Los Angeles: Benefits Foreseen in Merger

May 23, 2005  •  Post A Comment

By Wayne Karrfalt

Special to TelevisionWeek

The Los Angeles market probably stands to gain the most when the dust settles from the cable industry’s latest megamerger, industry observers said.

While the nation’s second-largest DMA has benefited by being interconnected by the jointly held Adlink since 1988, its fragmentation has contributed to a steady decline in cable penetration, down to 57 percent according to Nielsen’s most recent estimates, a full 10 percentage points less than the national average. But that trend could change next year, when Time Warner will take control of both Adelphia’s and Comcast’s L.A. systems, giving it a controlling 70 percent share of the region’s 3.3 million cable households.

“I think it’s a very good thing for the industry that this market consolidates,” said Roger Stallard, regional VP of Adelphia Media Services. “It is one of the last to do so, and it will make for a much healthier media marketplace.”

L.A. residents are sometimes among the last to have access to advanced services such as video-on-demand that differentiate cable from satellite. Some systems have changed hands a half-dozen times in the past 10 years, but as the city went from 14 separate operators in 1988 to five today, few completed the upgrades that have proved to be the best ammunition against DirecTV and DISH Network.

“The truth is cable has better technology and better services to offer than satellite, but not all subscribers in L.A. have access to them,” said Rick Oster, senior VP and general sales manager for Adlink. “Once the market is consolidated and people have access to Time Warner’s products, I think you’ll see a change.”

Geographically spread out and ethnically and economically diverse, L.A. offers rich opportunities but also stiff challenges to advertisers. Adlink offers national and regional advertisers the ability to insert ads on 44 networks across the DMA and eliminate waste by targeting specific ads for specific neighborhoods. It has seen revenues climb from $117 million to $160 million in the past two years and is expecting further growth this year.

The biggest current operator, Adelphia, whose footprint includes Santa Monica, Beverly Hills and West Hollywood, said two built-in advantages continue to play a large part in future L.A. ad strategies: the burgeoning Hispanic community, now 40 percent of the population, and the homegrown movie business, which buys four to eight promotions a month to promote limited and advanced releases exclusive to the city’s Westside.

Movie ads are expected to be a big driver for VOD advertising. The Hispanic market is set to bring more investment from a variety of categories as Adlink plans its launch of a new Spanish-language-targeted division later this year, Mr. Stallard said.

When Time Warner takes a controlling share of the L.A. market, however, the future of Adlink itself may be in jeopardy. The operator pulled its Manhattan system from the interconnect in New York in 1997.

“Adlink will have to make a strong case to continue selling most of the inventory,” said media analyst Larry Gerbrandt.

But others said they believe Adlink’s track record of steady growth and innovation will compel Time Warner to leave it in place.

“It’s been proven over and over again when you consolidate a market that all boats rise,” said Comcast Spotlight Senior VP Hank Oster, who helped manage Adlink for more than a decade before bringing its model to Comcast.