2010 Coming on Strong

Friday, April 30th, 2010

By Julie Liesse

Having survived the worst upfront in the midst of the worst economy in decades, cable networks have bounced back in a big way—and are heading into the 2010 upfront season feeling good about the year ahead.

How bad was last year's upfront?

"Soft and negative," says Jon Steinlauf of Scripps Networks. "Long. Hard-fought."

"As cloudy a picture as you could present," says David Levy of Turner Broadcasting.

"Very tough on everybody," says Arlene Manos of Rainbow Media.

"The only thing good about last year's upfront is that like most difficult markets, it probably represented an overcorrection and set up a really good year this year," says Mel Berning, exec VP-ad sales of A&E Television Networks.

For cable networks and their clients, the 2009 upfront dragged on for months, with some negotiations spilling over into September. "It was maybe the slowest cable upfront we have ever seen," says Mr. Steinlauf, senior VP-ad sales for Scripps. "That was because of advertiser reluctance to make long-term commitments."

Mr. Levy, president of ad sales, distribution and sports for Turner, says advertisers were focused on "flexibility, because they didn't have true clarity about what was going to happen next in the economy and their businesses. So what they did was to put money on the side rather than invest in the upfront."

Overall, the cable upfront market was down 13 percent in 2009 from the previous year, to about $6.7 billion, says Sean Cunningham, president-CEO of the Cabletelevision Advertising Bureau. But he estimates that cable ad revenues overall finished the year at about $18.7 billion, up 1.8 percent.

What happened? "As the recession started to hit hard, the advertiser reaction was to make less long-term commitments, more short-term commitments," Mr. Steinlauf says. "Companies were watching the stock market and economy closely and making deals at the last possible minute."

But then, Mr. Berning says, "Flash forward to the fourth quarter. Marketers started spending a lot of the monies that they had been protecting all year. The fourth quarter turned out far better than anyone expected."

Advertisers found scatter pricing rising in the fourth quarter and into 2010—with CPMs 20 percent to 30 percent over upfront pricing, "just ridiculously high," Mr. Levy says.

For Scripps, second quarter 2010 has proved to be "our greatest scatter quarter ever in terms of revenue," Mr. Steinlauf says, "and the first quarter of 2010 was the next best, and the fourth quarter of 2009 the best before that."

The upfront market tends to act like a pendulum. If the market swings strongly in one direction, the following year it swings strongly in the opposite direction. As Mr. Steinlauf says, "The reaction to these kind of scatter markets,with CPMs well above year-ago levels and well above upfront prices, is probably a big upfront. The response on the part of the advertisers is that they might be better off locking down as much money as they can early in the process at the best CPMs."

"All indications are giving me the belief that this will be a very strong upfront," Turner's Mr. Levy says. "I think it will be about the clarity and transparency clients have about their businesses that they did not have last year—and about the fact that the scatter pricing was so strong that advertisers don't want to pay those kinds of increases and premiums again. At some point you have to sell products."

Protected by their dual revenue stream—fees from cable operators in addition to advertising—cable networks continued to invest in programming even as the economy weakened. "Cable networks did not have a development hiccup; it was investment as usual despite the economy," Mr. Cunningham says. "And 'as usual' means constantly ratcheting up the quality and investment in original programming."

He says original programming currently accounts for 67 percent of programming on ad-supported cable networks. That reflects an explosion in original series across all genres and on virtually all cable networks.

Take ABC Family,which has reinvented itself over the past five years.When its new series "Huge" debuts in June, it will run as part of a three-hour block of originals, in between new seasons of two of the network's big hits,"The Secret Life of the American Teenager" and "Make It or Break It." ABC Family has two other new series on tap for the summer.

A&E, which has remade its brand into "Real life. Drama," and NBC Universal's Syfy, which rebranded itself last summer, each have committed to historic levels of original programming. Using information from Nielsen Media Research, CAB examined the amount of original programming during one week in October 2009, comparing it to the same week in October 2004. The research showed the number of original series on ad-supported cable networks nearly doubled in that five-year span, from 768 to 1,514.

"There is a solid investment in hours,"Mr. Berning says. But what is just as important is the kind of hours cable networks are running. "HISTORY has gone from being reliant on things like great specials to having top ongoing series that are driving our success now," he says. HISTORY added to its series successes this year with "Pawn Stars" and "American Pickers."

Rainbow's AMC, which became a serious contender in the programming arena with "Mad Men" and then "Breaking Bad, "will add two new original series in August. "We are premium television on basic cable—and you can also put commercials on our series, by the way," says Ms. Manos, president-national ad sales. "There is a need for advertisers to make sure their message is being seen and heard. They want to stand out and make a difference."

She says not only associating with top-notch programming, but also being the single sponsor of a show or sponsoring limited commercial breaks are ways to do that.

Turner's TNT and TBS networks continue to go straight at the broadcast networks—TNT with multiple nights of original drama series debuting year-round and TBS with George Lopez and Conan O'Brien offering late-night alternatives.

With last year's difficulties now behind the industry, A&E's Mr. Berning says, "We have reached a tipping point where cable has so much ratings momentum, and so much original programming, that we are just in a really good spot. It is a great time to be a cable network."