Across the great divide: as local ad sales emerge as a critical revenue source, programmers and operators partner improbably but profitably – Special Report: Local Ad Sales

Christopher Schultz

As operators and programmers bash it out in a perpetual slugfest of mutually exclusive interests, there’s one area–local advertising sales–where the two meet and contentiousness falls aside.

Of course, familiar grapples continue: MSOs bemoan network rate hikes–some of which have climbed more than 10%. Programmers punch back, citing statistics that show their costs rose 10% from 2000 to 2001 (according to Kagan World Media which, like Cable World, is a subsidiary of Media Central). But when the focus becomes more granular, shifting to local advertising peddled by systems, the talk borders on chummy.

Why? Simply put, it’s the dollars both operators and programmers gain by cooperating.

Cable, whose vaunted monthly subscription fees have long been the envy of traditional ad-supported channels, has relied more on advertising each year: During 2001, according to Kagan World Media, gross advertising revenue for cable networks was $12 billion. Local’s share of that total was about $3.2 billion, a figure that held steady from 2000 levels. As Kagan’s Bill Marchetti says, “Obviously, in this environment, if you’re flat, you’re doing pretty well.” It was only in 1994 that local cable’s gross advertising revenue surpassed the $1 billion mark, reaching $2 billion in 1998.

“The day of subscription bases being the end-all and be-all are coming to an end,” says Kathy Crawford, EVP/director of local broadcast at Initiative Media, the biggest spot-advertising purchaser in the U.S. Operators are recognizing that “the growth of their companies will come from advertising. The bigger guys,” she says, “realize that their future is tied to advertising sales at a local level.”

To sell local advertising, programmers and operators need one another, executives say. “It’s all about having a relationship with affiliates,” says Jeff Siegel, ESPN’s VP-affiliate ad sales and new business. If programmers and their operator affiliates cooperate, operators are more apt to share with network marketers which local ad sales promotions work and which ones don’t.

Still, MSOs are reluctant to show their books to networks, says Allyson Lago, the Weather Channel’s director of local ad sales. If networks’ local ad sales promotions add significant revenue to systems, MSOs fear that the nets may raise carriage rates. “MSOs are afraid we will use that information when it comes to [raising] rates, but our argument is that we’re just trying to provide better service to them,” she says, adding that networks “almost work for the MSOs, yet we don’t make a penny off local ad sales.”

ESPN’s Siegel says that in the last two years, operators have become slightly less skittish. When operators are forthcoming with results, it’s easier for networks to quantify the benefits of promotions that cost millions of dollars, and to continue doing them. “We need something to say, `This is how much value we’re bringing to affiliates,'” Siegel says. “Because otherwise, it’s very difficult to do it again next year.”

Coleman Breland, SVP-marketing of Turner Network sales, says that it’s not really the numbers he wants so much from operators: “The truth of the matter is, there are always ways you can build a model of how much these promotions made incrementally,” he says. Instead, he says, it’s more helpful if a system “gives me a gem of information I could take back to corporate and say, `This would help [their avails] sell for more.'”

Siegel and Breland preside over some of the more ambitious local promotions in the cable world. ESPN’s Tailgate With the Truck promotion, which last year pushed NFL programming on ESPN in local markets via a touring 18-wheeler, generated $23 million for 450 participating systems, which sold sponsorships and local advertising around ESPN the Truck visits to many of their markets. As Siegel tells it, when you incorporate the ad sales accompanying ESPN’s entire NFL advertising inventory and the additional sums that system affiliates generate by “using the NFL as the cornerstone of other packages,” he says, the total sum affiliates earned is close to $225 million.

Breland won’t discuss dollars, but says Turner’s most successful locally oriented promo is its TNT Show Car tour. The tour, which sent a tricked-out Chevy Monte Carlo to 90 cities around the U.S., sold local sponsorships and drummed up interest in the $2.8 billion NASCAR programming deal struck among TNT, NBC, Fox Sports Net and FX.

Breland’s focus, he says, is on incremental revenue–profits, stemming from local ad sales promotions, over and above the revenue local systems would have earned anyway: “For marketing to be credited, [system profits] must be incremental,” Breland says. “For example: `What do I need to give you as a prize package that can be good enough for you to make revenue incrementally?'”

Operators, naturally, want networks to make promotions easy to execute. “In our world, the more opportunity we have for turnkey operations, the better,” says Mike Fallon, general sales manager of Insight Media Advertising in Indianapolis, Ind. “[Turnkey local promotions] work for everybody,” he says.

Plowing millions of dollars into promotions that generate incremental revenue for operators, though, is only part of the local marketing equation. Although networks regain revenue via licensing fees (total during 2001, according to Kagan World Media, was $6.7 billion), the larger benefit for networks is increased brand awareness.

ABC Cable Networks is midstream in an intensive program to re-christen Fox Family as ABC Family (Disney purchased the network for $5.2 billion in October). Todd Schoen, SVP-affiliate marketing and ad sales for ABC Cable Networks, says that ABC Family is focusing more on education. This month the network launched a new campaign called “Teaching Together,” a promotional effort, he says, “to bridge the gap between home and school.”

ABC Family generated more than $40 million in local ad revenues last year through such promotions as 13 Days of Halloween and 25 Days of Christmas. Schoen’s goal is to surpass sister Disney unit ESPN as the top local ad sales revenue generator: “We’re going after that top spot for local ad sales,” he says.

As ESPN’s Siegel mentioned, the partnering of operators and programmers is a recent phenomenon. Vicki Lins arrived at Adlink, the nation’s largest interconnect–which is owned by Adelphia Media Services, AOL Time Warner, AT&T Media Services, Charter Communications and Cox Cable Communications-five years ago (she is now SVP-marketing and communications). When she got there, she says, “We partnered with networks, but the quantity of what we do now has multiplied by tenfold.”

One of Adlink’s partnerships–Laugh Riots, a local promotion begun three years ago with Comedy Central–has the distinction, according to Lins, of having evolved into a network program concept. Initially a promotional comedy vehicle to sell local sponsorships and advertising around the Los Angeles comedy scene, last year the event generated $2 million in incremental revenue in seven markets.

Perhaps setting a new standard of success for local promotions, this year’s finals will air on Comedy Central.


Cable operators don’t talk much about local ad sales revenue they see from programmers’ promotions. Still, big local ad boosters are no secret:

Cox Communications marketing promotions manager Michael Hargreaves says ESPN rules-“Sports is more important than ever as an ad sales driver, especially after last fall,” he says-and credits TNT’s Call Me Claus promotion with a year-end jump.

Jim Heneghan, Western division VP of ad sales for Charter Communications, says big 2001 earners included HGTV’s Dream Home Give-Away promotion, Lifetime’s Stop Breast Cancer for Life and the Weather Channel’s Project Safe Side campaign-“a great idea because you can run it when you want.” He’s also pumped over Discovery’s Shark Week this year and says Bravo’s 2002 Cirque du Soleil promotion is generating buzz.

AT&T Broadband saw HGTV rise in its local ad sales ranks last year, says corporate marketing director Patty Bullington. Public affairs-oriented campaigns from Lifetime and VHI’s Save the Music also did well. The Learning Channel’s Safety Heroes campaign was also in demand after Sept. 11, she says: “These types of programs not only boost local ad sales; it’s something we can offer that satellite doesn’t.”

COPYRIGHT 2002 Copyright by Media Central Inc., A PRIMEDIA Company. All rights reserved.

COPYRIGHT 2003 Gale Group

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