Despite the economy, cable networks are optimistic

Thursday, April 30th, 2009

By Julie Liesse

Despite the uncertain economy—and partly because of it—cable executives are feeling cautiously optimistic that this season will be another good one for them.

The metrics are on their side. Each year, Americans are spending more time watching television, and each year more of that time is spent with cable networks. The industry's investment in original programming, particularly scripted dramas, has generated critical acclaim, fiercely loyal audiences and advertiser respect.

In a year where most news media struggled and many capsized, cable news was a huge winner both in terms of increased viewership and growing ad revenues. And cable, whether it's Nickelodeon, MTV or Comedy Central, owns the market for kid and youth programming.

The conversations with media buyers during this upfront selling season will begin there. But with the depressed economy and the general client mandate to make ad dollars generate the best return on investment, discussions invariably move to value.

"We are in an uncertain economy. I think the emerging big story is about media buyers moving toward efficiency," says Ed Carroll, chief operating officer for Rainbow Media, parent company of AMC and WE tv. "Buyers are wondering why they are paying the historically high CPMs of broadcast television.

"That seemed defensible in a world where 'The West Wing' and 'ER' were exclusively on broadcast, but when that space at 10 p.m. is occupied by a talk show, it's a different world. Expect a significant reweight in media plans on behalf of many of the large buyers in favor of cable."

Mel Berning, exec VP-ad sales for the A&E Television Networks, agrees: "Going into the upfront in this kind of market, where advertisers are looking for greater accountability and effectiveness, plays to cable's strengths."

The average American watches 151 hours of television in a given month, and in a tough economic environment TV remains an affordable source of entertainment. Despite theories that cash-strapped consumers might be watching less TV (they are out looking for work or have cut back on their subscription cable packages), or different programming on TV (they are looking for a laugh, for do-it-yourself information or for movie substitutes), "whether times are good or bad, the bottom line is that people are spending more time with TV," says Jack Wakshlag, chief research officer for Turner.

And they're spending more time with ad-supported cable TV in particular. Cable's share of household prime-time viewing is up to 58.6 percent for the current TV season, up 4 percent from last year, according to a Turner analysis of Nielsen Media Research data. The four broadcast networks have a 34.8 percent share, down 5 percent.

Mr. Wakshlag, cable's research guru, predicts broadcast TV audiences will be down as much as 10 percent in the coming year. On top of what has been a yearly 6 percent-to-7 percent erosion, broadcast almost certainly will lose additional viewer hours as American households make the transition to digital TV by the June deadline. And NBC's much-discussed decision to move Jay Leno into its 10 p.m. weeknight slot may make financial sense for the network, but "Jay will not produce the ratings of NBC's blockbuster dramas at that hour," Mr. Wakshlag predicts—opening another opportunity for cable network programming.

He points out that 90 percent of U.S. consumers "get to TV via cable. The world doesn't think of it as 'broadcast' or 'cable' any more." Turner last year began making its upfront pitch for TBS, TNT, CNN and its other properties at the same time as the broadcast networks, and this year will be there again, as will ESPN and the A&E Networks. "We think it's all about TV," Mr. Wakshlag says. "There is no reason to pay a higher CPM for CBS than TBS."

"The benefit that cable has over broadcast is becoming more evident and is tied to the ability to create passionate audiences around targeted categories, as opposed to broad audiences that are reliant on one or two hit series," says John Lansing, president of Scripps Networks. "It's about the superior branding on cable, a brand that is reliable night in and night out.

"We at Scripps are also advertisers. And the one thing you want to know in this economy is: Are you getting a decent return on your investment? None of us can afford any waste. The fundamental difference between cable and broadcast TV today is there is not the same amount of waste on cable."

Last year cable's upfront commitments were up 9.3 percent to $7.65 billion, according to the Cabletelevision Advertising Bureau. Executives expect that number to be flat or up slightly this year, and that, again, somewhere around 60 percent to two-thirds of cable inventory will be sold in the upfront market—especially deals that involve original, multifaceted marketing programs.

"It's very difficult to put together all the elements of a cross-platform buy in the scatter marketplace," says A&E's Mr. Berning. "The lead time is so long to do an effective integrated deal, you have to start working on that out of the cycle—and the upfront is the time to do that."

Custom integrations of sponsor messages are becoming a bigger part of upfront discussions about cable value. "We have been very open to, even aggressive about, talking to clients about ways to integrate their messages into our scripted world," says Bob DeBitetto, president-general manager of A&E. "So that on premiere night, we may not deliver 7 million viewers; but we do offer some cool, organic ways of involving products into a show that go beyond product placement."

