As the boom in the U.S. economy settles down to more of a dull roar, the immediate cable advertising picture has dimmed along with the outlook for broadcast ad sales.
Cable ad sales aren't expected to tank but are likely to take a distinctly southerly tack. "The cable guys are little bit softer because broadcast pricing is such that it's put extra pressure on the cable guys," says Jonathan Mandel, co-managing director at Mediacom. "If clients continue to feel the economy's going south, it'll continue to be soft."
It's the trickle-down theory of TV economics, and ad agency executives believe that the cable networks are generally-though not universally-susceptible to the current downturn. "The cable marketplace, with a few exceptions, is highly derivative of the [broadcast] network marketplace," says John Rash, senior vice president and director, broadcast negotiations, for Campbell Mithun Esty. "Except for those marketers looking for highly specialized demographics that are found only in certain venues, the slowdown will continue to affect the cable industry to at least the same degree." Among those exceptions are MTV and ESPN, according to Rash.
Harvey Ganot, president of MTV Networks advertising sales worldwide, professes to be "optimistic" about the MTV group's relative safety from the projected turbulence in TV ad sales. "Niche is nice," he says. "Generation Y and anything attached to it will win. It's a fickle demo. It's tough to get ahold of them, and, if you stop advertising to them, you are gone."
But no cable networks are immune, and no one can predict how hard the soft market will be on ad sales. "Everyone is feeling the crunch," says Neil Baker, senior vice president of ad sales for E! Entertainment.
Slowdown, however, hardly means that cable's ad gains over the past few seasons will evaporate. New York-based media merchant bank Veronis Suhler projects combined cable-network and DBS advertising at $11.1 billion in 2001, up from $9.9 billion this year, with local advertising at $3.2 billion and regional sports at $464 million. In terms of the total pie, it projects cable ad sales at $14.8 billion in 2001, 13% over 2000. This year's estimated sales represent a 16% jump from 1999.
Some cite a hangover from Olympics ad spending. "The market's very quiet. It's somewhat of a buyer's market," says William Cella, executive vice president of broadcasting and programming for McCann Erickson. "The election and the Olympics sucked up a lot of money."
But ad agency and cable sales executives alike expect the current downturn to extend beyond the fourth quarter into early next year. Scatter is expected to remain sluggish, but the upfront is expected to show much slower growth than the 20% hike, to $4.6 billion, it experienced this year. "All indications are that the upfront will be much softer than it has been over the last couple of years," says Larry Blasius, senior vice president and director of national broadcast for TN Media.
The absence of dotcoms from ad schedules is one major factor. Also, public companies are paring ad budgets to improve Wall Street's opinion of their bottom lines. "We all know what happened in the Nasdaq in April. We expected there would be a shakeout," says Joe Uva, president of Turner Entertainment group sales and marketing.
But Uva expects another year of double-digit cable ad sales growth in 2001, fueled by a strong second half. And he considers the Turner networks particularly well positioned because they own the copyright to so much of the content they broadcast and can build promotional programs to keep ad revenues coming.
CNN's heightened profile as the result of the extended presidential election has given a very positive twist to what would have otherwise been a flat fourth quarter. "This has attracted a lot of advertising that would not have come our way," says Larry Goodman, president of sales and marketing for CNN.
But that surge has passed. And all the major cable networks face what figures to be a major speed bump in the months ahead, with repercussions that will likely extend to the upfront season and beyond.
Cable & DBS Ad Revenue/(million $)
|<p> <span class="small" id="d9e39-16-small">Year</span> </p>||<p> <span class="small" id="d9e44-20-small">Network</span> </p>||<p> <span class="small" id="d9e49-24-small">Local</span> </p>||<p> <span class="small" id="d9e54-28-small">Regional Sports</span> </p>||<p> <span class="small" id="d9e59-32-small">Total</span> </p>|
Sources: Veronis Suhler, The Publishing & Media Group, Paul Kagan Associates; e=estimated