CABLE TV: WELCOME TO THE 500 CLUB By MICHAEL BURGI with Eric Schmuckle

Ho-hum, another year of double-digit revenue growth for the cable industry. It's become almost a commonplace that cable will make strides in r

Various gurus, holy men and fools have for decades been promoting the revolutionary convergence of television, computers and telephones. But this ‘vague new world’ of multimedia and the 500-channel universe became the hottest of buttons this year through a stunning series of deals and joint ventures. Cable industry leaders Tele-Communications Inc., Time Warner, Comcast and Viacom are up to their necks in it, along with such giants as AT&T, IBM, Apple, Sony, Matsushita, Microsoft, Toshiba, Philips and scrappy newcomers like 3DO. A sign of the times: Former Fox-meister Barry Diller chose cable’s QVC home shopping network as the vehicle for his highly anticipated return to the media business because he found cable execs to be the most visionary and adaptable (and much freer with stock options than Rupert Murdoch).
The retransmission staredown has been equally compelling. Broadcasters, led by CBS, demanded cash payments from cable systems. But the networks caved, and they will settle for creating new cable networks that may become profitable many years down the road. The symbolism was overwhelming – TCI chairman John Malone, rather than Larry Tisch or Dan Burke, was crowned the most powerful man in television.
It’s ironic that cable is climbing to a position of such prominence so soon after one of its most bitter defeats, the reregulation act passed by Congress last year. The act’s rollback of rates has yet to be felt on the bottom lines of heavily indebted cable system operators and, down the line, by cable program networks. The double whammy of retransmission and reregulation may hamper the growth of some marginal cable networks like Court TV and E! Entertainment. But the future looks bright for young networks with a serviceable concept (and deep-pocketed parents), such as Comedy Central, SciFi Channel and the Cartoon Channel.
This is also the year when cable programming came of age. The overwhelming majority of cable fare consists of recycled network fare; USA Network is notorious as a dumping ground for shows that parents Paramount and MCA can’t sell in syndication. But most major nets are investing in original programming. Tellingly, cable swept the Emmy nominations for original movies and boasts the hottest TV series that no one’s ever seen, The Larry Sanders Show. These productions are primarily on HBO, which advertisers can’t buy, but their success boosts the entire medium.
Despite cable’s increasing clout, even the bluest of blue-sky thinkers must confront the realities of the marketplace. And this one shows little extra spending money on the table. As usual, the numbers look different depending on what seat you’re in. You wouldn’t know the ’80s are over from listening to Peter Weisbard, vp/ad sales for Group W Satellite Communications, which sells ad time for TNN and sister service Country Music Television. ‘I would predict a conservative 15% increase for The Nashville Network,’ he says. ‘And because it’s working from a smaller base, Country Music Television’s growth will be significantly higher at 40-50%.’
The media buying community has far less rosy estimates for what cable’s going to get. Buyers say clients will pony up little more than low single-digit increases over 1993’s prices, especially coming off a bargain upfront year with the broadcast networks and, to a lesser extent, syndication. ‘Our clients’ budgets are probably going to be the same in ’94,’ says Randy Novick, media director at mid-size agency AC&R Advertising. ‘If there are increases, they’ll be in the area of 5% at the most.’
And while advertisers are loathe to increase spending, cable’s ranks of viable networks are swelling, to a possible 30 where a client could spend its dollars. Though the increased competition should bring welcome dollars into the category, it also makes for more cutthroat competition and creates even more fragmentation than before. Networks such as The Discovery Channel, Arts & Entertainment, Lifetime, Comedy Central, The Family Channel and The Nashville Network all have muscled their way into the marketplace, each selling its own niche audience.
And around the corner are such hyper-specialty networks as the Television Food Network, The Military Channel, Romance Classics, The Golf Channel, History TV Network and The Sega Channel and a slew of talk-oriented networks. A few of the new networks soon to crowd the dial are the product of retransmission negotiations, such as ESPN2, Fox’s FX network, NBC’s America’s Talking and a proposed CBS public affairs channel.
Still, the dominant cable networks – USA Network; Ted Turner’s CNN, Turner Network Television and superstation TBS; MTV Networks’ MTV and Nickelodeon/Nick at Nite; sports network ESPN – will rake in about half the $2.7 billion in ad revenues Paul Kagan Associates projects for network cable this year. These nets pull in a considerable number of the eyeballs tuned to cable TV; many crack the 1 rating mark. That may not sound like much, but it’s frequently the right 1 rating. Consider: Last year Cap Cities’ 80%-owned ESPN turned a bigger profit than its big brother, the ABC television network.
One part of the industry still struggling to live up to expectations is spot cable. For years, its proponents have predicted near-triple-digit growth, and for years it hasn’t come. The main spot cable players, a trio of rep firms, have recently made moves to get on track.
National Cable Advertising has been working the agencies to adopt its software developments in hopes of insinuating itself into media plans, while rival Cable Networks Inc. has used fears of retransmission consent to pull business its way. Cable Media Corp. is still at the point of lining up more systems and services to represent and has quietly amassed subscribers. In fact, the Cable Advertising Bureau predicts the spot/local cable category will grow considerably faster than any other cable advertising segment.
Copyright Adweek L.P. (1993)