Six years after pulling out of the New York Interconnect because of a dispute with Cablevision Systems Corp.’s ad-sales division, Time Warner Cable is negotiating a possible reentry into the interconnect.
The talks, confirmed by Time Warner Cable Advertising Sales president Larry Fischer, could result once again in one-stop shopping for advertisers in the nation’s largest TV market.
“We’re talking again. We recognize in a broader theme that interconnects make the buying of cable simpler, and potentially more efficient. We don’t want to buck the trend here,” Fischer says.
The trend Fischer alludes to is larger than just interconnecting the advertising sales power of cable companies into one “all for one, one for all” effort. Interconnects themselves are evolving into large muscular animals spoiling for a much better fight with broadcasters — to the point that the interconnects as they were run 10 years ago now look wimpy.
THE BIG IDEA
To understand how interconnects are changing, it pays to step back in time. When cable operators in the early 1980s first kicked around the idea of pooling their local advertising inventories, the goal was — as it remains today — to help level the playing field with the wide reach offered by local broadcasters.
While TV stations can hit every home in a market with their over-the-air signals, local cable operators couldn’t offer the same reach to advertisers. The solution was to create cable interconnects, which would allow media buyers to place ads across multiple cable systems in a given market.
“We very early on saw that one of the obstacles to our growth was the requirement that advertisers do several different buys to cover the same geography that they could with one call to a broadcast TV station,” said Cabletelevision Advertising Bureau vice president of local sales and marketing Kevin Barry. “Cable operators began cooperating, agreeing to represent someone else’s inventory.”
Those first joint operating agreements between cable operators were for so-called “soft interconnects” which operators used to sell a chunk of the inventory that national cable networks allot to cable systems.
Cable networks such as Turner Network Television, ESPN and USA Network allot about two minutes per hour for operators to sell locally.
In those early interconnect agreements, cable operators would pitch deals to advertisers allowing them to run ads across sometimes 10 or more cable systems in a market during the same program.
The strategy was aimed at making it easier for advertisers to spend money on cable. At least that was the hope.
“If you were a national advertiser and you wanted access to the Chicago market, you would essentially have to buy schedules on 11 operators, and those schedules would not be symmetrical,” says Kevin Little, executive vice president of technology at the ad-rep firm National Cable Communications.
GOING HARD CORE
It wasn’t until the mid-1990s that the first “hard interconnects” were created in markets such as Chicago, Minneapolis and the nation’s No. 2 DMA, Los Angeles, where Adlink still runs the interconnect.
Unlike the soft interconnects, which forced advertisers to shuffle paperwork between each cable operator in a market, hard interconnects allowed advertisers — through one phone call and one invoice — to buy local ads that would run across every cable system headend in a market simultaneously. Hard interconnects rely on fiber that connects each headend in a DMA to transport ads digitally.
In order to meet the industry’s standard for a hard interconnect, 80% of the wired homes in the market must be linked to the interconnect, and there must be a single point of sale for advertisers.
At the end of 2003, there were 116 interconnects nationwide, most of which were managed by Comcast Corp. That’s a huge leap from December 2000, when there were only 10 interconnects that met the 80% coverage rule, Barry said. (See listing of U.S. Interconnects, Page 46.)
While the industry has progressed significantly since the days of soft interconnects, some significant holes remain. New York is a glaring example — and a reason why Time Warner Cable’s renewed interest in filling that void is so important. At present, the interconnect operating in New York fails to meet the 80% standard, following Time Warner Cable’s decision to pull out of the New York Interconnect in 1998.
Comcast and Cablevision Systems Corp. are co-owners of the New York Interconnect, which is managed by Cablevision’s Rainbow Advertising Sales Corp. unit.
That’s not the only market with problems. San Diego, the 26th largest DMA, has never been interconnected. That forces media buyers to cut separate deals with incumbent operators Time Warner Cable and Cox Communications Inc.
While cable executives credit the growth of interconnects for helping drive local ad sales, broadcast stations still dominate when it comes to ad-sales revenue.
In the mid-1990s, hard interconnects collected 3%-4% of a market’s local ad revenue on average. That has grown to 9% in most markets, while some interconnects rake in more than 10% of local ad revenue, said Steve Feingold, group vice president for Comcast Spotlight’s Eastern division.
But Feingold, who helped build the Boston interconnect in 1997, expects that cable’s share of local ad revenue will continue to increase as Comcast and other MSOs deploy new advertising technology.
Feingold pointed to advancements such as Comcast’s Adtag and Adcopy segmentation tools, which allow advertisers to run different versions of commercials from the same advertiser in a market based on demographic and psychographic data collected from various neighborhoods. The tools allow advertisers such as auto manufacturers to target ads to subscribers in neighborhoods that would be most likely to buy the car featured in an ad.
“That’s a tremendous product that enhances advertisers’ capability using cable and is unique to cable,” Feingold says.
Comcast expects to offer Adtag and Adcopy in 19 of the top 25 markets by the end of 2004. Comcast’s interconnects are also branching into selling Internet advertising for the MSO’s Comcast.net high-speed Internet service, including a recent deal with Vehix.com, he says.
Feingold and other cable ad-sales executives also say they expect video-on-demand advertising to become a bigger business for interconnects in the future.
Comcast has cut deals with advertisers such as General Motors Corp. in Philadelphia and BMW in Atlanta in which it runs cross-channel spots that direct viewers to long-form VOD ads from the advertisers.
Time Warner Cable’s Fischer said he sees potential in VOD advertising, but he notes that Time Warner and MSOs are still figuring out how best to use the technology.
“The nomenclature and the selling proposition are being thought about and cultivated, and so we at Time Warner participate with Cablevision, Cox and Comcast in regular meetings about what we’re all thinking about with VOD, so we can share our thinking with each other,” Fischer says.
Rainbow Advertising Sales president and COO David Kline, who oversees local ad sales for Cablevision in addition to the New York Interconnect, expects to see much more activity around VOD advertising in the next year, including possible new joint ventures between Cablevision and Comcast.
“What we hope to do is create video-on-demand channels or virtual channels that we both carry on a DMA-wide basis,” Kline says. One possibility is a VOD or virtual channel that would allow Comcast and Cablevision subscribers tied to the New York Interconnect to test-drive cars.
The amount of local ad-sales inventory that cable operators allot to interconnects has steadily increased over the years.
In the early days of interconnects, cable operators typically set aside 20% of their local ad-sales inventories for the interconnects to sell. That has grown to about 35% of 40%, according to Feingold.
Cable ad-sales executives also expect that the rapid growth of paperless billing will help shift more local ad dollars from broadcast to cable. Earlier this year, the CAB led 12 major MSOs in committing to moving to an electronic data interchange system for billing advertisers by June 28.
CAB’s Barry credited NCC with developing the EDI platform which he said makes it much easier for advertisers to spend money on cable.
“Whatever level you have with broadcast television, multiply it by 20 networks of insertion and 2,400 different systems it could run on, and the level of complexity is overwhelming,” says Barry. “NCC would have drowned in paper work years ago if they had not developed an EDI platform — that survival mechanism allowed them to blow past broadcast television in terms of electronic business.”