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Cable Needs More Than a Canoe to Dent Ad Market

Nov 11, 2008  •  Post A Comment

Cable operators have been talking a lot about the kind of advance advertising their digital systems can make possible.
Earlier this year they banded together to form Canoe Ventures, a joint effort to create a national unified platform for interactive and addressable advertising, to try to paddle their way to a significant piece of the $60 billion TV ad pie.
But a new study by Pike & Fischer says their efforts are likely to fall short.
Cable operator ad revenue has been disappointing for the past few years, the report said. Although it grew 8% from $3.4 billion in 2003 to $4.7 billion in 2007, other operator revenues grew even faster. Over that period, advertising dropped from 6.5% to 6.3% as a percentage of revenues for cable operators.
Cable executives see advanced advertising as a game-changer.
The industry hopes to increase its advertising revenue to as much as $15 billion a year once it has effectively deployed a standardized cross-operator platform capable of supporting addressable, interactive advertising, the report says.
“Clearly, given projected growth of just 5% to 6% a year in spending on traditional cable advertising in the United States, achieving an increase of 200% in annual advertising revenue will require a massive increase in the perceived value of cable’s local spots or a massive increase in the amount of inventory available for sale,” the report says.
Increasing inventory is unlikely, so increasing the value of the ads through better targeting and improved accessibility is the aim of the operators’ investments in technology, according to the report.
Adding advanced capabilities to its advertising also will help cable prevent the ad revenues it has from flowing to the Internet, which is already addressable, interactive and measurable. The Internet generated $21 billion in advertising in 2007, compared to the $5 billion local cable attracted, the report notes.
But so far, there isn’t “any evidence that the MSOs have successfully demonstrated cross-platform advertising capabilities that are concrete enough to draw new advertising revenue,” the report says.
As a result, Pike & Fischer is looking for cable advertising revenue to increase faster than it might have—9% growth rather than 7% growth—but not the kind of explosive gains proponents of advanced advertising are predicting.
Cable operators also have other priorities, the report notes. They are busy investing in all-digital delivery of television channels as a way to free up bandwidth. They also are increasing penetration of high-definition and digital video recorders. At the same time, they’re pushing phone service and adding small-business customers.
Despite the forecast, all is not lost for the cable industry, the report says.
“That does not mean we do not believe the multiplatform advertising vision will be realized. In fact, by the end of our forecast period, we believe that it is highly unlikely that advertising revenue will be segregated between cable television, broadband and even wireless platforms in terms of both how ads are produced, sold and delivered, and in terms of how the resulting revenue is reported,” the report says.
“If Canoe Ventures, or even an individual cable operator, is able to meld traditional local advertising, advanced advertising and online into a truly integrated platform that allows integrated ad buys, campaign management and reporting, the increase in value will be significant. “
But even if such a breakthrough is achieved, Pike & Fischer estimates it will take years and millions of dollars in capital expenditures before cable can use the capability to pull spending away from other media.
“Given these factors, our admittedly conservative view indicates that it will be at least 2015 before U.S. cable MSOs achieve advertising revenue in excess of $10 billion a year, much less the $15 billion that has been mentioned in various contexts,” the report concludes.

3 Comments

  1. Excellent job.

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  3. Love all the opinions expressed here! How is everyone? Love how everyone expresses whatr they feel 🙂

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