The start of the cable upfront market last year was preceded by reams of speculation in the press that big money would move fast from broadcast TV into cable. An early $250 million deal between Omnicom Group's OMD and Viacom's MTV appeared to confirm this shift.
But after that initial rush, the cable market moved into a slow groove and lingered, with some deals still on the table into August, after most of the ad dollars once again were spent in broadcast.
In 2004 it's deja vu all over again. On the eve of the advance selling season, the tectonic shift of dollars to cable has been noisily announced by cable salesmen and especially by buyers who are kicking themselves for spending $9.5 billion of their clients' money last year on broadcast programming that ended up performing poorly.
Once again, advertisers are threatening to take their marbles elsewhere, but will they really do it?
The Cabletelevision Advertising Bureau forecasts a $1 billion gain in cable revenue this year, much of it, according to a bureau spokesman, shifting over from broadcast. Joe Abruzzese, president-ad sales, U.S., at Discovery Communications' Discovery Networks, predicts ad rate increases of 10% this year for his top networks.
watch the scatter market
There are indications, however, that cable may not enjoy the gold rush it's touting in 2004. The continuing flat state of the second-quarter scatter market, especially in cable, appears to signal that big ad money just isn't moving into TV overall.
"The scatter market is not what anyone anticipated it would be," says Tim Spengler, exec VP-director of national broadcast at Interpublic Group of Cos.' Initiative Media, New York. "All the scatter money that moved to the upfront last year left nothing behind for scatter after the market. There's almost always something behind it, unless people are canceling orders and things are terrible. But things aren't terrible. It's just that the amount of additional money put on the upfront, about $2.5 billion if you calculate a 16% rise in revenue from the year before, most all of that stuck [on the 2003 upfront buy]. Scatter has been limping."
Some predict a long and winding road this year for cable.
"I think the market will go through to July," says a leading executive at one of the top cable networks. "I think it will be a soft market. There will be no impetus again to buy all that much cable above last year's levels. It will be pretty much a boring upfront. The broadcasters will hold fast up to a point, and then they'll cave at 5%-7% rate increases that will make the agencies happy. And then they'll just execute their cable buys as the summer lingers on."
This executive says that a senior buyer told him cable would move before broadcast, because broadcast salesmen will hold the line on price. "But I don't think that will happen," he says. "That will just push cable's price a little bit, but there's no impetus at all for buyers to pay more for cable. There are just too many impressions out there. There are lots of growing networks out there."
Growing networks need to be fed, and that triggers the fear that one of them may undersell the market to move inventory. Two years ago, Vivendi Universal Entertainment's USA Networks dropped prices 10% to move its inventory early, and cable prices overall were affected. Three years earlier, News Corp.'s FX caved quickly, dropping its prices 20%.
"That won't happen this year," says Bill Abbott, exec VP-national ad sales at Crown Media Holdings' Hallmark Channel. "There is no one out there with that type of growth that they need to write decreases like that. After all, how low can you go? Some of these cable [costs per thousand] are so low, a 10% rollback would be absurd. Although, some of the midtier networks will be out there early trying to write flat pricing deals early to move volume."
Meanwhile, cable networks are betting big on this upfront. Many are pouring more money into their overhead by creating slates of original, premium programming, especially the networks that have relied heavily in the past on less expensive off-network syndicated fare.
Time Warner's Turner Broadcasting System is investing heavily in new shows for TNT and TBS, both usually associated with reruns. Hallmark says it's doubling its schedule of original programming with 36 hours of new shows. Even the fledgling National Geographic Channel is bulking up in original content. All of this needs to be paid for.
"Our package of original programming is gaining a lot of interest in the market," Mr. Abbott says. "And that's one way for us to significantly enhance an advertiser's message and associate them with our brand. These will drive some early deals."
National Geographic-which launched in January 2001 with 10 million homes and near-zero ad support, surviving on a diet of revenue from affiliate sales-now is seen in 48 million homes. The cable network's ad revenue doubled last year. To accommodate the growth, the network has added more than 300 hours of original production.
"We are upping the bar," says Rich Goldfarb, senior VP-media sales at National Geographic. "All of our new programming will have a higher production cost per hour. For example, `Interpol Investigates' will be shot in more than 70 countries and will use expensive computer-generated imaging."
Mr. Goldfarb says the channel's high-quality approach is already reaping benefits, with auto, financial and travel ad revenue up 20% so far this year, consumer electronics up 40%, and technology up an astounding 160%.
TBS is adding two reality shows in 2004: "Outback Jack," starring a dashing, wealthy Australian adventurer courted by a gaggle of beautiful women from the city who must rough it in the outback in order to win Jack; and "Gilligan's Island," which features contestants who must find a way to leave a beautiful isle in order to win. "Stuff is going to wash up on shore," says David Levy, president-entertainment sales and marketing at Turner Broadcasting. "It's a great opportunity for product placement; what washes up on shore will be very interesting."
Sibling cable network TNT is introducing an ambitious, anti-terror limited series called "The Grid" as well as "Into the West," a 12-hour limited series executive-produced by Steven Spielberg that will bow in 2005.
Mr. Levy feels these investments will pay off big, attracting new advertisers that will come over from broadcast.
"The indicators are there," he says. "Our second-quarter scatter market is on fire. We don't have a lot of inventory, so we are getting very high double-digit scatter. That's what we're moving into."
EXPECTING CABLE GAINS
Even media buyers concede the cable upfront will be up.
"But we don't know by how much," says Mr. Spengler. "The issue is about two things: No. 1, will existing money move into cable from broadcast? And No. 2, if there is additional growth money in the market, how much of that money will go to cable? We think a disproportionate amount of that growth money will probably go to cable."