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Pumping Up Basic-Cable’s Upfronts

4/25/2004 8:00 PM Eastern

Alert media buyers could sense the irony, not to mention the fear, at Discovery Networks U.S.’s two-hour upfront presentation last month, as a scaly cobra slithered menacingly — but ultimately, harmlessly — across the stage at the American Museum of Natural History.

The cobra may have symbolized the cable networks’ potentially toxic attack on their broadcast rivals in a year when media buyers seem to be in full revolt over falling ratings and higher prices.

But the matter-of-fact reaction from a front-row cameraman who eyeballed the reptile of Animal Planet’s Austin Stevens represented the flip side: The broadcast powers have proven remarkably resilient to cable’s bites.

SANGUINE SIGNS

On the eve of the upfront — the annual Madison Avenue bazaar in which advertisers secure commercial schedules during the upcoming TV season — a few cable network executives are bullishly predicting that up to $1 billion could switch hands from the broadcast side of the ledger to cable’s.

Last year, national cable networks grossed as much as $5.7 billion in the upfront, a 21% rise from the prior year, while broadcasters wrote an estimated $9.3 billion in upfront business.

“The signs I’m feeling in conversations with agencies and clients makes me pretty optimistic about this upfront, because we’re getting a lot of phone calls and appearances earlier than we’ve ever gotten them,” said David Levy, president of Turner Entertainment Sales and Marketing.

Media buyers are angry over the broadcast networks’ failure to live up to their 2003 upfront ratings guarantees after clients paid 12-15% more than they did during the 2002 upfront.

Ratings among the coveted adult 18-to-49 audience were down 8% season to date through March for the six broadcast networks, while ad-supported cable was up 5%, according to Nielsen Media Research.

SLOW TOTAL GAIN

Moreover, total ad spending on broadcast television rose only 3.2% to $22.8 billion in 2003, according to TMS Media Intelligence/CMR, partly a result of a much weaker scatter market — when networks sell their remaining spots — and the need for networks to offer “make-goods” on their ratings shortfalls. Conversely, outlays on national cable grew by 16.7% in 2003 to $12.1 billion according to the Cabletelevision Ad Bureau.

CAB also reported that the cable industry’s share of all national TV ad dollars rose 8% to 34.1, while the broadcast networks slipped 5% to a 56.8 share. For their part, syndicators saw their share expand 7% to a 9.1.

“Right now, clients are putting more and more money into cable,” said Lyle Schwartz, senior vice president and Mediaedge: cia. “But I think there are practical limits on the money that can flow to cable.”

KIDS CLAMOR

There is also good news afoot in the kids upfront, which is expected to reap higher volume after stagnating in the $750 million range over the past few years. CPM (cost per thousand) pricing could rise in the mid-to-upper single digits, according to network executives, who cited an improved scatter market in the key eight-week juncture before Christmas and this spring’s Easter span.

“From end to end business is just strong,” said Nickelodeon senior vice president of ad sales Jim Perry. “There is a lot of new nontraditional stuff in the categories. Retail is starting to be big again, travel. We have four auto companies on the air,” because more parents are watching shows like The Fairly Odd Parents with their kids.

“We expect increases in high-demand periods at Cartoon Network,” said Kim McQuilken, the service’s executive vice president of sales and marketing, who insisted his network earned “very healthy” price increases last year. McQuilken said consolidation in the packaged-goods business has actually helped sales, because companies are healthier and more organized. He also cited a revitalized toy business, and a burgeoning entertainment sector, selling DVDs, video games and theatricals, as reasons for optimism.

NEW DYNAMICS

But upfront negotiations are never as facile as they seem. Last May, the broadcast networks steamrolled advertisers who feared being left out of the upfront and again subject to the whims of the scatter market, which pounded them with colossal price hikes — as much as 30% to 50% above the prior year’s upfront rates — during the 2002-2003 season.

That set off a boom that lifted cable networks after advertisers were either closed out of the broadcast upfront or sought cheaper alternatives.

But once broadcast ratings tanked early in the fall 2003, many advertisers largely avoided the scatter market forcing prices to fall 10%-15% below upfront CPM levels.

“Advertisers overcommited in the upfront and that was it. I don’t think there was replacement money,” said one active scatter-market buyer.

