How Clustering Might Change the Business

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Cable's sweeping consolidation plans may change some
of the rules for thead-sales business, but changes will come gradually, and not
overnight, executives said.

In late November, Tele-Communications Inc. executives had
said that TCI's partnerships or swaps would eventually involve 18 MSOs reaching 6
million subscribers; eight of those deals were already announced by then, with four other
done deals not yet announced and six others in the works.

These various ownership concentrations should be finalized
over the next 12 to 24 months, said Jerry Machovina, senior vice president of ad sales at
TCI Media Services. 'Most of this consolidation is an asset-management
decision,' he observed. 'We're not really losing assets -- we're
gaining assets' by working with new system partners in the affected markets.

The operational specifics of the partnerships involving TCI
have yet to be nailed down, he said, although that could come by year's end. There
will be 'no formula approach' for all of these partnership markets, he promised.
Instead, TCI will be looking, case by case, at 'the economies to be gained, the
geographic proximity to our regional support teams and the existing managements,' and
at other unspecified variables, he said.

The new arrangement promises 'more continuity,
locally, regionally and especially nationally.' With consolidation, as with an
interconnect, an agency or client could reach virtually an entire market by placing one
phone call, he added.

Leo J. Hindery Jr., president and chief operating officer
of TCI, called attention to some sales ramifications when he addressed TCI Media
Services' annual sales meeting this past fall. He forecast that the cable
industry's 'changing system-ownership pattern' -- under agreements that
will 'concentrate ownership in one operator's hands in 47 of the top 50 ADIs and
93 of the top 100' -- 'will define our industry' and TCI's sales
operations.

Said Hindery, there will be 'no more advertising
interconnects -- just marketwide ownership and national cooperation among the top
MSOs.'

Machovina interpreted that as 'a redefinition,'
rather than as the end of interconnects. Similarly, CAMA/MediaOne (formerly Cable
Advertising of Metro Atlanta) has now taken to calling itself an 'ad-sales
consortium,' rather than an interconnect.

These partnerships that TCI is putting together are
'better mousetraps,' in Machovina's view, because they will be 'joint
ventures, not loose representation or third-party interconnect arrangements. They will
have a common equity, a common interest.'

When asked if this consolidation trend might have an impact
on the pricing of inventory in the newly unified markets, Machovina said, 'It's
more than a pricing issue. It's market share and appealing to more advertisers.'
Better management of the increased inventory, he said, is 'going to improve customer
satisfaction, improve the process, improve the performance of advertising schedules and
improve value received.'

On the other hand, David Kline, president and CEO of
Rainbow Advertising Sales Corp., felt that the clustering notion works best for medium and
large markets. When it comes to interconnects, he predicted, 'the next level is
interconnecting the interconnects -- that's going to be the future.'

An example, he said, could be 'buying the whole
Midwest,' rather than just Chicago or Detroit. Such a trend toward regionalization,
he said, could attract new ad categories to cable.

That's something that Ken Little, vice president of
rep firm National Cable Communications, indicated last fall is technically possible by
interconnecting the Chicago and Detroit interconnects.

In a market like Cincinnati, where Time Warner Cable
reaches perhaps 80 percent or more of the DMA's homes, 'an interconnect would
not be necessary,' Kline said.

But in the New York DMA -- where he estimated that
Cablevision Systems Corp. reaches 50 percent of homes, Time Warner Cable 36 percent and
Comcast Corp. 13 percent -- 'you still need to co-op your efforts' with an
interconnect, Kline said.

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