BY JON LAFAYETTE Erwin Ephron is, as much as there is one, the oracle of media planning. He looks the part with longish, wiry red hair, Coke-bottle glasses, a professorial, though slightly waggish demeanor. His words carry wisdom and knowledge of the advertising agencies of the world, which is remarkable to anyone who knows anything about the advertising business. This is why it is important to understand that Ephron describes cable as “the Hamburger Helper of television planning.” Not that Ephron is anticable. He is a realist. Advertising time on cable, owing to its ever-expanding capacity for new channels, is low-priced and plentiful, especially when compared to the top-rated shows on broadcast that are talked about around the watercooler — Friends, Survivor or The Simpsons. This perception endured even as broadcast ratings sunk and cable viewership rose. Advertising on NBC, CBS, ABC, the WB, Fox and even the lowly UPN commands premium prices that keep climbing, while cable’s lag. This has created a paradox, as Ephron explains it, that “high broadcast CPMs are only possible because of low cable CPMs.” In other words, the only way media buyers can meet their reach (how many eyeballs see an ad) and frequency (how many times they see it) goals in the face of rising broadcast ad costs — without overspending their clients’ budgets — is if they keep a lid on cable prices. “And they’ve been successful,” says Ephron. “Cable sells at 45% to 60% of broadcast, and the gap for everything has not been narrowing.” According to Nielsen Media Research’s Monitor-Plus service, which measures ad spending in all major media, buyers spent $21.10 to reach each 1,000 viewers in the key 18-to-49-year-old demographic (called cost-per-thousand, expressed as CPM in agency jargon) during prime time on broadcast, compared to $10.60 on cable. Ad buyers have other stock reasons why they’re willing to pay premiums for broadcast compared to cable. One is that a single spot on Friends can let millions of people know immediately that a new movie is coming to theaters that weekend. “I think there is, to be honest, a certain amount of ego that’s involved. And there’s also a handful of categories that really drive that — automotive, movies, telecom — that are sucking up all that really expensive inventory, because no one else can afford it anymore,” says Neil Ascher, EVP and director of communications services at Zenith Media. The other is the familiar mantra of supply and demand, which also imposes a perverse logic on the cost of cable spots. As cable expands distribution and attracts higher ratings, it is adding to the supply of viewers it can sell to advertisers. That gluts the market, softening prices, so more viewers for the industry as a whole means lower prices. At the same time, new networks are coming on line, further diluting cable’s sales pitch. But things may be changing, slowly but surely. Cable networks are creating more, unique watercooler shows that planners and buyers must get for their clients. That gives those networks clout, enabling them to drive harder bargains. “If a cable network has a unique audience or a unique fit with our clients’ brands, we’re not going to act like it’s Hamburger Helper,” said Mel Berning, president of U.S. broadcast at MediaVest, whose clients include Procter & Gamble and Kraft. “The appointment viewing that cable has doesn’t lag that far behind, if it lags at all,” adds Andy Donchin, director, national broadcast, Carat USA. Programs such as MTV’s The Osbournes, ESPN’s NFL football or SportsCenter or some specials on Discovery have “high interest and [do] pretty decent numbers. That’s pretty high value, cost-per-thousand-wise.” But for average shows, the gap is still wide. Take the award-winning detective show Monk. Its CPM for 18-to-49-year-olds on USA Network is $6.80, according to Monitor-Plus, while reruns of the same show generate a $37 CPM on ABC. “I think that as the efficiency gap widens, it simply makes more economic sense to consider more cable,” says Zenith’s Ascher. At the same time, the top-tier cable networks are close to selling out all of their available commercials, which is creating higher prices in the scatter market. If cable inventory is no longer seen as a bottomless pit and instead is seen as a commodity that can become scarce, that could create a big change in the psychology of the market. “This market certainly isn’t hurting them,” says MediaVest’s Berning. Perhaps the best evidence that change is in the air is the fact that high-powered media executives are coming to cable — and that executives with cable backgrounds are taking important jobs at the media buying giants. In the past year, Joe Abruzzese and Scott McGraw have moved from CBS to Discovery Networks; Dan Rank, a managing director OMD U.S., to Universal Television, which sells commercials on USA Network and Sci Fi Channel; and former Turner Broadcasting ad sales chief Joe Uva has become chairman of OMD Worldwide. Their combined prestige might rub off and provide cable with added luster and lucre. “They’re all moving into the cable arena,” says Page Thompson, CEO of OMD U.S. “This never would have happened two, three, four years ago. Why are these people migrating there? What is the attraction? Well, they are seeing where this marketplace is going.” For some of those executives, new positions mean being on the opposite sides of some of the industry’s most heated arguments. “Dan Rank was a guy who used to say, ‘You don’t have any reach, you do a 0.3 rating, your subscriber base is only 20 million,’” Thompson says. He also notes that Abruzzese at CBS “continually said there was no value in cable.” And Uva? Well, he still likes cable. “I can tell you that I think cable is, pound for pound, the best value in television,” Uva says. “I think that the cost-per-thousand advantages that cable offers are going to be there for quite some time, and I think cable tends to allow you some significant promotional capabilities.” But he says that should