Others insist the weakness of the scatter market has been overblown. “It’s a normal marketplace, still fairly healthy,” said A&E Network executive vice president of ad sales Mel Berning. “What’s different about this year’s marketplace is a lot of demand is coming in closer to air.”

There are other differences as this year’s upfront draws nigh. With typical primetime rates selling at double-digit discounts to broadcast upfront CPMs, and cable ratings continuing to rise, other factors could coalesce to prompt that major swing in dollars to the newer medium.

CABLE AS LEVERAGE

This time around, buyers hope to use cable as leverage against the broadcasters.

HNS Media Services president Howard Nass said his clients can tell the six networks, “I have alternatives: cable, Internet, local TV and newspapers. Don’t think I’m stuck with you guys.”

While most players on either side of the bargaining table say it’s too early to predict how much CPMs might rise this year, those that did speculate said cable could reap increases in the 5% to 10% range.

But don’t expect the sweet nothings media buyers are whispering into cable’s ear to necessarily translate into a major tightening of cable’s lingering CPM gap with broadcast. Paradoxically, the bargains that cable networks offer — a source of irritation to the CAB and other industry executives who believe they deserve parity in pricing — is a main driver behind cable’s optimism this year.

“There’s a lot of discussion taking place with agencies and cable networks: 'If I brought you this much more money [from broadcast networks], would you be willing to work with me on pricing?’ ” said Lynn Picard, executive vice president and general manager of Lifetime Television.

“A lot of people are going to try and make sure they don’t rush in and repeat last year,” Charlie Collier, Court TV’s executive vice president for ad sales said, adding that no one wants to move too early for fear of misreading the market. “It’s just like a mutual find. You just want to buy at the right time.”

HELPED BY HITS

Shifts are also occurring in the way cable networks are selling their fare. Buyers have often derided cable’s top 10 shows, a list typically populated with wrestling and cartoons instead of original, upscale series found on broadcast.

Media buyer Nass said that few cable shows can approach the mass audience and water-cooler factor that his clients demand in return for paying top dollar. “The bigger players — the telecom guys, the cars — they want to be associated with what they believe are high-rated shows that the next morning people are going to be talking about at the water cooler.”

Moreover, the industry historically has found it harder to monetize its hits. That’s because unlike NBC, which sells Friends, cable networks usually sell most of their spots across dayparts, rather than by individual shows.

“If they want to be in the same market as network television, which sells by program, they’ve got to adapt to that type of environment,” said Mediaedge’s Schwartz.

Many already are, leveraging popular coffee-pot shows — and the relatively large ratings they generate — into package deals.

Jeff Lucas, Universal Television Networks’ ad sales president, pointed to USA Network’s hit detective series Monk, which drew Nielsen ratings as high as a 4.7 on Fridays, as well as Sci Fi Channel’s upcoming Battlestar Galactica series, as examples of shows with advertiser appeal.

At Turner, Levy insisted that new high-profile shows, such as Sex in the City, as well as running syndicated favorites Everybody Loves Raymond and Seinfeld in primetime, will bring in higher prices to TBS Superstation.

Sex in the City’s CPMs are much closer to broadcast CPMs,” Levy asserted, noting that coming out of HBO’s 27- million-home universe there is potential for the comedy to find a much larger following..

“If the shift I’m hearing is 10% of $9 billion in the upfront from broadcast comes to cable ... there’s only so many [gross ratings points] to account for that,” Levy said of the supply-and-demand equation. “If the inventory starts getting tight, then CPMs will start to grow.”

Added Discovery Networks ad sales president Joe Abruzzese, whose Trading Spaces on TLC qualifies as a breakout hit: “A lot of people are sold out; there’s pressure on the inventory. I wouldn’t be surprised if we were 8% to 10% closer this year than last year.”

RESEARCH AIDS

To further underscore their value, networks are increasingly turning to research trying to prove how cable has more attentive viewers or can mirror broadcasters’ wide audience reach.

Scripps Networks is citing finding from a Simmons Market Research survey that gives its five networks, including HGTV and Food Network, high marks for audience attentiveness, loyalty, and receptivity to advertising.

Turner is pitching the third iteration of its “Media at the Millenium” study, which endeavors to prove how sponsors can save money while improving reach by substituting cable for some broadcast.

Buyers say they study the research, but ultimately make decisions based on the age-old fundamentals, such as ratings and the “environment” for their ads.

In the end, A&E’s Berning said, “We all live by the Nielsen number.”

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