Parity Quest

I t’s been a very good year for ad-supported cable networks in terms of ratings increases and advertiser recognition, and industry analysts expect audience and revenue growth to continue in 2005. The launch of new networks, better programming and competitive pricing of ad time is expected to propel cable through the next year, analysts say.

“It is a little premature to predict what is going to happen, but we have just concluded a dynamic upfront marketplace that looks out 18 months,” says Barry Fischer, executive vp of market strategy for Turner Broadcasting System. “That is a pretty good indicator for optimism.”

During the 2004 upfront buying season, a handful of cable networks, including Turner’s TNT and TBS, wrapped the majority of their business before the broadcast networks began to negotiate. The cable sector had never completed such a significant amount of business before broadcast, and it was interpreted as a sign by cable sales executives that advertisers finally saw some channels equal in value to broadcast networks. “The amount of money that actually moved from broadcast to cable is debatable,” says Fischer. But if the same structure is again in place during the upfront, he notes, “It is reasonable to assume that what we saw happen [this] year will happen next year.”

Spending on network cable is expected to hit $13.8 billion this year while local cable and regional sports outlets will take in $4 billion and $533 million, respectively, according to the annual Industry Forecast & Report from Veronis Suhler Stevenson. Network cable ad spending is expected to jump $1.3 billion in 2005 to $15.1 billion while local cable spending will increase by $384 million and regional sports nets will take in an additional $58 million. The report predicted that total spending across network cable, local, regional sports nets and satellite will grow at a compound rate of 11.0 percent to $27.5 billion over the five-year period from 2003-2008.

Zenith Media Services offered a more conservative outlook for ad-supported cable in its July 2004 forecasting report. Consumer spending drove overall ad revenue up 10 percent in first quarter 2004, from which cable benefited due to the proliferation of new channels and corresponding increase in available inventory. But Zenith projects network cable ad spending will grow approximately 8 percent in 2004 to $11.8 billion. For 2005, ad spending will increase by 6 percent to $12.5 billion. “We tend to be a little more realistic with our estimates and time has proven us out,” says Bruce Goerlich, executive vp and director of strategic resources for Zenith.

Stacey Lynn Koerner, Initiative Media’s executive vp/director of global research, says cable networks have a lot of advertiser appeal, but media buyers continue to debate which media platforms are best for communicating the message. “The inclination is to go [to cable]…but we are all still arguing over whether reaching a broad audience or a niche audience is better,” she says. “We are always looking for a better matrix. Advertisers are going to start thinking about investing in other areas…in a more addressable space.”

Seven of the 10 largest cable advertisers, including Procter & Gamble, Sony and Walt Disney Co., increased spending at double-digit rates in 2003, and the rate of spending is expected to continue through next year due to competitive pricing, according to Veronis. Cable networks will raise prices on their commercial inventory next year, but cable will still be a lot cheaper than broadcast on a cost-per-thousand basis. Cable sales executives “are going to be more aggressive in pricing, and we expect them to be a little more successful than most,” Zenith’s Goerlich says. But, he adds, “They still have a long way to go before catching up to broadcast networks.”

Despite significant ratings gains, the average 24-hour CPM on cable is about half as much of what ABC charges and almost 25 percent of what Fox charges, according to Kagan World Media. But the gap will close over time due to cable networks continuing success with original programming. This year’s cable hits include racy ratings-grabbers such as FX’s Nip/Tuck and Comedy Central’s Chappelle’s Show as well as more established hits such as USA’s Monk and Dead Zone. USA generated another new hit this summer with The 4400 mini-series, as did TNT with The Grid. According to Initiative’s consumer poll, Sci Fi’s series re-make of Battlestar Galactica is one of the most anticipated shows for the 2004-05 TV season. “The buzz on cable series is more fervent than broadcast right now,” Koerner says.

After the Zenith and Veronis reports were published, consumer confidence took a hit this summer due to high oil prices and the rising death toll in Iraq. But analysts do not expect ad spending to be adversely affected. “Consumerism is so central to the U.S. psyche,” says Koerner. “Even if it falls off a bit, it won’t change the complexion of the marketplace.”

Mediaweek senior editor Megan Larson covers the cable industry.