Nets: Churn a Burning Issue for Spot, Not Us


New York -- As the cable networks approach another big
upfront-sales marketplace, they can rest easy that the problem of advertiser churn in
cable appears to be far more prevalent on the national-spot and local sides than on the
network side.

Commercial clutter and audience fragmentation also seem to
be issues that agency buyers will use against the broadcast-television networks, rather
than against cable. And the growing popularity of optimizers (computer-software analysis
tools) is also expected to work to network cable's advantage, many buyers and sellers

MSOs and spot-cable rep firms National Cable Communications
and Cable Networks Inc. stepped up their efforts last year to reduce client turnover as a
problem, and they have enjoyed a good amount of success. Such progress is important
because if churn can be reduced, local- and national-spot-sales growth rates would be even
stronger, buyers and sellers said.

Moreover, as is the case with retaining customers on the
subscriber side of the cable business, operators and reps concurred that holding on to
advertiser customers is cheaper than constantly seeking out new ones.

Last year, CNI executives estimated that the company's
churn-percentage rate had been cut to the mid-40 percent range, from the mid-60s in 1996.
They and executives elsewhere attributed the churn reduction to improved client service
and better selling techniques via a greater concentration on sales training. Another
positive factor: The automotive category has stabilized, some of these executives said --
in contrast to some valleys in years past, when consumer sales dropped.

"In the spot market, there may be more fluctuation,
[but] it's not that large an issue [for cable networks] -- at least not for us,"
said Ron Schneier, vice president of sales for A&E Television Networks. He estimated
that 80 percent to 85 percent of his clients are "pretty consistent spenders,"
although budgets may periodically rise and fall in such categories as automotive,
telecommunications and travel.

From time to time, Schneier said, emerging categories pop
up for network cable. For example, online services began spending heavily two years ago,
he said, and pharmaceutical marketers are becoming very active now.

Such new categories with substantial budgets "can
really make a difference" for cable networks, Schneier said, particularly in those
times when more established segments, such as automotive and travel, suffer budget
cutbacks during soft retail-sales periods. But he emphasized that this hasn't been
the case lately, since both the economy and the cable-sales market have been so robust for
several years.

It's difficult to say with certainty at this early
point when the forthcoming upfront will break, Schneier said, much less to know whether
other relatively new categories will join pharmaceuticals.

The A&E executive agreed with those who anticipated
that cable will benefit from generally higher budgets and more dollars "shifting over
to cable" from the "Big 4" broadcast-television networks, as the
broadcasters continue to suffer audience erosion and as cable networks continue to offer
more attractive pricing. Moreover, he said, cable will benefit from "a real softening
in the [broadcast] scatter market."

Various other network-sales executives also dismissed churn
as an issue. It's so far off their radar screen that most claimed that they could not
estimate how much churn they have.

At Lifetime Television, Lynn Picard, senior vice president
of ad sales, said she felt that client turnover is far more likely to affect spot cable
than network cable, in part because marketers tend to move on to network cable once new
products roll out from regional to national distribution.

But that's not to say that the problem is nonexistent
at cable networks. "There are clearly times when advertisers do not return, for
various reasons," she said. "A lot of times, it's really out of our

For instance, some clients may periodically change
marketing plans or creative strategy.

When accounts do move out of network cable, "it's
usually a function of price, more than anything else," said Bruce Lefkowitz, vice
president of national ad sales for Discovery Networks U.S. A change in a client's
creative approach is often another factor, he said.

As an illustration, he added, an advertiser may decide to
shift its focus from adults 25 to 54 to viewers 18 to 34, which would logically dictate
dropping Discovery from the media plan.

"I really don't see [churn] as a problem,"
agreed Rick Sirvaitis, president of ad sales for Fox Family Channel, because
"there's a consistent base of advertisers" across virtually all of the
basic networks. "The top 40 advertisers on our air are there on a consistent
basis," he said.

"If it were a problem," Sirvaitis observed,
"we would have done something to address it."

ESPN keeps developing new business, but not out of having
any problem with churn among most of its 600 clients, said Evan Sternshein, vice president
of national ad sales at the sports network. "We're very fortunate in that our
advertisers usually return."

David Cassaro, senior vice president of ad sales at E!
Entertainment Television, recalled that a few years ago, there was churn within the
soft-drink, beer and computer sectors, due to a softening of budgets. In sharp contrast,
he said, a healthy economy during the past several years has meant that there have been
"just no areas of weakness -- not a single category where there has been a decrease
in spending. That bodes well for a solid upfront."

Cassaro didn't anticipate client turnover becoming a
problem on the network side, and he said the fact that they occur more frequently in the
spot and local realms "has nothing to do with" network cable. Some of the
national-spot fluctuations have to do with marketers taking new products national when
buying network makes more sense, he added.

Indeed, several network executives felt that churn could
increase for the TV networks and for print if their upfront expectations come true
regarding hefty dollar shifts away from those media and into cable.