Special Report: Cable TV

NEW YORK The slumping housing market and possible looming recession may have gloomy implications for the U.S. economy, but many analysts believe television may be able to gut out the heavy weather, in the short term.

Cable has been particularly bulletproof, and, barring any unforeseen catastrophes, the sector should continue to put up big numbers next year. Spending on network cable is expected to grow 7.4 percent to $21.7 billion in 2008, marking the fourth consecutive year cable is projected to take in more ad dollars than broadcast, per PricewaterhouseCoopers.

In the long term, PwC predicts advertising on cable will expand at a compound annual rate of 5.3 percent through 2011, with total ad dollars projected to reach $24.7 billion four years from now. By then, digital video recorder penetration will be plotted on a hockey-stick graph, as PwC foresees DVR households increasing by a factor of three, reaching 45 million or 38.9 percent of all TV homes in the U.S.

Although the rise of the time-shifting devices has engendered more than just a little teeth-gnashing in the ad community, PwC says that DVR usage should be approached as an opportunity rather than a disruption. “With respect to DVR, it’s not a devastating technology, nor is it ringing some kind of death knell for advertising on television,” said Howard Homonoff, director of the entertainment and media advisory practice of PwC. “Certainly there’s an impact, but it’s not a devastating one.”

Homonoff added that, over the next five years, the DVR will evolve into an ad vehicle, one that allows marketers to swap out the original spots in a captured program in favor of more up-to-date ads. (Since 2005, TiVo and Comcast have worked together to develop a dynamic ad-insertion program that will target ads to specific households based on prior viewing patterns.) “Those kinds of innovations will actually increase the likelihood that viewers will watch the ads, because they’ll be more timely and relevant … which will help to ameliorate the natural impact of DVR,” Homonoff said.

DVRs aside, cable’s growth is expected to trail off in 2009, a slowdown that may seem inevitable in the light of the housing slump and an anemic showing by Detroit’s Big Three. According to TNS Media Intelligence data, while cable ad sales in the first half of 2007 increased 2.8 percent to $8.38 billion, that growth came in spite of the fact that domestic automakers slashed their spend by 10.8 percent.

While everyone’s numbers differ, most forecasters seem to be tracing the same general pattern. Veronis Suhler Stevenson expects cable ad sales to grow 7.8 percent in 2008 to $23.4 billion. VSS sees VOD and DVR advertising as an undeniable growth industry, pegging the non-linear TV haul at $700 million in 2008. ZenithOptimedia sees 6 percent growth next year.

Series like TNT’s The Closer, which drew a record 9.2 million viewers with its Sept. 10 season-three finale, have helped make cable a reach medium that often transcends the stuff of mere niche pandering. “Price differential is still cable positive. You’re getting two-thirds of the [broadcast] audience at half the CPM,” said John Miles, director of investments at MediaCom.

Other factors that will shape the ad market in 2008 are a three-week Summer Olympiad and a front-loaded presidential primary schedule that could see as many as 16 states holding their nominating parties on Feb. 5 in what some pundits are calling “GigaTuesday.” It’s the sort of opportunity that cable interconnects were made for.

Even if a recession is inevitable, the industry isn’t likely to register the pain right away. “A recession won’t hit our budgets for three or four months after the fact,” Miles said. In the meantime, Econ 101 may prove to be a more immediate challenge. It’s a simple question of supply potentially outstripping demand, according to Miles.

“Cable sold more inventory in this year’s upfront than ever before,” he pointed out. “You have to ask yourself, what does that portend for scatter?”