Satellite hurting cable

Feb 17, 2003  •  Post A Comment

The words above were written by Betty Comden and Adolph Green in 1958 for the Broadway show “Bells Are Ringing.” They could have been written about cable in 2003.
There’s no question that cable transformed television over the past two decades, bringing new alternatives to American viewers. Instead of just three broadcast networks that produced one-size-fits-all programming, suddenly there was an all-sports channel, an all-news channel, an all-gardening-all-the-time channel. Television will never be the same.
But it seems clear that cable’s glory days are now behind it. Micro-networks are cannibalizing the big guys. And hammered by exorbitant price increases, subscribers are bailing. There’s trouble on Capitol Hill. All in all, cable’s business model is coming apart.
Look at subscriber growth. Cable’s penetration of American television households went from 19.9 percent in 1980 to over 70 percent in 2001. But then something different happened last year. Cable’s moon, having waxed for so many years, began to wane.
Cable’s penetration growth stopped and actually reversed in 2002. Nielsen Media Research figures show that from December 2001 to December 2002 wired cable penetration fell from 70.4 percent to 69.2 percent. The last time wired cable was that low was in October 1996.
The Federal Communication Commission’s Dec. 31 annual report on competition in video programming markets reported similar findings. Although industry data reflected figures only through June 2002, the report stated, “A number of major cable system operators have experienced significant subscriber losses, and calendar year 2002 may be the first in which the cable industry as a whole experiences a net loss of subscribers.”
What’s going on? In a word: satellite. Alternate delivery systems (ADS), mostly direct broadcast satellite (DBS), are taking an increasingly big bite of television homes. According to Nielsen NTI data, national ADS penetration reached 16.5 percent in December 2002, up from 14.4 percent in December 2001. DBS, the largest component of ADS, is now estimated at 15.4 percent, up from 12.7 percent in December 2001.
And advertisers who buy cable locally have begun to take heed. Almost 100 markets now have ADS penetration of 20 percent or more, which advertisers and their agencies understand is a serious erosion of wired cable’s ability to deliver local commercials. For while a local broadcast commercial is seen by a viewer whether he or she is watching that station over wired cable or satellite, there is no local insertion in national cable programming in homes watching via ADS. So local advertisers are now deducting the ADS percentage of the audience if they are included in the cable systems’ submissions. (Nielsen recently announced it would begin publishing cable numbers in late 2003 in their component parts, wired and ADS, but until the changeover, advertisers need to make ADS deductions manually.)
More trouble ahead
There is every indication cable’s problems are going to accelerate in 2003. DirecTV, the largest subscription satellite provider, announced last month that it is planning to double the number of markets in which it delivers local broadcast television stations, a move it said will encompass 84 percent of all U.S. television households. DirecTV currently provides local broadcast stations in about 51 markets; the additions will bring the total number of DMAs with DirecTV-provided local broadcast to about 100. Watch wired cable’s ability to deliver local commercials take a dive in 2003 in such markets as Tucson, Ariz., Richmond, Va., Shreveport, La., Des Moines, Iowa, Louisville, Ky., and Colorado Springs, Colo., as DirecTV brings local broadcast stations to viewers and wins more subscribers away from wired cable.
And then there’s a la carte, the concept that consumers, not cable operators, should decide which channels enter the home. The tiered system, forcing cable subscribers to pay for programming they don’t need or want, is a “pretty balloon” that ought to burst. Sen. John McCain has questioned whether an 80-year-old woman who subscribes to cable should have to pay for ESPN. The senator was quoted in the April 22, 2002, Electronic Media saying, “It seems logical to me that people should be able to select from a menu as to what they want to pay for and view.” With the Republican takeover of the Senate, McCain is now chairman of the Senate Commerce Committee, the panel that oversees the nation’s legislation on cable TV issues, and is in a position to act on his beliefs in 2003.
The fact is a move to an a la carte system will “destroy” cable’s business model. Those aren’t my words-those are the words of the National Cable Television Association’s Rob Morrow in his Jan. 13, 2003, letter to EM.
And then it will indeed be time to “Wind up the masquerade.” The masquerade is the very notion of cable’s ratings growth. The reality is that that so-called growth has come from cable’s lowest-rated networks as they achieved distribution. Most of cable’s highest-rated networks have long since plateaued. Only broadcast television delivers the goods-note in January 2003 not one cable program made the top 100 television programs. The top cable program-“WWE Raw Zone,” a wrestling program-came in at No. 184.
2003 doesn’t look like a good year for cable. The party’s over.#
Chris Rohrs is president of the Television Bureau of Advertising. He can be reached at crohrs@tvb.org.