Cable's Double-Digit Days Seem to Be Over

Some See Turning Point as Advertisers Wait It Out; Buyers, Sellers at Impasse

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NEW YORK (AdAge.com) -- An icy cold cable-upfront market -- following one last year that can be described as lukewarm at best -- is one more indication the formerly hot ad medium has cooled off.
Cable's once-hot ad revenue growth is cooling, as buyers are asking for CPM reductions this year.
Cable's once-hot ad revenue growth is cooling, as buyers are asking for CPM reductions this year.

Agencies and sales executives at many of cable's top networks, including Turner's TBS and TNT and Viacom's stable of networks, are at an impasse over cost-per-thousand rates. Sellers want to at least maintain current CPMs or ask for tiny increases, but buyers are asking for CPM reductions.

No urgency
"Advertisers don't feel a sense of urgency," said one cable-network executive. This year could be a turning point, the executive said, in which a year-round ad-buying system with perhaps a small spike over the summer begins to take shape. "The advertisers like waiting."

While media buyers and advertisers occasionally have debated the merits of not participating in the upfront -- Coca-Cola is sitting out this year, for example -- it's unusual to hear that hypothesis from a network executive.

This, however, is not a normal upfront. It is the second consecutive year cable executives have been disappointed-and a bit surprised-by reduced demand in the cable market. But like so many other outlets these days, cable is viewed as "old media," and even the most progressive cablers have found it hard to shrug off that label.

From 2002 to 2004, the number of upfront dollars going to cable surged, up 10% in 2002, 20% in 2003 and almost 17% in 2004. But growth began to slow in 2005, increasing just 5% year over year. This year, cable's take is expected to be flat, or at best slightly up last year's $6.5 billion.

While management teams at Viacom (whose networks like to boast they take 25% of every cable ad dollar) and Time Warner have expressed bullish outlooks on the cable market, other media executives have cooled to it, in particular Fox News Chairman Roger Ailes, who, according to a note from investment bank UBS, said the cable-advertising market was slowing.

Cable's digital aggressiveness
Of course, cable has arguably been more aggressive than its broadcast brethren in adding digital components to its offerings, but even at some of the most web-savvy network groups -- Scripps and MTV Networks, for example -- digital-media revenues compose about 5% of the total.

Keeping it in the family will be important as dollars cool in cable. One online-video-sales executive, who estimates major package-goods marketers are spending about $20 million in digital upfront deals, said sites such as News Corp.'s Fox Interactive and NBC Universal's iVillage are getting the bulk of the digital dollars.

"They got it early because they could combine it with off-line upfront deals," he said.

Still, cable executives are angry. While it's not unusual for ratings-challenged networks to take a hit in the upfront -- this year the group includes Lifetime, which reportedly has rolled back CPM pricing; Viacom's Spike; and NBC Universal's SciFi -- it is unusual for top-rated cable networks to be asked to reduce CPMs in a non-recession year.

"I've never heard of this," said a sales executive at a small cable network. "And there's no reason for it -- cable is at a cost level so low below broadcast."

Being punished
Added a top-tier cable seller: "Cable doesn't believe it deserves to be punished. ... We know planners have already reached their planning budgets because broadcast was less expensive than they thought it would be."

Cable execs are especially peeved because they say they've seen cable budgets that are slightly above last year's -- another reason they're refusing to lower their pricing. But it's cable's ratings success that might hamper CPM growth. Several agencies have suggested aggregate cable-upfront dollars might be up slightly, but buyers say the increase in ratings points justifies a decrease in pricing.

"At the end of the day, it's all about revenue, and sometimes cable forgets that because they're locked into this CPM perception that they're a second-class citizen," said Peter Knobloch, president of R.J. Palmer.

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Gavin O'Malley contributed to this report.
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