More Local Avails? Just a Matter of Time

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Cable operators' quest for more local availabilities
from cable networks is a thorny issue that won't go away.

And the operators may be wearing down resistance, at least
in some quarters.

Ajit Dalvi, Cox Communications Inc.'s senior vice
president of programming and strategy, kicked off the brouhaha at a Cabletelevision
Advertising Bureau conference this past July, when he urged networks to give one
additional minute per hour to affiliates. At the time, many network executives dismissed
the notion. Most operators receive two minutes an hour.

Julie Dexter Berg, executive vice president and chief
marketing officer at MediaOne, said during the same CAB panel that persuading the networks
to give in on that issue wouldn't be easy. On other issues, she added, negotiations
between operators and networks already have "become increasingly tense."

Still, several MSO ad-sales executives indicated that there
was cause for optimism, although they cautioned that any change might be slow, much like
turning an ocean liner.

At Cox, Pat Esser, vice president of ad sales, said,
"There's [still] a general belief among operators that there are opportunities
for the networks to push more avails in our direction, especially with the ramping up of
programming costs."

Based on recent discussions, Esser said, "I think that
a couple of networks are prepared to consider that."

"There's a lot of possibility there,"
maintained Jerry Machovina, executive vice president of ad sales at Tele-Communications
Inc.'s TCI Communications Inc. "We're still having conversations. It's
not a dead issue."

Neither executive would identify specific networks that
they were in talks with, although Machovina indicated that they included established
services, as well as newcomers.

Filemon Lopez, senior vice president of ad sales at Comcast
Corp.'s Comcast Cable Communications Inc., who moderated the July CAB session, said,
"That panel created some buzz on the street about [the issue], but I don't know
that there's much going on yet."

Still, with national, regional and local sales on the rise,
Lopez added, "The demand for inventory is going to increase. How we get it remains to
be seen."

At Media Partners, Adelphia Communications Corp.'s
ad-sales arm, vice president Jack Olson said, "We [operators] all agree with Mr.
Dalvi," although MSOs may phrase it differently.

But Ed Dunbar, MediaOne's vice president of ad sales,
as well as Lopez and Olson, all said they have heard of no movement on the local-avails
front.

Other MSO executives who didn't want to be quoted
mentioned ESPN's National Football League coverage, for which the network is shelling
out a record $600 million per year in rights fees for eight years.

ESPN has made more local time available to affiliates on
NFL and NFL-related programming on ESPN and ESPN2. The total number of spots within NFL
games this season grew by 10 percent, to 506 30-second spots, versus 459 spots spread
across ESPN's and Turner Network Television's coverage a year ago. And units in
studio and other peripheral NFL programming rose 26 percent.

"But that didn't put a dent in [the issue]. It
didn't come close to offsetting the 20 percent rate hike [for affiliates],"
Olson said.

Exceptions to the two-minutes-per-hour rule include Animal
Planet, CNBC, Comedy Central, ESPN Classic Sports, FX, Sci-Fi Channel and TNT, all of
which offer three minutes. New networks also commonly offer more time as an incentive for
operators to launch them.

Of course, the reason why operators are in hot pursuit of
more local time is the very same reason why networks are reluctant to let go: Ad sales are
growing briskly on all fronts, across virtually all categories.

MORE CHANNELS, MORE MONEY

Since even Esser conceded, "We've got a ways to
go on that" before such change can become reality, he and other sales executives said
MSOs have been developing additional inventory in other ways.

Being able to insert on more networks is "important to
our profit margins," Dalvi told his CAB audience. Toward that end, Esser said, many
Cox systems now insert on at least 30 networks.

"There's an old saying that there are two ways to
grow your business -- increase volume or increase rates," Esser said.

Moreover, the MSO's systems can and do sell the same
local time more than once by means of zoning, he added.

Operators have been using digital ad-insertion technology
as the primary way to bolster inventory.

TCI now averages 16 to 18 networks deep, leaving room for
what Machovina called "horizontal growth." Adelphia, which is now fully digital,
sells 10 to14 networks on its systems, while Comcast inserts on at least 24 networks
across-the-board.

Lopez said he has heard of other operators inserting on as
many as 40 networks.

This ongoing expansion of insertable networks has become a
well-thought-out decision, various operators pointed out. Such selections are no longer
made "haphazardly," said Wes Hart, director of ad sales at Marcus Cable,
who'll become vice president of ad sales for the combined Marcus and Charter
Communications Inc. Jan. 1.

HOW OPS CHOOSE

Which networks are operators adding?

