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No Buzz, No Bucks

Cable needs momentum injection for upfront 5/26/2006 08:00:00 PM Eastern

For years, June has been a hot month for cable. First, programming executives would start chipping away at broadcast networks in the Nielsens by scheduling fresh original programs rather than reruns. Then cable sales execs would batter the network execs in upfront advertising negotiations, securing far better rate increases than broadcasters could muster.

One of those trends has stopped. Cable networks may post strong ratings this summer, but they have lost their momentum in the upfront negotiations. Rather than sprinting ahead of the market, cable sales reps are stuck in the same doldrums facing the broadcast networks.

Wall Street forecasts see cable networks posting marginal pricing gains for the upfront. “It appears that the pricing differential between broadcast and cable networks is unlikely to change significantly in the near term,” says Merrill Lynch media analyst Jessica Reif Cohen in her annual upfront prediction. “Indeed, we believe that increases for cable networks are unlikely to be significantly above those for broadcast networks this year.”

Cable's cost per thousand viewers (CPM) might rise 2%-3%, with higher ratings lifting dollar volume to about $7.4 billion. That's better than the 0%-1% CPM predicted for broadcast networks (which are expected to book $9.1 billion) but far weaker than the 10%-plus increases cable enjoyed in past years.

Ad buyers and sales reps recognize that the Big Four broadcasters are putting on fare as edgy and creative as the best of cable. As a result, cable's ratings gains have slowed. Sure, cable channels stole another 2% or so of broadcasters' audience this season, but they used to take a 4%-6% bite each year.

The buying process is also changing. Buyers tend to concentrate on fewer networks, putting an ad on a dozen networks, where, two years ago, they might have spread money across 25.

Oddly, advertisers' interest in the Web may hurt cable more than broadcast. That's almost unfair, because cable networks have richer broadband sites than any broadcaster. Spend some time on ESPN.com or playing with ESPN Mobile's cellphone TV offerings. Then surf over to NBC.com or CBS' Innertube and compare.

What's the problem? Many advertisers plan to hold money out of the upfront for broadband opportunities that might appear later in the year. (For example, nobody would have guessed last year that CBS Sports would pump its NCAA March Madness basketball tourney games to its Web site.)

Buyers—notably MindShare North America's Marc Goldstein —say it's easier to take that money away from cable than from broadcast. With broadcast, there's a scarcity issue: If you don't book in the upfront, you might not get spots in ABC's new Saturday College Football package or CBS' Thursday-night crime block. But there's little chance you'll get locked out of TV Land's Little House on the Prairie.

Broadcasters sell around 80% of their inventory upfront; cable networks sell just 50%. And with 50 or so meaningful ad-supported cable networks, there are thousands and thousands of spots.

“Cable networks almost never sell out,” says one senior buyer.

Young-skewing cable networks may benefit from the collapse of The WB and UPN. A lot of that money won't go to the replacement network, The CW.

One discouraging sign is an abrupt slowdown in the pace of some cable networks' sales growth in the weeks leading up to this upfront season. The companies don't disclose much detail, but Time Warner's Turner Broadcasting System networks increased ad sales just 6% during the first quarter. That's down from the 11% growth generated during fourth quarter 2005.

MTV Networks' ad sales grew 6%, versus 15% during the previous quarter. One analyst estimates that ESPN's ad sales grew about 7%, versus 11% previously.

WHAT'S WRONG?

These numbers are far from the ad-revenue double-digit spurt that networks prefer to have going into upfront negotiations. What's going wrong? One problem might have been ad spending diverted to NBC and its cable siblings for the Olympics.

More specifically, Turner suffers from Law & Order overload. TNT is hugely dependent on the oldest edition of the off-NBC crime franchise. For example, just last week, the network filled 45% of its prime time with L&O.

But it's just not holding up in the ratings, with the 18-49 audience off about 25%. One problem is USA Network's even more aggressive scheduling of spinoffs L&O: Special Victims Unit and L&O: Criminal Intent. They occupy 63% of the prime time schedule, and episodes are even being shoveled over to siblings Sci Fi Channel and Bravo. (When Sci Fi starts scheduling L&O: SVU reruns, you know someone is short on good programming ideas.)

The spinoffs aren't fading much in the ratings, though, so USA is retaining its No. 1 rank in prime time.

MTV Networks blames its problems less on ratings than on the timing of Easter. Collectively, the networks saw their audience ratings dip 3% during the first quarter. According to parent company Viacom, Nickelodeon typically sees a spending boost leading up to Easter. In 2005, the Easter bump hit during the first quarter; this year, it came in April, so it won't be counted until the second quarter.

Perhaps these are temporary blips. But if cable were going into the upfront season with greater momentum, networks would be having a much better time as they lay the financial groundwork for the next year.

E-mail comments to jhiggins@reedbusiness.com

FOLLOW THE DOLLARS
Merrill Lynch's Jessica Reif Cohen expects little growth in this year's upfront
Total Spending(millions)
2005/06 2006/07* Change
Broadcast Total $11,230 $11,290 1%
Prime Time $9,090 $9,120 flat
Daytime $930 $930 flat
Late Night $700 $720 2%
News $500 $520 3%
Cable $7,100 $7,460 5%
Syndication $2,890 $3,000 4%
Kids $900 $900 flat
Hispanic Networks $1,330 $1,510 14%
National TV Total $23,510 $24,220 3%
*Projected
Source: Merrill Lynch
September
October