Broadcasters Hit Cable Where It Lives

Forward-thinking station groups, seeking zoned ad money, are taking their first competitive steps to addressing specific slices of their markets
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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 market.

“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 multiple zones.”

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.”

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