Cable TV has enjoyed more than three decades of growth at the expense of the big five broadcasters. But the tables are turning.
Some major cable networks, including TNT, MTV and Nickelodeon, have seen double-digit declines; others, such as USA, have posted uncharacteristic downward blips. Out of the top 20 cable networks, eight have experienced declines season-to-date, according to Nielsen, with double-digit drops at ESPN, TNT, MTV and Nickelodeon.
Even so, cable as a whole isn't suffering -- its ratings overall remain steady to up as the pressure at bigger networks is offset by hefty gains at smaller channels such as Investigation Discovery (22 %), National Geographic (17.9%), BBC America (19.5%), Animal Planet (7.8%), IFC (29.4%), Style Network (17.9%) and NFL Network (15%).
In many ways, this is a product of maturation. The audience that migrated from broadcast TV to cable is further fragmenting as a result of a concerted effort by cable programmers to increase investments in original content, which is ultimately creating more competition. Cable networks with a small base have more room to climb, and distribution has played an important role in recent growth. Investigation Discovery, for example, expanded its household base by 10 million subscribers in the last year, and is now in nearly 80 million households.
Moreover, networks such as AMC and ABC Family have generated cultlike fan bases with original breakout hits "The Walking Dead" and "Pretty Little Liars," respectively, said Billie Gold, VP-associate director of programming service at Carat. On the flip side, some of the faltering networks are relying on older shows that are losing steam, such as "Jersey Shore" at MTV and "SpongeBob SquarePants" at Nick.
"Audiences are aligning their loyalties more with specific programs than specific networks," said Noah Everist, associate director-media investments at Campbell Mithun's Compass Point Media unit.
That could lead advertisers to shift money to some midtier cable networks to leverage CPM increases. "Smaller networks could become more desirable, and if budgets don't go up, advertisers could buy niche networks with money coming out of big networks," said Gerri Donini, senior VP-broadcast at RJ Palmer.
But while the ratings pressure has sparked a debate among industry executives and media analysts about what's to blame -- cord-cutting, unseasonably warm weather, Nielsen flubs—that is somewhat meaningless at this point. More to the point is how juggernauts like MTV , USA, TNT and Nickelodeon will finesse the forecasts to set audience guarantees during upfront negotiations.
"If you are Nickelodeon, do you promise advertisers ratings will recover?" asked Todd Juenger, analyst at Sanford C. Bernstein & Co. (Nickelodeon's ratings plunged about 20% for the season among children 2 to 11. In March, for the first time, rival Disney Channel passed the network in average daily viewers. In an effort to halt the slide, Nickelodeon will add 650 hours of programming, it said at its upfront.)
"If they forecast a ratings recovery, and they are correct, then revenue will accelerate significantly," said Mr. Juenger. "If they don't deliver the promised audience, they will be stuck with significant make-goods."
"Networks will always try to sell on the potential of upside," said Mike Rosen, president-investment and activation at Starcom MediaVest Group. "They will project guarantee numbers higher than they are tracking at the moment and compensate if they fall short."
Though none of that should drastically change how advertisers allocate their budgets, it could skew the scatter market. "If ratings stay the way they are now and networks don't recognize this during the upfronts, they will have a lot to pay back, which means less scatter inventory that will cost more," said Ms. Donini.
TNT, whose prime-time ratings among 18- to 49-year-olds have dropped 23% season-to-date, must decide how bullish it will be on ratings recovery, based on upcoming summer originals.
"In a note of irony, USA and TNT positioned themselves with advertisers to be like the broadcast networks," said Marion Hamilton, senior analyst at CableU, which studies the cable industry. "Now they are experiencing broadcast-like erosion."