One of an MSO's highest-margin and fastest-growing revenue areas is national spot advertising. Over the past three years and continuing into this year, national spot-cable ad sales have enjoyed a compound growth rate in excess of 40 percent.
That growth is being realized against a diminishing expense line, so margins will grow even further. Spot cable is starting to achieve recognition as a media segment that warrants a place in the media plan. That is welcome news.
There are however, two significant obstacles impeding cable's ability to satisfy advertisers and reach its full revenue potential. One is its dramatic inconsistency in the stewardship of national advertising schedules. The other is inadequate local market audience measurement.
Along with advertisers' increasing recognition of spot cable comes a greater expectation for consistent industrywide practices in handling schedules. The message is clear: the ad community is willing to spend more money with us. But unless we, as an industry, adopt performance standards and adhere to them, our extraordinary growth rate will rapidly decelerate. Until we make them feel much more confident that the schedules they order will run correctly, our growth will be at risk.
SHORING UP PRACTICES
The inconsistencies in those practices advertisers consider basic-confirmation of schedules within 48 hours of placement, notification of discrepancies the day after they occur, makegoods offered in-flight plus one market-wide invoice and affidavit sent within 10 days after a month ends-are simply not the norm in spot cable. Those concerns and sentiments were strongly expressed at a recent American Association of Advertising Agencies (Four A's) local-market committee meeting.
The most frequent request heard from national advertisers and agencies is the ability to buy spot cable on a DMA-wide basis. That's not a message that everyone in cable necessarily embraces.
Today, however, the DMA is the geographic definition that most television advertisers use for planning, budgeting and buying broadcast spot TV. It is important to recognize that the DMA definition is deeply imbedded in these advertisers' thinking.
Consequently, if MSOs expect to gain a larger share of the $12 billion-plus being spent by national advertisers in local market TV, then we must have operators in many more markets cooperating to deliver spot cable to clients on a DMA-wide basis.
The ad community implores MSOs to present themselves on a DMA-wide basis for another very practical reason. DMA-wide, interconnected markets are easier and much less labor intensive for agencies to buy. There is also the belief that they adhere to higher standards and more efficient business practices.
Working toward interconnecting markets does not mean abandoning the proposition that cable has fundamental differences from broadcast TV and that those differences have value. It is an acknowledgement that because the DMA is so ingrained in advertisers' thinking about TV markets, if we insist on presenting our respective MSO coverage areas rather than the combined cable delivery within the DMA, it is analogous to pushing water uphill.
All we need do is look at the success enjoyed by cable operators in markets that are interconnected on a DMA-wide basis. The results are compelling.
These operators have enjoyed consistently greater growth in national spot revenues than non-interconnected markets. In fact, over the three-year period from 1997 through 1999-admittedly good years for national spot cable in general-interconnected markets grew at a rate 50 percent above the average of non-interconnected markets.
That's not just in the major-market interconnects like Adlink in Los Angeles. Look at Cable Advertising of San Antonio or MediaOne in Jacksonville, Fla., as evidence of the benefits of meeting DMA-defined parameters.
In spite of these impressive revenue results in fully interconnected markets, advertisers still lack confidence that spot cable will perform for them. The dramatic inconsistency in both standards of performance and the handling of a national spot-cable order by systems within the same DMA-and across DMAs-erodes the excellent schedule stewardship in the interconnected markets.
Because national accounts need to buy multiple markets, our revenue growth is being restrained by the lowest-common-denominator systems.
There are many valid reasons that markets have not fully interconnected: multiple MSOs within a DMA, legacy software systems, incompatible traffic-and-billing systems, personnel issues, significant differences in headend technologies and equipment all impede interconnection. However, allowing these realities to prevent the rapid interconnection of markets erodes advertiser confidence in spot cable and opens the door for competitors.
Recognizing the enormous revenue available to all MSOs, the NCC board challenged us to find a solution. They agreed to forgo a share of NCC's potential profits and instead re-invest that money in the deployment of technology that would quickly allow for the interconnection of markets.
It's a bold step intended to help all cable MSOs, not just those involved in NCC's ownership. The plan has two major components: a technology platform, which will link all headends within a DMA, and an intensely focused approach to national account and inventory management.
The plan authorizes NCC to purchase and install dedicated interconnect servers that interface with the existing ad-insertion equipment at MSOs. These servers will be satellite linked to a centralized master-control facility.
NCC will also hire dedicated personnel to focus exclusively on the national inventory. Every participating market will have a team of people responsible only for maximizing return on the inventory they have from your market. Best of all, there will be no expense to operators.
This approach allows markets to be interconnected, rapidly. Since NCC is paying for the equipment and the key personnel, marketwide interconnection need not wait for system sales or swaps to be completed. It does not matter which MSO owns a particular system. NCC will work with all, on the exact same basis.
NO MEASURING STICK
The second significant obstacle holding back national spot revenue growth is local ratings measurement. Historically, the deficiencies in Nielsen Media Research's ability to accurately identify local cable viewing has been an enormous hurdle.
Because many marketers are already convinced the audience is watching cable, however, they have challenged their agencies to come up with methodologies that will allow them to buy more spot cable time for their messages. Every other major media segment has a consistent audience measurement methodology that provides a denominator against which the media can price and the ad community can buy.
Spot cable has no such common audience-measurement standard. Nielsen offers as many as 10 different data products that presumably report local cable viewing. There can be no consistency when presented with so many measurement options.
I've heard very few expressions of confidence-whether from MSOs or agencies-that Nielsen will address the local audience measurement problem plaguing cable in any meaningful way. There may be an opportunity for a potential rival, such as ADcom Information Services or Arbitron Co., to come up with an effective alternative. But the current pace of testing and deployment of their alternative approaches is so slow that it's unlikely they can seriously challenge Nielsen's dominance.
Nielsen's plan to deploy People Meters in Boston could be a significant step in addressing those measurement deficiencies. But, by its own admission, Nielsen has no plans to deploy those meters beyond nine other markets.
And even this deployment would come three or four years after the Boston test. That simply isn't deep enough or fast enough to address this urgent issue.
For MSOs, advertisers and agencies, an audience measurement solution may await sufficient and rapid deployment of the advanced digital set-top boxes. If so, I strongly encourage MSOs to provide for software designed to capture audience viewing data.
Speed in solving these impediments to our revenue growth is very important for three reasons:
- Cable operators are losing national revenue every day we allow markets to remain non-interconnected and thereby allow the inconsistent practices that plague us today.
- Advertisers and agencies are beginning to question their investment in spot cable because of our inconsistent practices and performance. Put another way, if we don't address these issues, national advertisers' spending may well diminish.
- Broadcasters-and soon, I predict, DBS-will aggressively compete for ad dollars now being spent in spot cable.
- So, yes we face challenges. But it is within our power to address those challenges and craft solutions that will satisfy the advertisers while significantly increasing operators' revenue from national accounts.
Tom Olson has been CEO of National Cable Communications since January 1999. Previously, he was CEO at Katz Media Group Inc.