offer little comfort to cable network ad sales types, because his responsibilities at OMD are mostly international. He’s already found in his new job that “it’s more fun influencing where the dollars get spent than begging for them.” Rank’s going to be doing some begging, and he’s making arguments he would shoot down as a buyer. With his USA Network hat on, Rank says “cable’s a tremendous value because you can build almost identical reach for half the price.” He admits he didn’t do that as a buyer, but pins most of the blame on the planning group, which decides how to allocate clients’ budgets. And as a seller, he says USA and Sci Fi sold out for the first quarter. “Buyers don’t tend to believe that, but it’s happening. It’s happening right now,” he insists. That helps convince him that cable CPMs will be rising. “When there’s a 100% gap between broadcast and cable, then cable’s going to have room to grow,” Rank says. With the average broadcast CPM at $20 and cable at $10, “Can cable make up some of that gap? Well, my common sense tells me it should be able to.” The gap is closing for cable’s most attractive programming, MediaVest’s Berning concedes. “I think on the top-tier properties, in the last upfront, there may have been a small gap. But the top tier of cable, the top tier of network and the top tier of syndication were all within close earshot of each other.” But he says a gap will continue to exist. “I think what drives the broadcast world is demand against…the Friends, the Will and Graces, My Wife and Kids, Survivor, CSI, Malcolm in the Middle, you name it. It’s the desire to be in the top-tier stuff that drives the network marketplace.” Mark Lazarus, president of Turner Entertainment group sales and marketing, also sees sellouts as a fact and says buyer perceptions of an unending supply of commercials on cable — at least on Turner networks — are dangerously outdated. “Right now we cannot take all the money in certain dayparts that is available to us,” he says. “We’re having to work with clients so we don’t anger any of them, but we’re trying to be selective in how we work with our clients.” Money is flowing into cable now because there is very little commercial inventory available at the broadcast networks. That’s driving up prices for broadcast even further, making cable even more of a bargain. “People are starting to say, ‘I need to find the alternatives. I’m tired of being held hostage.’ It’s a trend,” Lazarus says. With higher-quality programming, broader distribution and higher-than-ever ratings, Lazarus says cable can be used as a substitute for broadcast in many media plans. “Just take a bunch of money from a broadcast network and spend it with us; I can substitute that reach,” Lazarus says. “It’s going to be more spots, a challenge for agencies and a challenge to manage it, and that’s a hurdle that we all have to deal with, and we are. But cable, big cable, the networks with big ratings and quality programming, whether it’s original or acquired, can substitute for broadcast. Sports have proved it. Kids have proved it. Entertainment’s next.” Lazarus and other cable sellers want to change the dynamics of the upfront, in which buyers rush to pay high prices for broadcast, then spend whatever is left over on cable. Instead, he thinks advertisers should buy cable first — the theme of last month’s Cabletelevision Advertising Bureau conference. “I think for some marketers, it makes sense to be able to put down this base that substitutes for broadcast and gives them an opportunity to know they have some stuff locked in.” John Muszynski, EVP and chief broadcast investment officer at Starcom North America, says he already makes some early cable deals. “Each year for the last five years, I’ve done cable deals prior to the cable upfront,” Muszynski says. He says that while some of those deals involve unique marketing opportunities, they also have the benefit of allowing clients to get down a base at low rates. “We can really get some attractive pricing that allows us to use that piece to leverage against everyone else,” Muszynski says. “And in turn, I try to let the network be able to leverage the fact that they have the security of having a significant amount of volume down with us so that they can in turn raise their prices elsewhere.” On the one hand, Muszynski admits deals like those help keep cable CPMs down — but that seems to be OK with the cable networks. “If it’s not a win-win for both sides, I won’t be able to get that done the next year, and they’re generally the same group of players that I do my early deals with.” But Muszynski sees no need to move early and pay high prices to cable networks. “They are their own worst enemies,” he says. “They’re looking at what the broadcast scatter has been, and they’re saying ‘why not us?’ And why not us is called supply and demand. Right now, your supply is outpacing the demand, so why do I need to go rush to do that?” Last year Starcom made a deal with USA, which wanted to put ad dollars on its books and was willing to cut CPMs to do it. The deals made the cable industry howl, but for USA, the strategy was necessary until new programming, including Monk and The Dead Zone, began to click. “I don’t think a whole lot of people here were thinking they would give money to USA. And this strategy of making a very attractive offer to people very early on resulted in us taking dollars from other places and giving it to them. A lot of people questioned what [USA ad sales chief Jeff Lucas] did. I thought it was brilliant what he did,” Muszynski says. But the deal established a new, lower baseline price from which future deals will be negotiated, which means it will take time for USA to get its prices even close to broadcast levels. “That’s one of the reasons why I loved it so much,” Muszynski says. “But he needed volume. Do you want ugly volume or do you want pricing with no volume?” Cable networks are also trying to ingratiate themselves with clients and media buyers by constructing