Content

Primed for Victory

3/06/2005 7:00 PM Eastern

In an era when even fruit juices are under attack from nutritionists, it’s no wonder some cable executives are wondering if packaged-goods advertisers will welch on their commitment to kids programming.

Yet despite some skepticism from Madison Avenue and published predictions of a flat marketplace, most cable network executives insist this year’s upfront ad sales market for kids will be a healthy one.

Of course, it’s only natural in the weeks leading up to the season when advertisers and networks sit down to negotiate their upfront deals that the two sides would have vastly different assessments of what lies ahead. But there are a number of variables that could make the kids market unpredictable to even the most esteemed industry soothsayers.

Apart from the issue of whether or not junk food should be advertised during children’s shows, question marks hover over the toys and apparel categories following a sluggish holiday season. There’s also the growing threat of increased usage of other entertainment options, like mobile devices. And on the positive side, home-entertainment advertising is on a red-hot streak.

Before assessing how any of those factors will affect satellite-delivered networks, it pays to take a look at recent statistics. Spending on Nickelodeon, Cartoon Network and Toon Disney rose 8% in the first 11 months of 2004, according to Nielsen Monitor-Plus, Nielsen Media Research’s advertising-intelligence service. Cartoon reaped the benefits of a huge ratings boost, and Toon Disney’s growth was at least partially due to its expansion in digital distribution.

“It feels like a healthy market,” says Nick president Cyma Zarghami. “Last year turned out better than anyone expected. This market looks strong with single-digit growth and no significant differences. It feels similar to a year ago.”

Tricia Wilbur, senior vice president of advertising and promotions at Disney ABC Cable Networks Group, says while it was too early to speculate on pricing, she was not concerned that the sluggish holiday sales season will turn the market softer and affect upfront pricing. “We had a healthy scatter market. We enjoyed good, strong budgets.”

For their part, media buyers are pointing to sluggish ratings in the fourth quarter. According to a Magna Global USA survey, kids 2-11 watched an average of 8.67 hours a week of shows aimed at their demo on ad-supported cable. That’s a mere 1% increase from the 2003 level. By comparison, the 2004 number was a whopping 13% over 2002.

Nick and Cartoon barely increased their ratings share in 2004 — to 36.5 and 26.9 — respectively. But Disney Channel took a 9% tumble to 22.9. Yet over a two-year period, Disney is still up by 23% while its rivals’ shares have dropped.

“Our competitors woke up and are now either emulating our strategy or aggressively counter-programming Disney Channel,” says a network spokeswoman.

AD-DOLLAR RIVALS

As they joust with each other, networks are also battling against the belief by some advertisers that they need to spread their ads over more platforms — such as the Internet, mobile phones, and other new technologies that are vying for children’s attention.

“Kids are just so submerged in media in general, and every medium is looking for a way to monetize kids,” says producer Buzz Potamkin, the former head of television at Hanna-Barbera. “To expect the classical environment to continue with its dominance is not a wise idea.”

The newest craze is “pod-casting,” in which preformatted programming — music for now, but producers are moving into narrative content — is downloaded into Apple Corp. iPods or other such devices and sold via subscription. “It’s truthfully viral,” Potamkin says. “It’s taking off like gangbusters.”

The potential loss of kids’ eyeballs doesn’t faze Nick’s Zarghami, who says her network and others are all over the new platforms with content and promotions. “The opportunity for introducing content in different places is a real opportunity. We’re a great platform for it. We have early adopters and heavy users.”

Madison Avenue executives note privately that the growing clout of giant discounters, such as Wal-Mart Stores and Target Corp., and the struggles of retailers like Toys “R” Us Inc., are key variables in this year’s upfront. And their advertising strategies could affect whether or not the kids upfront repeats last year’s surprising surge, in which unit prices reportedly rose 15%-20% in the “hard eight” weeks before Christmas and for pre-Easter sales.

Another worry for the networks: new Federal Communications Commission rules that go into effect in the latter part of the 2005-2006 season that limit kids ads to 10 and a half minutes per hour, compared to 12 minutes today.

Zarghami says her network already complies with the new rules. But speaking on background, other executives say that they will tighten up their inventory in ways that will mainly affect next year’s upfront sales. A Cartoon Network spokesman says “it was too soon to know” how the new rules would effect its ad sales.

OBESITY OBSESSION

Talk of pricing has been overshadowed by the latest fixation among pressure groups, advertisers and the media: the issue of obesity and the general healthiness of packaged-goods foods, especially those that target kids.

A Feb. 17 Associated Press report quoted Dr. David Ludwig, an expert on pediatric obesity at Children’s Hospital Boston, as saying, “Juice is only minimally better than soda.” And that comment is typical of the frenzy that has arisen over the issue, and questions concerning the appropriateness of snack-food ads during kids programming.

