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Cable Clicks in Upfront

Is this year's cable upfront over-hyped? Depends whom you ask. Cable's biggest players—MTV Networks, NBC Universal, Turner, Discovery Networks—are toasting a fast and flush upfront. Their deals kicked off before the broadcast networks', and they are seeing high-single-digit percent increases in cost per thousand.

But that bullish growth isn't quite trickling down.

For independent and second-tier networks, this upfront is about waiting. Once the big cable groups and broadcast networks tie up their advance ad commitments, say industry salespeople and media buyers, the rest of cable—channels like Rainbow's AMC and WE, Court TV, the Weather Channel, and Game Show Network—fight for scraps. Syndication sales and other broadcast dayparts are angling for the money, too.

The competition could hamstring any quest for gains in cost per thousand (CPM). "There will be a second marketplace for the networks that are not in the top tier," says one cable-network sales insider, "and it is an abysmal market." Industry execs predict that second-tier and independent networks may have to accept flat CPMs or eke out slight single-digit increases.

Overall, the cable marketplace is pushing 10% growth and should tally north of $6 billion in upfront sales. The broadcast upfront is projected to end even with last year, at about $9.3 billion.

Merrill Lynch media analyst Jessica Reif Cohen says money is shifting as TV viewers defect to cable. "Cable's improvement in both original and purchased off-network programming, ensuing ratings growth, and targeted niche offerings are an alluring proposition for the ad community, relative to broadcast television," she notes in a report. Plus, cable offers advertisers bargains on CPMs. Where a top-10 broadcast show among adults 18-49 might sell at a $30 CPM, she says, a top cable show offers an $8-$10 CPM.

The big categories are fueling some of the cable trends. Many early cable deals, industry execs say, were chasing younger demos. That's helped by strong entertainment and DVD business this year. Automotive, particularly high-end cars, is strong. Yet traditional categories like packaged-goods and pharmaceuticals are down or flat. For channels that skew to the 18-49 and 25-54 demographics, that may hurt business.

But why is cable splitting into haves and have-less?

TNT or USA can arguably deliver a competitive alternative to broadcast. They boast marquee off-nets like Law & Order, theatrical movies, and sports. Targeted networks like MTV and ESPN offer something special. But smaller and older-skewing channels are a commodity on cable. "You can buy Nightline
at the same CPM as some cable networks—and at three times the rating," notes one veteran media buyer.

Dozens of networks—and their number grows each year—flood the market with available ad time. That gives media buyers more leverage on pricing and timing for closing deals. Indeed, some executives expect the rest of the cable upfront to stretch well into July.

The Memorial Day holiday marked the split between cable's first and second upfront waves. At major network groups and young-skewing channels like Comedy Central, the business was wrapping up by the holiday weekend. Scripps Networks' highly targeted Food Network and HGTV were moving business. Some smaller channels secured a few early deals but largely returned after the holiday with time left to sell.

"We understand where we are in the scheme of things," says Rainbow Media Ad Sales President Arlene Manos. Her AMC and WE channels are in their third year of taking ads (AMC used to be ad-free, and WE relaunched from Romance Classics) and "still developing businesses," she says.

By contrast, the Hallmark Channel, which skews older but is enjoying solid ratings gains, is about 65% wrapped on its upfront deals and closed some pre-Memorial Day deals, says ad-sales chief Bill Abbot.

Like many cable networks, Hallmark wants to sell about two-thirds of its ad avails in the upfront and leaves the remainder for the scatter market. Abbot doesn't see cable's gains shrinking broadcast coffers: "I don't think as much money shifted from broadcast to cable as people expected."

Since the broadcast started moving, "it is a different marketplace," says a network ad-sales chief. "There isn't the rush sense to it. It's more methodical."

Ad budgets are up, Abbott says, and that extra money is flowing to cable.