Cable operators, concerned about the inroads made by satellite competitors, have been dramatically increasing spending on consumer advertising, reaching beyond bill stuffers and local cable avails, according to a new study by Bernstein Research.
The study indicates growing ad spend across broadcast television by major multiple system operators Comcast, Cox, Adelphia, Charter and Time Warner Cable. These five MSOs collectively spent $97 million in the first half of 2004, which is more than five times what they spent as recently as 2000, when they bought only $19 million of broadcast ads. Operators spent $63 million on broadcast TV in 2003.
Comcast Tops TV Advertising
Comcast leads the pack in TV advertising, laying out a whopping $53 million so far this year to market to its potential customer base through local TV stations, an increase of 63 percent over last year’s spending.
Driving these increases is increased competition from satellite television, which has seen significant subscriber gains in the past several years. In the past decade DirecTV and EchoStar Communications have grown from nothing to reaching a quarter of all pay TV households, just as cable operators began losing subs for the first time. In the second quarter DirecTV added 455,000 net new subs and EchoStar added 340,000. Meanwhile, the 10 largest cable operators posted losses of 338,000 subs. The big ad spending by cable operators, observed Craig Moffett, an analyst at Bernstein, “appear to reflect a change in strategy, and a growing realization that traditional marketing channels are now inadequate. In a competitive environment, they need to reach more deeply into the pool of available customers and have a dialogue with all households, not just the ones they already serve.” With 40 percent of homes passed opting out of cable, that leaves a fairly large footprint for operators to reach out to, Mr. Moffett concluded.
“We’ve outgrown bill stuffers and local avails,” Charter spokesperson Dave Anderson said. “We have to go to more mass media.” Mr. Anderson said operators have begun placing full-page ads in local markets, something never resorted to in past years.
“It would appear indicative of a more competitive marketplace,” agreed Adelphia spokesperson Paul Jacobson.
Mr. Moffett added that this spending represents a major new cost factor for operators, who used to get their marketing for pennies. “Up until now,” he said, “cable marketing has emphasized direct mail to existing subscribers or running promotional spots on unsold cable avails, both of which only reach existing subscribers.”
The loss of cable subscribers to satellite is to an extent offset by increasing revenue per subscriber as operators sell ever more expensive pay TV, digital and video-on-demand packages to existing subs. According to Kagan Research, the cable industry will more than double overall revenue from $60 billion in 2004 to $138 billion by 2014. That would be accomplished not by adding new subscribers, but by getting more money out of the existing ones.
Kagan estimated that monthly residential revenue per sub could nearly double from $72.60 in 2004 to $139.10 by 2014, provided the economy remains stable enough to absorb such increased spending by consumers. Facing increased costs and competition, cable system operators will need that kind of revenue growth to prosper.