“In the first five weeks of this quarter, I’ve been out on the road visiting over a dozen clients, half of them in the food category, and I’m hearing that resonate,” says Cartoon executive vice president of sales and marketing Kim McQuilken.

Kraft Foods Inc.’s decision to pull some snack food ads has led a few observers to predict a backlash that could drive Tony the Tiger, Captain Crunch, and other cereal icons underground as companies attempt to mollify Congress and the federal government. Groups such as the Center for Science in the Public Interest have lobbied Congress to toughen rules on kids ads. They contend that retractions, like that of Kraft, are good, but not enough.

“Companies are thinking more seriously [about] ways that their message affects children, especially young children, and as a result are reformulating their marketing mix,” says Judy Harris, executive vice president for business and development at PBS.

“The $100 million question is how much of the TV budgets will shift to other vehicles, Web site promotions, entertainment tie-ins [and] more on-package promotions,” says James Chung, president of Reach Advisors, a strategy and research firm that last year published a much-discussed study on the differences in marketing across generations of parents and kids.

The food industry has gotten the message. CARU — the Children’s Advertising Unit of the Council of Better Business Bureaus Inc. — last June issued its own voluntary guidelines in hopes that self-regulation will soothe Congress.

Cable networks believe CARU’s work will keep the government at bay. “CARU is very sensitive to its responsibility in self-governing and sensitive to the public and government [concerns about] how kids are being messaged,” says Ken Ripley, vice president of ad sales for Discovery Kids. He also sells time on NBC’s Saturday-morning block of Discovery Communications Inc. programs.

The good news for the networks is that, for now, it seems fears of an advertiser pull back could be overblown. Kellogg Co. and General Mills Inc. have made it clear they won’t follow in Kraft’s footsteps. “I haven’t seen or heard from any advertisers who are following suit. A lot more advertisers have stepped up and said, 'I am already acting responsibly, and self-policing the industry is the best way to go,’” Ripley says.

Disney’s Wilbur adds, “Packaged-goods companies still need to sell their product, and television is one of the key ways in which to do that.”

“They’re going to increase how they keep kids informed about kids’ choices,” says Cartoon’s McQuilken.

Sales figures from last year — when companies first began worrying about government action — seem to bear out the networks’ optimism. Kellogg, home of Tony the Tiger’s Frosted Flakes, boosted its purchases on Nick, Cartoon, and Toon Disney by 38%, from $88.5 million to $122 million, according to Nielsen Monitor-Plus figures for January to November. General Mills — maker of Lucky Charm’s, Cheerios and Fruit Roll-Ups — upped its budget by 3% to $135.8 million.

Zarghami believes that the controversy won’t affect the advertisers’ commitments to kids programming. Rather, it will affect the way kids channels do business. “We’re doing a lot of work helping kids understand the value of a healthier lifestyle and exercise,” she says.

Marjorie Kaplan, senior vice president and general manager of Discovery Kids, doesn’t see things the same way. The snack-food dilemma “hasn’t had one iota of impact” on the way her network does business, she says. “All our programming has educational content. All the programming is created to meet the developmental needs of kids, and all programming is designed to be entertaining for kids.”

DVD WINDFALL

As they contemplate the packaged-goods storm, networks are enjoying huge benefits from the DVD sales boom. In the 2004 upfront, home entertainment helped push volume up 12%, past $900 million in the kids-programming arena, according to network sources.

A combination of factors are at play: declining prices of DVD players and hit titles, shortened distribution windows for theatrical films, and the popularity of boxed sets from television series like Seinfeld and The Sopranos.

Combined, they’ve created a perfect storm for media companies to exploit the home-entertainment sector. That’s not surprising since the studios helped fuel last year’s surprisingly strong upfront as well.

Still DVD sales are no slam dunk. “It’s all hit-driven, so if the hits are up, then DVDs are up,” McQuilken says.

The toy business certainly has its ups and downs as well. For example, Nielsen reports that Mattel Inc. pulled back about $1 million from Cartoon for the first 11 months of the year, but Hasbro Inc. added $9 million to its spending.

Yet both Ripley and McQuilken insist toy sales are strong. Ripley says that the troubles of retailer Toys “R” Us has been counterbalanced by increased advertising by a number of smaller companies.

Wilbur says Halloween has emerged as a strong retail driver, a trend that McQuilken began noticing last year. She makes reference to the “hard 12,” rather than just the traditional “hard eight,” weeks prior to Christmas. And Ripley notes the emergence of pre-Easter weeks as a galvanizer of toy and candy sales.

Network executives note that the advertising community has painted gloom and doom scenarios about TV for years, so their predictions of a flat upfront have to be considered in that context. In the end, Potamkin argues, companies will always find television an irresistible vehicle to reach kids.

“[Kids] are dry sponges being submerged in water,” he says. “That’s why you advertise to kids on television.”