Cable Spends More on Upfronts as Broadcast Retrenches

Mar 30, 2008  •  Post A Comment

Some cable network executives are optimistic that increased viewing—partly driven by the Writers Guild of America strike that hobbled the broadcasters—will translate into a bonanza in the upfront advertising market.
But buyers note that a once red-hot scatter market has cooled. And while some ad dollars are likely to move to cable from broadcast, worries about the economy probably will limit spending on both.
Many cable networks are spending money in their upfront season to make money as the broadcasters scale back their once-lavish presentations. It’s another step in the evolution of many cable networks, which also are investing unprecedented sums in original programming.
Last week, USA Network, the top-rated cable channel, and Hallmark Channel, whose ad revenues have been growing rapidly, both held events at New York’s Museum of Modern Art.
MTV Networks last week said it will hold an upfront event on May 8, the week before the broadcast presentations. The company said its “intimate presentation” will be held at the Nokia Theater in Times Square and will include special guests and a surprise musical performance.
At the Hallmark event, Bill Abbott, executive VP for ad sales at the channel, projected that the cable market overall will enjoy double-digit price increases on a cost-per-thousand-viewers basis. Rather than waiting to buy cable ads until after they have locked up time with broadcasters, he added, some buyers indicated they might do some cable deals first.
Jack Wakshlag, chief research officer at Turner Broadcasting, said the writers strike meant that an early-season decline in network viewership among viewers 18 to 49 expanded to a 15% drop season-to-date. The losses come on top of an 11% decline in the prior season.
So far, ad-supported cable networks have picked up nearly all of the viewers lost by broadcast networks, propelling 35 channels to double-digit increases, he said.
While the return of original shows will bring many viewers back to broadcast, Mr. Wakshlag forecast broadcast viewing will be down 15% to 16% in April and 12% in May. By the end of the season, the broadcasters should be looking at an average 14% to 15% falloff for the season, a number big enough to affect the upfront.
“You can’t duck a 15% loss,” Mr. Wakshlag said.
For last year’s upfront, the Cabletelevision Advertising Bureau estimates cable networks took in $7.08 billion, up 5.5% to 6.5% from the prior year. The broadcasters took in about $9 billion, up about 5%.
Buyers said they expected some broadcast money to shift to cable this year, following the viewers.
“A little money could flow over to cable,” said Andy Donchin, director of national broadcast at media buyer Carat. “Broadcast still has unparalleled reach potential, but that they keep losing share and that the price keeps going up concerns me greatly.”
In addition to cable ads, he said, clients were looking to digital as an alternative to broadcast TV.
Buyers and network executives said the scatter market, where cable networks had been ringing up price increases of more than 30%, has cooled.
“Is that because of the economy? Who knows?” Mr. Donchin said.
Next month, advertisers will get a chance to exercise their option to cancel some of the commitments they made in last year’s upfront to buy ad time in the third quarter.
Mr. Donchin said that would provide a clue about whether marketers are beginning to cut ad spending as economic signals grow more ominous.
“There’s always some signs during the season that give us some barometers of what’s going on in the marketplace,” Mr. Donchin said. “I think this is one, especially so close to the traditional upfront period.”
Jason Kanefsky, senior VP for national broadcast at MPG, said expectations of higher spending on cable and higher prices have been overhyped by buyers and the press.
“There’s no money there,” he said.
Mr. Kanefsky said last year, marketers slashed costs to preserve their marketing budgets. Now, facing higher prices for gas, corn and other commodities, brand names are faced with a choice of either cutting media spending or raising prices far above the price of store brands.
“You can advertise all you want but if one package is $3.99 and the other is $2.99, they’re buying the $2.99,” he said.
At this point, he said, clients haven’t put together their media budgets.
But given the economy, “There’s no way on God’s green earth I can walk back to my client and give them a plus 8 [percentage point price increase],” he said. “No agency can and no agency should, given where the market is going to be.”
Mr. Kanefsky there are already signs of softening in the scatter market.
“The momentum of this marketplace stopped in February,” he said. He sees direct-response ads on cable networks that indicate they haven’t sold out their ad time.
“You can pick up the phone and do a deal. It’s a question of what price you get,” he said. “At this point, the networks usually hold their CPMs higher because we’re walking into the upfront. They’d rather lose short-term money and not long-term money” by lowering prices before clients make commitments for next season.
While most cable networks can point to big viewership gains, Mr. Kanefsky said he’s not impressed.
“They should have grown a lot more in the first quarter,” he said. “It’s not that hard to grow something 30% when your competition is doing zero. Shame on them.”

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