All Together in L.A.

Interconnect Adlink enables systems to cover a sprawling city
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In Los Angeles, everybody wants to be a star. Adlink is big all right, but it's not quite on the "A list."

But this may be the year Adlink, the nation's largest cable interconnect, shows its muscle, as it fights to get the same cash for local spots that the big network stations get in the City of Angels. Founded in 1988, Adlink snatches ad dollars from those stations by grouping 80 cable systems into one humongous Southern Calfornia media buy.

It's already more expensive per point than some stations, and Adlink also has the ability to split up its transmissions by geography. Such features as its Adtag and Adcopy allow advertisers to send as many as 80 distinct messages to people in different parts of the market.

Starting next month, the interconnect will have more ammunition for competing with broadcasters. It will become the largest cable interconnect using ratings from Nielsen Media Research's local people meter (LPM). The electronic measurement system is expected to measure cable audiences better than Nielsen's current household-meter/diary system.

If higher ratings translate into more advertising, it will come on top of cable's growing share of ad revenue.

"For the year, we're up 21%," says Rick Oster, vice president and general sales manager of Adlink. "We have $18 million more on the books today than at the same time last year. And, last year, we grew from $117 million to $144 million."

Few ad-tracking services measure spending on local cable, so side-by-side comparisons with broadcast are hard to come by. But, as a point of comparison, first-quarter spending on broadcast stations in Los Angeles was up 8.7% over last year, to $465 million, according to Nielsen Monitor-Plus.

Adlink's growth partly reflects a pattern seen on the national level, where advertisers are migrating to cable as its share of the TV audience grows.

Nationally, where ratings are more reliable, cable's prime time audience share hit 50.3% in 2003. The broadcast networks collectively had 44.8%, according to the Cabletelevision Advertising Bureau.

Interconnects like Adlink also make it relatively easy for media buyers to use cable in local markets.

"It's one-stop shopping," says Kevin Gallagher, senior vice president and media director at Starcom USA. "It used to be difficult to cobble together all of the individual systems. A side benefit is that, once those systems are interconnected, it gives cable the opportunity to compete with broadcast because it provides coverage of most of the market."

Perhaps the biggest boost for local cable in Los Angeles, however, is the LPM.

After delaying it in March, Nielsen is set to launch it in Los Angeles on July 8. The LPM has been widely criticized for undercounting minorities. Despite the controversy, however, Nielsen is moving forward with its rollout, and, when it arrives, TV ratings will shift (see page 38).

"The preliminary data is showing fundamental changes in the reporting of audience levels," says Lucy Hughes, director of research at Adlink. "There is more viewing to cable than previously reported."

Improved ratings, geographically tailored messages, ease of use, and a growing number of cable networks accepting local ads—up from 16 for the average interconnect in 2000 to 32 in 2003, according to Merrill Lynch—will help close the gap between cable's share of local audiences and its share of local ad revenue.

Cable now accounts for about 30% of local viewers, on average, but only 14% of local ad dollars, estimates Jessica Reif Cohen, a media analyst at Merrill Lynch.

The gap is more pronounced in the L.A. market. "We feel that nearing 50% of the viewership and getting roughly 10% of the television advertising money in Los Angeles means there is great potential for growth."

Most media analysts and buyers think ad spending on local cable TV will take off. Forecaster Jack Myers, for example, is projecting that ad revenue will grow 15% on local and regional cable this year, compared with 5.8% for all media.

The outlook is bright for local cable and for Adlink in particular, since it will be among the first interconnects to benefit from the LPMs, which appear to be quite cable-friendly .

Still, Adlink faces a few challenges.

The first is the pesky problem of having relatively high cost per rating points, an issue Oster says is becoming less pronounced.

"What we have begun to do—and I think have done well—is achieve fair-market value for our product," he says. "We provide an alternative for people trying to reach the entire Los Angeles market. And we feel we have a lot of competitive advantages over the broadcast stations, which are driving a lot of our success."

But many media buyers and broadcasters say local cable will have a tough time completely erasing its audience/advertising gap if cost per point remains high. In many cases, costs per point on interconnects can be two to three times of those on broadcast stations.

"There is obviously a role for local cable, but I think Adlink and [interconnects in] other markets are probably getting a disproportionate share because people think they are cheap," says Fred Reynolds, president and CEO of Viacom Television Stations Group, whose stable includes KCBS and UPN's KCAL in Los Angeles.

"Local cable will say they are reaching a certain number of cable homes, which in L.A. is probably about 70%," he says. "Then take out about 20% for satellite, which doesn't have local-commercial insertions. When you put that into the equation, what looked like 99¢ [per rating point] is probably $2 because you're only getting half the audience."

In fact, satellite-TV services such as DirecTV are probably the biggest threat to Adlink. Nielsen estimates that 61% of homes in the market have wired cable, while 22% have an alternative delivery system, most of which is direct-broadcast satellite.

Adlink doesn't include DBS in its service, and that is not expected to change soon.

While the threat of DBS looms, Adlink is looking to new sources of revenue. That shouldn't be so hard. This is an incredibly diverse market, with Orange County Republicans one way, Beverly Hills liberals the other, and huge Mexican and Asian populations throughout.

Adlink, like many other advertising organizations has begun aggressively targeting Spanish-language stations, and no wonder: 43% of the population has Hispanic roots.

"Another way we're talking to advertisers," says Oster, "is to use tools [like Adtag and Adcopy] to divide the market by ethnicity.

"It gives advertisers a way to reach those Hispanics who are watching English-language television but may be living in predominantly largely Hispanic neighborhoods. Or," he points out, "you can run Spanish-language commercials."

And of course, in Los Angeles, Oster wants them on Adlink.

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