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McGowan's 12.5% solution

Big boost for cable upfront, Discovery's forecaster says; others are less bullish 4/14/2002 08:00:00 PM Eastern

Half-full or half empty? Cable networks are waiting to see just how much difference a new upfront can make. By most accounts, cable is poised to make positive growth in this year's upfront market, but the spread between bulls and bears is unusually wide.

One of the more bullish forecasters, Discovery Network's Executive Vice President of Advertising Sales Bill McGowan, predicts cable upfront sales will rise 12.5%, to $4.5 billion, with cable networks writing $500 million in new business. McGowan ventured that broadcast networks will take in $7 billion—the same as last year. Overall, broadcast and cable upfront spending will pick up 5% this season, McGowan said last week in New York when he made his annual predictions as part of Discovery Communications' upfront presentation.

Obvious biases aside, McGowan's track record is respected. Last year, though, his projections, like those of many other experts, were way off. For the 2001-02 season, he called for cable to write $5 billion in upfront sales; actual take was $4 billion.

Other, more tempered prognosticators reckon cable's share will increase modestly or, perhaps, not at all.

Morgan Stanley's Richard Bilotti calls for cable dollars to grow 10%. But several media buyers said a 2% to 3% increase is more probable.

At the opposite end, Sanford Bernstein analyst Tom Wolzien projects 1% overall growth this year but sees cable falling 2%. Unlike McGowan, he says the broadcasters will be up, perhaps 3%.

Cable execs, meanwhile, are busy touting their industry's advantages. Cable has "less waste involved and more efficiency," says Rainbow Networks President of Ad Sales Arlene Manos. Cable attracted 46% of TV viewers in the 2001-02 upfront, edging out the Big Four broadcast nets, according to McGowan.

"Broadcast networks' ability to generate large boxcar ratings is down," he said. Yet cable networks will receive 39% of upfront revenue, up from 36% last year. And lower CPMs and growing cable penetration (20 networks are in more than 80 million homes) may offer a value proposition, but tradition holds that broadcast sells first.

"If you have a narrow target, clearly cable offers more opportunities to focus in," said Rino Scanzoni, president of broadcast for ad-buying firm MediaEdge. "But broadcast reaches a broader audience, even if it varies by program and daypart."

Such an outlook clearly benefits niche cable networks, but it could spell fewer dollars for broad-based cable networks that pitch broadcast-like demographics.

Not so, said Turner Broadcasting ad- sales chief Mark Lazarus, who last year took over when veteran Joe Uva left Turner to become president and CEO for Omnicom's OMD Worldwide.

"A lot of inventory needs to get placed, and some networks can be substitutes." He notes that his own general-entertainment channels, TNT and TBS, both available in more than 80 million homes, draw a broad 18- to 48-year-old demo with originals and acquired series, sports and movies.

Cable news networks are perched to write record levels of business. Fox News Channel and CNN more than doubled their ratings after Sept. 11. In the first quarter, Fox News recorded 81% more households than the year before; CNN, 24% more households. Cable news now attracts 57% of news viewers, while broadcast claims 43% (that excludes still-popular network newsmagazines).

In past years, CNN sold double the upfront volume of Fox News and MSNBC combined. But Fox News will likely be rewarded for its recent ratings tear. "CNN is going to have a problem outselling Fox this year," said veteran media buyer Howard Nass, principal of HN Media Services.

Slow road to recovery
Last year's upfront bust is just a memory. Even by bullish estimates, though, sales will still lag more than $1 billion behind 2000-01.
Year Broadcast (billions) Cable (billions) Total Change
p = predicted
Source: Kagan World Media/Discovery Networks
1996-97 $5.9 $2.0 $7.9 +8%
1997-98 $6.2 $2.3 $8.5 +8%
1998-99 $6.3 $2.8 $9.1 +7%
1999-00 $7.2 $3.7 $10.9 +20%
2000-01 $8.0 $4.8 $12.8 +17%
2001-02 $7.0 $4.0 $11.0 -14%
2002-03p $7.0 $4.5 $11.5 +5%
March