deals that provide more marketing clout than simply selling 30-second spots. “With more and more niche networks out there, there are so many opportunities to find something that will resonate with your particular target audience,” says Zenith’s Ascher. “I think the cable networks are pretty creative in terms of how they package things, things they’ll bring to the table,” says Steve Ozzano, SVP and group media director at Universal McCann. “Then again, part of that is their audiences tend to be a little more unified” and that makes it easier to do programming that’s thematically linked. Ozzano says that these deals help bring cable larger shares of client budgets. “If there’s value there, we do want to recognize it,” he says, adding that each brand devotes a different percentage of its budget to cable. “It’s not like the bad old days of the 8% solution. Those days are long gone.” “We pride ourselves on being creative with our clients to give them unique exposure for their product,” adds Turner’s Lazarus. “We spend a lot of time and energy working with our clients to solve their goals that way.” Turner’s done deals integrating the hardware chain Loews with its Man-Made Movies franchise and teaming Verizon with its NBA halftime report and movies. For Verizon, the “Do you hear me?” guy appears on the marquee leading into movies. Turner has also sold packages including the American Express movie portfolio and the Kleenex tearjerker. “It gives people a way to stand out and to work creatively with us to come up with ideas,” Lazarus says. “We’ve done some terrific deals,” adds MediaVest’s Berning, citing a cross-network deal with Discovery for Procter & Gamble, a deal between Kraft and Scripps Networks’ HGTV and Food Network and another putting M&M/Mars’s Snickers candy bars on MTV. How are those deals priced? “It depends,” Berning says. “We’re never looking to inflate the CPMs that we pay, but we understand fair value, and sometimes CPM is the currency, and sometimes volume is the currency. It’s like any other negotiation: What are we trying to accomplish, and can we make everybody, if not happy, at least feel good at the end of the day?” Pricing equality on those deals may be coming closer because increasingly, big media companies own both broadcast and cable networks and are including both in big package deals. “What you’re seeing now, particularly with Disney and to some degree with News Corp.…[are] ideas going cross-channel that can travel from network to cable so the playing field is level,” says OMD’s Thompson. “But does that automatically mean that cable is entitled to that much of an increase? Absolutely not.” Thompson believes cable can create packages more easily and with lower out-of-pocket costs. “Joe Abruzzese is not going over [to Discovery] just to sell spots,” he says. “He’s there to bring the thinking that [Viacom COO] Mel Karmazin was putting together at Viacom and do it at Discovery. Bringing ideas, bringing promotional ideas. If you do that — and I shouldn’t say this — no one ever asks what the CPM is on a great strategic idea if it delivers results.” Thompson says that instead of dickering over CPMs, media buyers have to find a new way of analyzing the effectiveness of the commercials on which they spend money. “We spend way too much time analyzing CPMs,” he says. “I guarantee you the bottom fishers buying the lowest CPMs are going to regret the day, because it’s not necessarily doing anything for their business, whereby if you bring a big strategic idea that is vertically integrated and connects with the consumer, and if it costs you 20% but it delivers you 30% bumps in what you’re looking for, that is a payout.” Thompson argues that no one knows which networks and shows are really valuable. “There are a handful of shows, I would wager, to sit there and say are really worth it, but I couldn’t prove what the values are. Obviously we could point to the Super Bowl, the Academy Awards, Friends, some of those big programs,” he says. “The worst thing we can do is keep going down the same path we’re going.” As much as anything, simple inertia works against parity between cable and broadcast. Media guru Ephron says cable networks will continue to face resistance if they try to raise prices. “I think the buyers say, ‘You know what, there’s so many of you, and I don’t need any of you specifically except in certain very specific cases.’ So the issue is it’s buying against anarchy versus buying against an oligopoly.” And with most networks recording ratings of less than 1 point, it’s hard to keep track of that many spots. “And there are examples of spots not running, spots being overrun locally, spots being clipped, I mean there’s all sorts of stuff,” he says. That can make buying cable unwieldy and expensive to manage for buyers. Ephron says there are big things the cable industry can do. “But the government won’t let ’em,” he jokes. To really change the marketplace dynamics, “you need conscious parallelism of action. What happened in the last cable upfront as I recollect is USA led and cut prices. So USA did very well and skunked the rest of the cable business…Cable used to let Turner lead, who always asked for the higher price. It’s like broadcast. They let NBC lead. They always let the toughest network lead pricing.” Ephron allows that there are things cable networks can do to get CPMs up. They can reduce the number of ads they sell on a run-of-schedule basis. “You can certainly segment your inventory and go to a market that is tight and attempt to get a higher price,” he says. “You can sell across cable networks and produce higher ratings. You can package and sell episode repeats. You could get a cable rep that could put together cable networks by genre and start selling packages.” That won’t necessarily lead to parity. “I don’t think you’ll get equal to broadcast pricing, but you’ll do better,” Ephron says. “But I don’t own a cable network, so what the hell.”

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