gains in local, regional and national spot advertising.
The gains come in spite of disappointing national political advertising, as well as widespread softness in the spot TV market, particularly at the national level. Slower-than-expected automotive and retail sales and a consolidating telecommunications industry have dragged down ad growth.
Even with all that, cable operators are poised to finish 2004 with a nearly 20% jump in national spot business and a 9% increase in local and regional sales, according to the Cabletelevision Advertising Bureau, confirming reports from cable operators. That adds up to a 14% gain overall. That's slightly under what the CAB estimated going into 2004 but well above some analysts' predictions.
Spot cable's 2004 numbers compare favorably with last year's. In 2003, operators posted an 18% rise in national, a 7%-8% increase in local and a combined boost of 11% overall. But Chris Rohrs, the president of the rival Television Bureau of Advertising (TVB), which touts local broadcast advertising, points out that the increases are from a small base. Local cable ad sales may be a $5 billion business, but local broadcast spot will rake in more than five times as much this year, Rohrs says.
And where broadcast spot murdered local cable this year was in political advertising. Although such spending was far less than cable operators wanted, it did help a smidgen. Several operators and National Cable Communications (NCC), the local spot consortium owned by Cox, Time Warner and Comcast, confirm that the industry generated about $70 million in political revenue at the national spot level. That's a drop in the bucket compared with the more than $1 billion generated by broadcast stations but about twice what cable generated four years ago.
Local political advertising—for statewide or local candidates or issues, for example—hasn't yet been tallied for the industry, but it apparently wasn't bad. Hank Oster, senior vice president of Comcast Spotlight, the cable operator's local-ad-sales division, says, when those figures are counted, the total political take will be “considerably higher” than $70 million. Comcast itself netted $46 million in total political sales, including national spot. Says Oster, “We outperformed our budget goals.”
Clearly, though, the lackluster advertising for the the presidential race was disappointing. Sonja Farrand, who leads the sales effort for Mediacom Communications' On Media, says few national political dollars trickled her way until the first few days of October, “and then boom, it flooded, and it became a problem to clear [political ads],” she says. But that wasn't because campaign managers saw the light, she adds: “I supposed that had something to do with the broadcast stations' being sold out.”
Operators' biggest political disappointment occurred despite a massive effort to dent what has long been a broadcast-industry windfall. NCC dedicated a sales manager to the Bush-Kerry race. But neither side, particularly the Bush camp, used much national spot cable until mid September.
“They bought the two most efficient places,” TVB's Rohrs says. “Local broadcast and national cable.” Cost per thousand (CPM) on cable networks is much less than on broadcast networks. On the other hand, he says, local broadcast CPMs are more efficient than local cable, and there are more spots available.
That national-cable-versus-local-cable is a tough hurdle for buyers. “There was the issue of, where's the breaking point? How many markets do I buy locally before I buy a national cable spot at the same price?” asks Jack Olson, senior vice president of Adelphia Media Services. “By the time [advertisers] heavied up, they were exceeding the aggregate spot rate that they'd get on ESPN.”
There were also some technical problems. The presidential campaigns' ad agencies weren't equipped to interact electronically with NCC and other cable operators for placing orders and receiving invoices. But NCC President Greg Schaeffer says NCC was able to work around these issues when they occurred.
The bigger problem, he and others say, was in the campaigns' and their agencies' attitudes. “Traditional political shops reverted to very old ways of evaluating media,” Oster says. “Spot cable should have been at the top of their mix, and it wasn't.”
Cable operators will address the issue of political advertising at a meeting early next year, says Jim Heneghan, senior vice president of marketing and ad sales at Charter Communications. The likely message: By 2008, cable operators will have to educate political operatives that local cable is worth the effort, and get a bigger share of the presidential pie.
With cable operators pulling in what one source estimates was the same percentage of political dollars as in 2000, the industry had to eke out some of its spot TV gains from other sectors.
