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Late late night, with the smallest audience of any TV daypart, may be a sleeping giant.

Changing lifestyle patterns, more unconventional work schedules and the availability of more original overnight programming is making the period from 2 a.m. to 6 a.m. (ET) the hottest segment of TV audience growth.

In the past three years, levels for late late night are up 24% for households using TV, the greatest rise of any daypart. And the next fastest growing dayparts-late night is up 12% and early morning news up 11%-sandwich the wee hour spectrum, suggesting that a fundamental shift is taking place in the way people live and when they watch TV.

"We found that 10% of the American population is up watching TV in the middle of the night. There's got to be a good reason why they're up," said Diane Seaman, a partner in Markham Media, New York. Markham has been hired by CBS to sell "Up to the Minute" overnight news service, which along with ABC's "World News Now" and NBC's "Nightside," is giving post-midnight viewers fresh news programming. Ms. Seaman has spent the past nine months combing through reams of ratings and lifestyle research to help position the daypart to advertisers that had virtually been ignored by the Big 3 networks.

"People are working more flex time," she said. "Late late night viewers are not all insomniacs. They're just people who work and watch TV at different times from the rest of the population."

The networks started overnight news services essentially as loss leaders to help their affiliates compete more directly with national and local 24-hour cable news services.

In January 1992, ABC launched "World News Now," followed shortly afterward by CBS' "Up to the Minute" and NBC's "Nightside."

But the Big 3 paid relatively little attention to the daypart, because of bigger fish to fry in prime time, sports, news and other more lucrative dayparts.

Indeed, whereas the Big 3 average about $125,000 per 30-second spot in prime time, the late late night :30s usually fetch about $600 to $700 and the entire daypart probably doesn't exceed $10 million for all three networks. By comparison, prime time generates close to $4 billion in annual revenues.

But tighter margins and a drive for new sources of revenue are leading network management to pay closer attention to late late night. And since they are programming the daypart anyway, network executives feel they might as well try to get full value for their availabilities.

That was CBS' thinking in hiring Markham nine months ago.

"It's gone from a money loser to a money maker," CBS Exec VP-Sales Joe Abruzzese said of the daypart. "For the first time, our late late night programming is profitable for us."

Mr. Abruzzese said selling "Up to the Minute" often caused a dilemma for CBS' sales staff, partly because their energies were more fruitful in selling more expensive dayparts, but also because it required network sales executives to adopt a selling philosophy more commonly associated with cable.

Overnight news ratings range from about 0.9 for ABC, to about 0.7 each for CBS and NBC, the kinds of numbers advertisers typically expect from cable.

But Markham had no compunction about selling cable-size ratings.

"People are more used to buying decimal points now," said Markham partner Beverly Weinstein. "Cable has helped change mindsets."

Indeed, ironically it was the positioning of the broadcast networks against cable networks that convinced many advertisers to come into the daypart.

"Relative to CNN, it became very interesting, because CNN is clearly in the decimal ratings range. In that light, it was worth looking into," said Arthur Molesphini, chairman and media director of Molesphini & Tobin, New York.

The agency made an extensive buy in the daypart on all three networks for client Ricola.

Other advertisers have also recently made late late night buys, including Bristol-Myers Squibb Co., Block Drug Co., Thompson Medical Co., Ciba-Geigy, Best Western Hotels and Nasdaq.

"Because of changing lifestyles and changing viewing patterns, people are watching TV at different times of the day. Around the clock TV advertising has more value than it might have been seen as having in the past," said Avrum Geller, VP-marketing services of Block Drug. "While the audience levels are still low, it is certainly a meaningful level and an attractive cumulative audience, especially against certain types of targets."

Bristol-Myers, which markets Gerber infant formulas, realized it could target one very important segment, nursing mothers.

"It's particularly a lifestyle issue for us," said Peggy Kelly, VP-advertising services at Bristol-Myers. "I know from experience that these women are up at night and many of them have the television on. It seems to be a good fit for us."

An even better fit was what CBS News did for Bristol-Myers, creating a customized block of parenting programming that airs during each newscast and is sponsored exclusively by the company.

Similarly, Nasdaq and Western Hotels realized that 2 a.m. to 6 a.m. is probably a good time to reach business travelers and those who work on Wall Street.

Since moving to a dedicated sales approach with an outside sales team, CBS' sales are up more than 50% in a daypart that netted the network only about $2.3 million last year.

ABC, meanwhile, has been trying a different approach, selling 30-second late late night spots at a firm rate card of $1,000, but offering advertisers "value-added" opportunities in other media, such as freebies on the ABC Radio Networks, Screenvision in-cinema advertising network, and Capital Cities/ABC's new Selling magazine.

"You've got to buy a package of $20,000 or more to qualify," said Cynthia Ponce, VP-news, early-morning and late-night sales of ABC. Ms. Ponce said the network has had good success with the strategy, writing long-term orders from automotive, car rental and financial services advertisers.

But she noted that the Big 3 network news programs have much greater reach and better overall audience composition than CNN during the overnight hours and are a fraction of the cost.

At a cost per thousand viewers of about $1.96, she said ABC's "World News Now" is about seven times more efficient than CNN's CPM of $14.06.

Network news executives meanwhile are convinced that the daypart is not only a necessary one for them to program to, but a viable and vital one.

"In terms of being a loss leader, our economics just don't allow us to go into a loss position on the show," said Bob Horner, president of NBC News Channel and the top NBC News executive overseeing "Nightside."

"I'm pretty sure that most of the people watching us are mainstream people," he said. "There is sort of an unspoken precept in the broadcast industry that overnight viewers are a bunch of kooks and weirdos, but in fact, they are grandparents, Type A business people and good old-fashioned shift workers. What we are seeing are regular working people, except that America is now working 24 hours a day and we've become a three-shift society."

Mr. Horner and other network news and sales executives concede there is need for better research about the quality and attentiveness of late late night viewers. But they maintain that, for some target groups, that audience may be essential.

"There is a good audience there. We tend to forget about it, because most of us are asleep," said Jon Mandel, senior VP-national broadcast at Grey Advertising, which handles Block Drug and Thompson. "But you have to be careful not to make the mistake that your customers have the same TV viewing habits you do."

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