Local Ad Sales Forecast: Declining Revenue, Some Bright Spots

If ad-sales executives thought the economy was tough over the last few months, here’s advice for 2009: Hang on.

The local cable ad-sales business, after years of impressive double-digit and high-single-digit growth, hit a brick wall this year — and the prospects for 2009 aren’t much better, according to a survey of executives conducted by Multichannel News. A colossal credit crunch is expected to keep the stock market stagnating, retailers reeling and automobile sales tanking.

Nearly half of the 172 local cable ad-sales executives (48%) who took the survey in October predicted revenue for their division would decline in 2008, while another 7% said revenue would be flat.

“Over 25 auto dealers have closed their doors so far this year in the Chicago area and we expect that the number will only get higher,” said Peter Heisinger, executive regional vice president of Comcast Spotlight’s Chicago and Twin Cities market. The second half of the year was a complete shift from the first half, when the unit was doing “terrifically well with automotive,” he said. Now, “we’re dealing with the kind of stuff that most of us have never seen in our careers.”

The survey results reflect the fact that the major MSOs have generally been reporting slight declines or only small growth rates. Five major publicly traded MSOs — Comcast, Time Warner Cable, Charter Communications, Mediacom Communications and Insight Communications — collectively saw a 1.9% decline in advertising revenue to $2.04 billion in the first nine months of 2008.

While there are certainly bright spots looking into 2009, a majority of cable-system sales executives (51%) predicted that ad-sales revenue would be flat or down, with 33% bracing for a decline and 18% predicting no growth.

Those gloomy projections stand in stark contrast to the optimistic results of last year’s survey, when political ad money — not to mention the Beijing Olympics — helped fuel growth.

“Most of the markets will see declines this year,” said Cox Media Western region vice president Mike Miller. “With the ad pie shrinking, we’re gratified that we’re growing market share, but I think it will be a struggle to get back to even in 2009” after losing 2008’s political revenue.

National Cable Communications, which represents major MSOs in the national spot business, has budgeted for revenue growth next year. But NCC senior vice president of marketing and business development Andrew Capone admitted the peril in making predictions in the current economic climate.

“When you see General Motors selling the fewest cars in one month in 40 years, and you have retailers declaring bankruptcy every week, and you have consumers stuffing money into mattresses, there is only so much you can do,” Capone said. “2009 could be a very difficult year.”

Cable’s competitors are also hurting. The Television Bureau of Advertising recently revised its 2009 projections downward. TVB now predicts that local spot advertising for broadcast stations will be down 4% to 8% and national spot will fall 11.5% to 15.5% in 2009.

Perhaps the biggest reason for the pessimism is the auto sector, which remains the single largest source of revenue for local cable ad-sales teams.

“When you have 28% to 30% of your business in the automotive category, it means that when they cough, I catch a hell of a cold, and this year they coughed,” said Charter Communications senior vice president of corporate advertising sales Jim Heneghan.

“We had a great political year and when you add up all the political spending, I won’t be down versus last year, but I won’t be up as much as I’d like,” Heneghan said.

Few think the problems in Detroit will ease quickly. Most of the cable ad executives surveyed (84%) predicted that their auto revenue will drop or remain flat, while nearly two-thirds (65%) expect them to decline in 2009.

Executives also worried about problems in the financial sector (45% predict a drop in ad revenue), retail (52% expect declines) and the housing market (43% see a slump in real estate and insurance spending).

The economic woes are putting pressure on pricing in most markets. “We are selling more spots than we ever had, but we are selling more for less,” said Mike Zeigler, director of enterprise applications for Cox Media. “Even though our volume continues to increase and we are gaining market share, we are facing revenue challenges in the market,” which Zeigler believes makes the advanced ad platforms even more important.

Cable’s success in recent years also makes it more vulnerable. “In most of our markets we continue to gain market share and are now the No. 1 or No. 2 TV outlet,” said Cox Media Eastern region vice president Sharon Frazier. “When you are one of the top billers in the market and advertising is growing very slowly or contracting, it becomes a lot more difficult.”

Still, results vary from region to region. “Problems in the housing markets very much correlate with market performance,” said Comcast Spotlight’s Cuddihy. “Northern California and South Florida, which have had some of the steepest declines in housing prices, have both become tough markets.”

The same is true in Las Vegas. “We’ve been especially hard hit in Las Vegas, which I think has the highest foreclosure rate in the country,” said Shelley Woodrow, general manager of the city’s Cox Media operation. “We’ve seen deep discounting from radio and television,” she added. “Clients are getting presented with deals that they’ve never seen before.”

Bend Broadband’s Central Oregon Cable Advertising unit has also been hurt by the housing market, according to vice president of business sales Tim Olson, who oversees the division. A real estate channel, which was responsible for a considerable amount of growth in 2006 and 2007, has slumped over the last year, hurting this year’s budgets.

On the plus side, a push to diversify revenue has softened the blow, and Olson is bullish about their competitive position. “The flexibility of our medium makes us well-positioned to show our clients the real value of cable at a time when they need values the most,” Olson said.

The lingering effects of Katrina and an uncertain economic climate also made for a tough year in the Gulfport and Biloxi areas of Mississippi, where Cable One serves about 130,000 homes, said regional sales manager Steve Price.

In 2006 and for most of 2007, the division saw healthy growth as people rebuilt homes and purchased new cars. But that growth began to slow at the end of 2007 producing “a double whammy, when the credit crunch started in 2008,” Price said. He expects revenue to drop by 4% this year and is worried that conditions will remain tough through 2009.