Here, operators and NCC faced a jittery marketplace. “It was a little softer than we anticipated,” says Kevin Gallagher, senior vice president and director of the local-investment group at Starcom MediaVest Group.
He blames uncertainties over the Iraq war and U.S. economic growth. “Anytime you have a conflict, marketers will pull back a little,” he says, “and it was an election year. There were doubts in people's minds about where the economy was headed, who was going to be in charge and what was going on in Iraq.”
One measure of the market's stress level can be found in broadcast national spot TV, where an anticipated sales gain of 12%-14% could actually end up in the high single digits, despite a political windfall of what some estimate at over a billion dollars. Several sources confirm that, with political increases removed, broadcast national spot business will finish the year flat or up only slightly.
Spot cable avoided a similar fate in part because it is a newer, far less mature industry but also because advertisers have been taking note of long-running audience gains. “Clearly, the local-people-meter markets are now showing that cable is a much more viable medium, but even in the non-LPM markets, cable continues to add money,” says Kathy Crawford, president of local broadcast at MindShare.
Advertisers are looking more often at spot cable and would use it more often if audience measurement were better, says Janice Finkel Greene, executive vice president and associate local broadcast director at Initiative Media.
“Outside the LPM markets,” she says, “there are issues with computing questions about who is really watching.”
Cable clearly benefited this year from an ongoing effort to complete interconnects, even in smaller markets. With hard interconnects operating now in 135 markets, including 43 of the top 50 Nielsen TV markets, operators can compete more effectively at selling to advertisers that need to cover most or all of a market.
“Four years ago, if Sonic Drive-Ins of Kansas City wanted to put 14 stores into a co-op buy and cable could reach only 10 of those stores, the advertiser would simply say, 'I'll buy TV,'” says Charter's Heneghan. “Since then, we've solved that problem by adding the 'ma-and-pa' cable systems to the interconnect.”
The improvement in interconnects has boosted demand for cable spot time. It has also brought spot cable to a marketing crossroads.
Operators have fought hard this year to protect the rates for their highest-rated inventory, bolstering revenue gains but causing agencies to balk at the prices they often face.
“They sell Monday-Friday 6 p.m.-midnight. and they want the prime time rate for all that,” Crawford says. “They don't have enough avails, so they won't package the time the way we've been planning on. So we have to go market by market, negotiating in each one, and it's a big job. They are not set up to do fixed spots.”
Large cable operators are hedging their bets by offering advertisers opportunities to test on-demand and by sharpening selling tools. Charter has been adding specialists who work exclusively on automotive or co-op sales, for example, and Adelphia has unveiled It'sAllTV.com, a Web site that allows time buyers to easily access data on the networks available in Adelphia markets and the demographic groups each reaches. The site cuts down the time account executives must spend on the way to closing a sale.
Cox Media changed all of its dayparts about nine months ago, making them match up with those on local broadcast, but that doesn't mean it's selling spots the way stations do. “The big dilemma now is, what is prime,” says Billy Farina, vice president of advertising sales at Cox Media. “If you want to reach men 18-25, they're watching at midnight.
“TV viewing has changed dramatically since those dayparts were created,” Farina continues. “Can't we start with a clean slate and figure out the dayparts that advertisers really want to buy?”
Charter's Heneghan believes the answer lies in better packaging of cable spots. “We live in a supply-and-demand world. Either I have to get a premium for my [highest-rated] time, or advertisers have to buy more-horizontally, over eight, 10 or 12 networks all tracking the same demographic.”
NCC's Schaeffer admits cable “stubbed its toe” over pricing issues this year. “The challenge for us is to figure out how to effectively present cable as a cluster of networks that reach a targeted demo. It's really an education process as to how agencies look at it and evaluate cable networks.”
Additional reporting by Steve Raddock
|2004 Spot Cable Growth|
|Although political advertising was a disappointment, cable local ad sales will end 2004 just about where experts predicted|
|SOURCE: Cable operators, CAB, NCC|