By Wayne Karrfalt
Special to TelevisionWeek
If necessity is the mother of invention, the consolidation of local cable ad sales is the result of a well of need.
In the days when cable spot time had to be bought system by system, trying to blanket a market was a nightmare, media executives said. Buying an ad for the New York designated market area 10 years ago meant placing some 75 phone calls. Most national advertisers didn’t bother.
Today, interconnects-multiple systems wired together for the purpose of placing ads-are helping cable operators gain parity with local broadcasters. Now the larger cable systems get more than 10 percent of national ad budgets, a dramatic improvement in a relatively short amount of time.
This revenue stream has become one of the true growth segments of the cable industry, even at a time when the overall advertising market is weak.
“[Consolidation] made cable viable,” said Jean Poole, executive VP and chief operating officer of Universal McCann North America. “I’m not a proponent of consolidation per se, but when it comes to local cable, it’s the only way to make it a medium we can use.”
The consolidation model began to take shape in Los Angeles in the late 1980s, when five L.A. cable operators banded together to attract at least some of the dollars pouring into local TV markets from national advertisers. Now these interconnects have evolved to become the way all of cable’s major multiple system operators do business, offering media buyers a one-stop shop in which to place ads across an entire DMA.
In 2003, the year industry leader Comcast Spotlight completed interconnects in 30 markets across the country, the company reported a 17 percent spike in regional and national ad revenue, compared with 1 percent growth for broadcast television. Last year that number ballooned to 25 percent for Comcast and only 7 percent for broadcast, with analysts attributing much of the latter’s growth to political ads in a presidential election year.
In the first quarter of 2005 Comcast was up 15 percent over the same period last year.
“These numbers speak of the success of interconnecting markets and the value it brings to advertisers,” said Hank Oster, senior VP of Comcast Spotlight, the cable giant’s ad sales arm. “This is enormous growth that did not exist before interconnects were in place.”
Comcast has been the cable industry’s strongest proponent of interconnection since it took the reins of AT&T Broadband to become the nation’s largest MSO in 2002. One of its most compelling pitches to investors has been the promise of higher ad revenue. The hiring of Mr. Oster and his boss Charlie Thurston away from Adlink in Los Angeles, the nation’s first interconnect, was a linchpin in Comcast’s strategy to apply the Adlink model across all of its systems.
The rest of the industry knows a good thing when it sees it. The number of interconnected markets has grown from nine four years ago to 135 today. Those include most of the top 100, which account for 86 percent of America’s 73.5 million wired households.
The Cable Advertising Bureau said it expects 150 of the nation’s 211 DMAs to be interconnected by the end of 2005.
CAB President Sean Cunningham said the overall consolidation of the industry into just a handful of MSOs has helped speed the process of interconnection, as these companies “got into a rhythm” of hammering out deals that split ad revenue by percentage of subscribers held in a given market. Many markets are still in the process of improving addressability, standardizing channel lineups and adding digital insertion capabilities to provide a uniform experience for advertisers.
“My members continue to work for as much standardization as they can, working on getting the highest percentage of hard-wired subs into the interconnect as possible,” Mr. Cunningham said.
Consolidation has brought other advances besides sheer reach. The advent of electronic data interchange invoicing allows buyers to close transactions immediately and has been a boon to the cable ad business. More than 95 percent of cable systems offer EDI, whereas half of broadcast stations still send out paper invoices.
Media buyers say interconnects are particularly effective in markets that have rolled out Local People Meters, Nielsen Media Research’s new electronic ratings system. LPMs, which will be available in the top seven DMAs in June, help identify individual programs on some of cable’s more specialized networks, and interconnects make it possible to easily buy them across multiple DMAs.
“We’ve been able to search for unexpected programs and networks, especially for clients with restrictive network lists that are fussy about which programs they buy,” said Janice Finkel Green, senior VP and associate director of local broadcast for Initiative.
Hard-wiring upgraded cable systems also enables advanced segmenting tools such as Adlink’s patented Adtag and Adcopy, which will be available in all of Comcast’s systems by the end of 2005. Adtag, which allows the last five seconds of a spot to be tagged with different information, and Adcopy, which can be used to deliver different marketing messages across different zones, are helping more sophisticated marketers slice and dice a DMA to target by affluence, ethnicity or past preference.
“These new tools are taking off quickly, and the key is to have the planning and creative resources to pull it off well. Sophisticated marketers are jumping on, because they have such sophisticated data available,” said CAB VP of Sales Chuck Thompson.
The Holy Grail of addressability, of course, is video-on-demand, which advertisers already see as the ultimate tool to reach individual households with a variety of marketing messages. Though measurement and tracking tools are still in the early stages of development and the penetration of 28 million homes is less than half of cable’s overall reach, excitement over the technology is building.
As cable operators position themselves to compete directly with broadcasters for ad dollars, pricing and inventory remain tricky issues. Cable feels its targeting ability should translate to higher CPMs, but media planners have balked.
“In many cases these [interconnected] markets are being pressured to compete with the broadcast pricing model,” said Kevin Dowell, senior VP of Insight Media. “The ability to provide targeting helps buffer that, but you’ve got to be careful.
“For years cable has said it wanted to be treated the same as broadcast, and now buyers and planners are holding us to that,” he said.
Media planners are also complaining about the lack of inventory on local cable networks, which reserve just two minutes of avails per hour for spot buys. Cox Media VP of Ad Sales Billy Farina is not alone in wanting to oblige them. The hope is that increased demand will help make the case to cable networks for parting with more of the inventory they use to promote their own programming.
“From a consolidation standpoint, maybe operators have more of an opportunity now to bargain with networks,” said Maribeth Papuga, senior VP and director of local broadcast for MediaVest USA. “It makes sense to siphon off network spots and try to sell them locally, because there’s a demand,” she said.