Scripps' Mr. Lansing says custom marketing, including such short-form programming as DIY Network's "DIY Basics," is attracting advertiser interest because it increases the engagement of the audience and the return on investment.

Mr. Berning expects cable to have a good year as buyers evaluate the product in the marketplace. "I talk to buyers who say, 'We used to buy broadcast 52 weeks a year because we knew there was a consistency to the delivery. Now we look at cable as the workhorse. Cable doesn't go quiet in the summer. Originals premiere throughout the year.'

"Buyers are looking at cable as the most predictable medium and more often the foundation of their buys," Mr. Berning says.

Bill Abbott, a 20-year veteran of the cable industry, says that despite the economy, cable's value will shine this year. "Every year the equation gets better. I have never felt as good as I do this year about the value that cable represents," says Mr. Abbott, exec VP-ad sales for Hallmark Channel, which made its upfront pitch to buyers in March. "It's another year of nearly double-digit declines for the broadcast audience. Cable continues to invest in original product and continues to grow audience, and ratings and brands. I think this will finally be the year that cable overtakes broadcast in terms of upfront spending."

CAB pegs the cable industry's investment in original programming at $20 billion, and says originals now account for two-thirds of programming hours on ad-supported cable networks. Hallmark Channel, for instance, will produce 35 original movies this season, up 20 percent from last season, and in this upfront will sell packages of its original movies "to compete as broadcast replacement programming," Mr. Abbott says. "Clients are looking for ways to supplement their schedule with original product because they are not getting the reach they once did on broadcast."

Virtually every cable network—from SOAPnet to MTV and Nick at Nite—is producing original programming. Many are moving into new territory: MTV this year gets into scripted dramas; Nick at Nite is offering "Glenn Martin DDS," an original animated comedy from Michael Eisner's new production company.

"As the tectonic plates shift between broadcast and cable TV, a lot of the movement is about the cable industry's investment in quality production," says Sean Cunningham, president-CEO of the CAB. "These quality programs have helped shift the economic model and are drivers for all of cable. It's impossible these days to name a cable brand that doesn't have an iconic product on air."

Mr. Carroll of Rainbow Media says that in the past 24 months, WE tv has moved from a schedule featuring 75 percent movies to 30 percent. Originals such as "Bridezillas" and "The Locator," he says, "give you a much cleaner brand distinction and more inherent appeal to advertisers trying to reach a segmented audience."

And of course, with series such as AMC's "Mad Men" and "Breaking Bad," Mr. Carroll says, "Cable has assumed the banner for high-end quality television, especially in terms of dramatic programming."

One discussion that will continue making headlines this year will be how cable networks make their programming available online. Almost half of the U.S. population, 136 million people, watched video online in January, according to Nielsen's Three-Screen Report. ComScore reports that, the joint venture of NBC Universal and News Corp., now reaches one-quarter of all Internet video users; the number of unique users visiting Hulu increased to 34.7 million as of February, a 42 percent increase from January. And even though most online views are "video snacks" with an average of two minutes per video view, cable networks and distributors are eager to protect their assets from becoming free content.

Time Warner already has gone on record saying that while it loves the idea of "TV everywhere," it wants to make sure only consumers who subscribe to cable are able to watch full-length programming online.

"We have spent a lot of time thinking about this," says Mr. Carroll of Rainbow Media, which also operates IFC and the Sundance Channel. "Our view is that you will not see full shows from the Rainbow networks in an early window online. You won't see 'Mad Men' on Hulu. We decided that the tradeoff was inadequate. In deference to our distributors—the Comcasts and Direct TVs of the world—we need to be protective of our dual revenue stream."

He expects the evolution of a system where cable subscribers can watch "Mad Men" or another favorite series on broadband, but only when they enter some sort of subscriber code.

Mr. Lansing of Scripps Networks agrees. "It will be a big year for programmers and distributors finding common ground on the strategy for online video and how we can keep online video working in the interest of preserving the business model that we have."

Each month Scripps boasts 17 million unique users online at its popular and sites. "We have made our point very clear," Mr. Lansing says. "We have a lot of experience with online video. But you have to be smart about it. Users will find the video online unless we work to create a business model around it. And we don't want to go the way of the music and newspaper industries. This is one time where the interest of the programmers and distributors are aligned."