In sharp contrast, sales have been stronger in the Midwest, the Mountain States and areas of the Southeast outside of Florida that were less affected by the housing bubble.

“It’s been a challenging year,” said Annette Heaton, Cox Media’s general manager for the Oklahoma City and Tulsa, Okla., areas. “But we are doing better than other parts of the country. We didn’t see the boom or the bust that a lot of markets have gone through and we’ve continued to gain market share.”

Not all news is bleak for cable operators and networks: Several sectors, such as health and wellness, continue to show double-digit growth, according to executives.

Cable also continues to grab market share against its broadcast-TV, radio and newspaper competitors. “We’ve had a tremendous year in terms of gaining market share from stations and newspapers,” said Comcast Spotlight senior vice president of advertising sales Kevin Cuddihy.

Overall, 56% of cable ad executives believed local cable was gaining market share and 35% believed that cable interconnects were grabbing a bigger piece of the pie.

Some smaller operators have also held up reasonably well. Kelly Enright, regional vice president of advertising services at Bresnan Communications, expects the MSO to meet its goal of double-digital growth for 2008. “About 90% of our business is local and only 10% is national, so we’ve been much less hurt by the downturn in national than the big guys,” Enright said.

Pockets of healthy business exist in larger markets. In New England, Comcast Spotlight has managed to actually grow its local auto business.

“Our attitude is that as tough as the economy will get, we still have a distinct advantage with all the products and tools we have to sell,” said Stephen Flaim, regional vice president for New England in Spotlight’s North Central division.

Michael Hills, vice president and general manager of Comcast Spotlight in Pittsburgh, also reported a relatively successful year in the auto category.

“Our local auto business has been flat, which in this economic climate I’m considering a success story,” he said. “Our VOD business is up 30% and our online business has been up 260%, and in my opinion we are just getting started.”

Comcast Spotlight’s Heisinger also made note of the growing importance of VOD and Internet sales in developing new business.

“We’ve had tremendous success has been going after what are traditionally non-television categories, such as health and wellness, education and certain parts of the entertainment category,” Heisinger said.

In Chicago, Heisinger’s team created a pair of microsites, summerfunchicago.com and winterfunchicago.com, which contain extensive information about local attractions and events. Typically, sponsors buy 30-second spots that will drive viewers to the Web sites as well as VOD channels.

Some of cable’s advanced advertising platforms — video on demand, interactive television, addressable ad systems and the Internet — are also beginning to generate significant revenue.

“In the New York market broadcast TV is off almost double digits, yet we are still plugging away in positive territory,” said David Kline, president and chief operating officer of Rainbow Advertising Sales Corporation (RASCO), which handles sales for Cablevision Systems.

One key reason for that growth in a down market has been Cablevision’s interactive TV and VOD ad products which, according to Kline, “can provide dealers with real-time leads,” from viewers who simply click a button on their remote to request a test drive or more information.

“Advertisers are looking for accountability and measurability, and we can provide them with all of those things with the VOD and interactive products,” Kline said. “Our churn has been less; and when they cut back, they cut back less with us.”

Operators are also putting more focus on their Web products. Over the last year, Comcast Spotlight has been focusing on online sales for its Vehix.com and Comcast.net properties and revamping its sales force into what Cuddihy calls “the largest digital ad-sales force in the U.S.”

“In the first full year of being aggressive with the Internet, we are generating eight digits worth of revenue,” Cuddihy said.

Sales executives have higher hopes for those platforms in 2009 and beyond as Canoe Ventures develops products that will make it possible for advertisers to place buys for interactive TV, addressable advertising and VOD products on multiple MSOs.

“Advanced advertising platforms will continue to provide more accountability and push people to cable as their primary and core buy,” said Chuck Thompson, executive vice president of strategic operations at the Cabletelevision Advertising Bureau. “Canoe will allow advertisers to reach a national footprint.”

NCC can tell a similar story. “Advanced platform business has been very brisk,” said Ken Little, the company’s executive vice president of technology and operations.

As part of a strategy to expand into sectors that have not spent much with cable in the past, the NCC put together the VOD product MyLife On Demand. “The health and wellness category is one where there are several billion dollars spent but spot cable’s share is infinitesimal,” said NCC’s Capone.

Looking forward, Capone sees the potential for similar products targeting such categories as travel and leisure and the financial services industry.

Bennett Griffin, president of Griffin Media Research, which provides research and training to a number of operators, also highlights the importance of expanding into sectors that have traditionally spent little money on local cable.

“One of their biggest challenges is replacing the revenue they’re losing in the automotive segment, which has been such a key portion of their revenue but will obviously be down for a while,” he said.

To help with that effort, the CAB has also been beefing up its Web site and doing more research, according to Thompson.

“We’ve made some significant strides in terms of providing more information to our members and helping them react to the market,” he said.

That has also required the NCC and other sales units to dramatically upgrade their systems to track and disseminate more information.

“Our data needs have been growing 30% a year for the last five years,” said NCC’s Little. “This year, we will be managing close to 3.7 billion spots.”

While the number of spots being sold will certainly grow, sales executives are more uncertain about how long it will take for the price of those spots to rebound.

Rainbow’s Kline, who is budgeting for growth in 2009, admits the timing of the recovery remains uncertain but insists that the longer-term picture is bright.

“With the advanced advertising platform, we’re making the 30-second spot more valuable and powerful than the 30-second units that broadcast TV sells,” he said. “That is how we are going to grow.”