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Analysis: How Cable’s Upfront Dollars Spiked 15% to a Record $9.2B

Media buyers explain how about 50 cable networks collectively matched the broadcast TV industry in advertising market share for the first time ever

It was a watershed upfront for the cable TV business, which took in about $9.2 billion in ad money this year, matching what the broadcast networks took in.

Why did advertisers spend about $1.2 billion more in ad dollars on cable networks in this year’s upfront than they did last year, increasing their cable spending by 15 percent, while investing only 5 percent more in broadcast?

Here’s what their media buying agency executives told TheWrap:

>> According to several buyers, the broadcast networks’ postured in the weeks before the upfront negotiations began, indicating that they were going to seek mid-double-digit rate increases for their 2011-12 prime time ad inventory.

That spooked a lot of advertiser clients into moving their money into cable, which has cheaper base prices.

“The broadcast networks shot themselves in the foot with that strategy,” an executive at one major media agency told TheWrap.

>> Some advertisers were also concerned that ad time available later in the broadcast scatter market would again be priced more than 20 percent higher than upfront prices.

These advertisers determined that it was maybe cheaper to over-buy on less-espensive upfront cable inventory than to have to buy premium broadcast time later on in the scatter market.

“Cable in many instances is a better value,” one buyer told TheWrap, echoing a viewpoint of several peers. “Even though you have to buy two, or maybe three, commercials to reach the same number of people on cable as on a broadcast show, it can still be cheaper and you reach the same number of people.”

>> Many advertisers are less concerned with reaching mass audiences on a regular basis, and more amenable sometimes to target specific age groups and genders, something that many of the cable networks do based with their niche programming lineups.

“I truly believe that advertisers today are much more focused on audiences that are targets of their specific brands,” a media buyer told TheWrap. “Over time, broader reach is becoming less important.”

>> Oprah Winfrey’s departure from the daytime TV market, where her show was among the highest-rated in syndication, left many advertisers in the market for female viewers scrambling for a place to go. 

Some of that money stayed in syndication, some went to broadcast daytime, but a lot of it also went to female skewing cable networks like NBCU’s Bravo and Oxygen, AETN’s Lifetime, and to Discovery’s TLC. Oprah’s new network OWN also picked up some of those ad dollars.

So what does cable's record haul mean? Has it finally reached parity with broadcast?

Well, not exactly. But all of this movement of ad dollars should be put in perspective. 

Five broadcast networks took in $9.2 billion in this upfront, while more than 50 commercial-supported cable networks took in about the same $9.2 billion.

So, while the cable networks are crowing right now, it has to be said that the models are just different.

And even though the five broadcast networks cumulatively are losing viewers each year, and cable is cumulatively gaining audience, broadcast television remains king. There are still many advertisers who want the mass, immediate reach that broadcast provides, and broadcast still gets negotiated first in the upfronts.

An even one cable executive admitted to TheWrap that “the divide between broadcast and cable CPMs is still pretty broad, although cable is starting to close the gap.”

Having said that, the cable networks have had an enormously good advertising upfront, their best in history.

The major cable networks all have solid websites now that they used as ad buying extensions in this upfront and every one of them has a handful of shows with audience buzz. And reality shows on cable don't have the stigma of being low budget and appealing to low class audiences that many reality shows had in the past. 

Female-skewing reality shows on cable are getting the same top advertisers as the broadcast networks in prime time, and cable nets like Discovery Channel, AETN’s History, Turner’s Tru TV and Fox’s Nat Geo Channel, are getting ad dollars because they are drawing hard to reach men.

Overall, the total commercial price increases for the top tier cable networks in the upfront were similar to broadcast primetime, averaging 9-16 percent while broadcast increases were in the 9-14 percent range.

However, some cable networks were getting as much as 20 percent increases for some of their top shows.

Overall, Turner’s three major entertainment cable networks, TNT, TBS and Tru TV averaged rate increases in the 11-13 percent range, sources familiar with the negotiations told TheWrap, while NBCU networks averaged between 11-16 percent hikes and Discovery Networks 10-12 percent increases.

But sources familiar with the negotiations told TheWrap that said if just Discovery Channel, which features shows like "Dirty Jobs," "Deadliest Catch" and "American Chopper," is broken out from the other Discovery-owned networks, its rate increase is about 20 percent.

Oprah Winfrey’s network OWN, which premiered in January, is also part of Discovery Networks. Kathleen Kayse, executive VP of advertising sales for OWN, said upfront selling this year was a bit less traditional because the network had signed up 10 launch sponsors before it premiered in January, and six of those sponsors are signed up for two- or three-year packages

While the new network is still developing an original programming schedule, Kayse said there was a lot of advertiser interest in Rosie O’Donnell’s new talk show which will debut on the network this fall.

Kayse told TheWrap that despite OWN's early ratings challenges, it was taking in CPM increases above what advertisers paid prior to the network’s premiere. 

She said OWN did pick up some dollars from advertisers moving from Oprah’s syndicated show. Not only was the network getting advertising from traditional women’s categories like retail, packaged goods and health & beauty, but also from financial institutions, she added.

Even as a fledgling cable network, OWN was pricing itself aggressively. Kayse told TheWrap that it was seeking CPM pricing in the same range as the top tier female skewing networks on cable. “We’re a premium priced network,” she said.

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