June 20th, 2011

Cable Ad Dollars Catch Up to Broadcasters

The Wall Street Journal

Advertisers, for the first time, are shelling out as many dollars to book commercials in advance on cable television as they are on broadcast networks, allowing cable outlets to command big increases in their ad rates.

The uptick in the cable market follows a strong “upfront” for broadcast, the annual round of deal making in which the Big Four TV networks sell ads for the coming season. Buyers stepped up their upfront spending this year despite the broadcast networks’ shrinking audience.

While ad buyers say upfront negotiations with the cable networks are expected to continue until the end of the month, people close to the negotiations say that ad deals for the biggest cable channels are almost wrapped up, and that rates have risen between 9% and 16% from last year, depending on the network. The increase, they say, mostly reflects advertisers’ eagerness to reach the growing audience for cable programs.

People familiar with the deals estimate that cable’s total volume of ad commitments for the coming season have grown by about 15% from last year, which would bring total spending on cable advertising to between $9.1 billion and $9.3 billion—reaching the milestone, analysts say, of roughly matching the broadcast industry’s tally.

Last year, the cable-TV upfront fetched about $8 billion in commitments, about 93% of the value of the broadcast networks’ upfront take, according to a report issued by investment bank Barclays Capital.

“There are two drivers that have helped bring cable to parity with broadcast,” says Anthony DiClemente, a media analyst at Barclays Capital. “One is the shift of viewers from broadcast to cable, which boosts cable ratings and inventory available for sale, and then also the narrowing of the pricing gap between broadcast and cable inventory.”

While broadcast networks have watched their audience slip, cable channels have seen their viewership grow in recent years. During the past TV season through June 12 about 4% fewer people watched prime-time shows on the four most-watched broadcast networks than in the previous year’s season, according to ratings tracker Nielsen Co. The prime-time audience for ad-supported cable networks, meanwhile, increased by more than 4% from the previous season.

In recent years, cable networks have gotten more aggressive in courting advertisers with high-profile shows, including Conan O’Brien’s evening talk show on TBS and TNT’s flashy high-budget sci-fi thriller, “Falling Skies,” whose executive producer is Steven Spielberg.

Several broadcast stars also have made the switch to cable. Speaking Thursday at the National Cable & Telecommunications Association’s annual conference, Oprah Winfrey told audiences she is “all in” with her new cable network, OWN.

In addition, niche reality shows like “Swamp People” on A&E Television Networks’ History Channel and the tattoo-culture franchise on Discovery Communications Inc.’s TLC’s, have grown increasingly popular with audiences and advertisers alike.

Earlier this month, “Swamp People"—which chronicles the adventures of alligator hunters in Louisiana—hit a series high when more than 4.5 million people tuned in to a Thursday night repeat.

People close to the cable negotiations say that prices to lock in commercial time on Time Warner Inc.’s TNT and TBS networks are up by about 12% or 13% from last year, while Viacom Inc.’s MTV Networks—which includes Comedy Central, VH1, and MTV, the home of “Jersey Shore"—has seen rates increase by 10% or more. Ad volume at MTV Networks also are up by “double digits,” according to these people.

Likewise, female-oriented networks are in high demand among advertisers, with Bravo, E!, and Oxygen, owned by Comcast Inc.’s NBCUniversal, imposing increases from 11% to 14%.

Discovery’s top networks have won rate increases in the range of 10% to 12% from last year, according to people familiar with their sales.

Broadcast networks, by contrast, saw prime-time rates rise by about 9% on the low end, for NBC, and by 13% to 15% on the high end, for CBS Corp.’s namesake network.

USA, the highly rated NBCU-owned cable network whose hits include “Burn Notice” and “White Collar,” won rate increases of roughly 13% to 16%, according to people familiar with the network’s negotiations. The network averaged more than three million prime-time viewers over the past TV season, the most of all cable networks, according to Nielsen.

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