Ones that complement existing services or ones that add new
demographics that will attract new clients, suggested Kelly Ryan, promotion manager at
Time Warner Cable Adcast in Charlotte, N.C. The level of support coming from the networks
-- notably in the form of ad-sales materials, including the availability of taggable spots
-- is another factor in these decisions, she added.

Other operators, like David Klein, director of regional and
national sales at Bay Cable Advertising, a TCI Media Services company, combined a
subscriber survey and projections of how well certain networks would deliver new audience
niches to the lineup to decide on which networks to insert -- 16, in Bay's case.

Jim Mittal, general sales manager for the Chicago Cable
Interconnect, said CCI sells like-skewed networks, such as news networks in one package
and younger-skewing MTV: Music Television, VH1 and ESPN2 in another.

Frank Babcock, national sales manager for Charter's
Cable Advertising of St. Louis, said his operation sold deeper on newly inserted TBS
Superstation due to a TBS sales-promotion tie-in. That was enough to lift TBS to 8 percent
of CASL's local sales last summer, when the network was eighth among its 26
insertable channels, he added.

Some operators were pessimistic about the chances of
obtaining more local ad avails.

Larry Zipin, Time Warner Cable's vice president of ad
sales, contended that it wouldn't happen because "the whole economic model [for
both networks and operators] would need to be explored."

He, too, felt that the best alternative to getting more
time from the networks involves utilizing digital insertion to increase the number of
insertable channels at the operator level.

"That is controllable by us," he noted.

Time Warner -- which, Zipin said, has deployed digital
insertion in most of its systems -- will turn its focus next year to adding channels and
targeted zones within DMAs.

In New York City alone, Time Warner expanded its total
insertable networks by eight in September, to 30, said Larry Fischer, president of Time
Warner CityCable, its ad-sales unit there.

MOST POPULAR NETS

According to the latest Paul Kagan Associates Inc. data
(from June 1997 through June 1998), the network being added most to operators'
insertion roster was MSNBC, which was up 240 percent, to 17 million insertable
subscribers.

Nickelodeon -- up 54 percent, or 16.3 million subscribers,
to nearly 47 million -- notched the biggest gain by far among networks already at or above
the 40 million-insertable-subscriber plateau.

The other networks adding insertable-subscriber homes at
the fastest clip within that 12-month time frame, according to Kagan, were: CNBC (up 8.5
million); Home & Garden Television (8 million); The History Channel (7.6 million); and
E! Entertainment Television and Cartoon Network (each up 7.3 million).

Even using this "traditional way" of boosting
operator inventory is not a foolproof solution, however. Dunbar said that despite
insertion, "We're bumping up against a ceiling" in terms of the number of
networks that his MSO can add.

MORE BIG IDEAS

John Sawhill, National Cable Communications' executive
vice president and CEO, has been talking up still other approaches that don't rely on
changing networks' minds.

Sawhill has suggested that NCC could buy units from the
networks at the going rate, then resell those spots for more on the MSOs' behalf.
That has only been talked about in an informal way among the top 10 MSOs, he added.

Sawhill said some lower-tier networks have expressed some
interest in that idea, "But we haven't gone further." There hasn't
been much discussion on that subject with the major networks since last summer, he added.

Sawhill also suggested having operators become "cable
indies" that buy relatively inexpensive syndicated fare for their local-origination
channels, or even for their local- or regional-news channels.

This past summer, Sawhill pointed out that operators would
have to concentrate on lesser syndicated programming to avoid bidding wars for more
attractive shows, and they would also have to be located in interconnected markets so that
marketwide coverage could compete with broadcast-TV stations in reach.

"We're in discussion with several markets that
want to explore that. We're doing feasibility studies," he said. "Some
markets don't feel the need as much as others."

Sawhill plans to attend the National Association of
Television Program Executives conference in January to speak to syndicators.

Zipin said NCC's proposals are "in very
preliminary stages," and NCC's MSO partners -- Comcast, Cox, MediaOne, Time
Warner and, as of September, TCI -- have asked Sawhill to "flesh out the economics of
that model."

Addressing that "cable-indies" subject, Machovina
said, "That has not necessarily been on the front burner, but it's not out of
the question."

Esser said Cox has been doing a variation on the
syndication theme in Omaha, Neb., where its system's L.O. channel is a United
Paramount Network affiliate that sells local avails within that "weblet's"
programming.

In a similar vein, Deborah Cuffaro, senior vice president
at the other major cable-rep firm, Cable Networks Inc., said, "I did that in
Rochester [N.Y.] five years ago, so it is definitely doable," but she wouldn't
delve into the issue beyond that.

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