A Veronis Suhler study recently cited by Barron’s predicts that ad spend on alternative media will grow about 12% annually through 2013, while traditional media will decline about 3% per year, bringing its share of total U.S. ad spend to 1997 levels.
For a while now, many have speculated which traditional media (if any) will emerge from this shift the best positioned – newspapers, magazines, TV broadcasters, etc. But recent developments tell us that cable networks are clearly emerging as the best-positioned in the long run.
Cable networks continue to grow ratings, the highest-quality driver of ad revenue growth. Ratings growth helped cable networks become the only media to achieve ad revenue growth in the first half (up 1.5%). Primetime share grew almost 4% in Q2 ’09 while broadcast networks’ share decreased almost 6%.
What’s more compelling is that the most mature networks drove the growth, according to conversations with industry executives. USA and TNT, the two largest cable nets, each increased their ad revenue over 25% in 1H ’09 on top of ratings growth. As broadcast networks continue to cut costs and sacrifice quality programming, this trend will likely continue, helping buffer any decline in traditional media CPMs.
Whether Hulu or “TV Everywhere” — the cable industry’s Web video project — wins the online video war, the cable networks will benefit. Currently there is a lot of cable network programming on Hulu – Food Network, FX, Comedy Central, USA Networks, Bravo, A&E, Oxygen among others. Although cable nets would prefer ad dollars be spent on cable, where the volume is far greater, they will at least get a share of any revenue that moves to Hulu. (Though it will depend on how popular its shows are — whereas, on cable, it gets paid a subscriber fee whether people watch them or not.)
Even if the MSOs’ proposed “TV Everywhere” service — where only cable subscribers will be able to view programming online — makes Hulu obsolete, the cable nets will participate in this. They will get a share of any additional sub fees as well as advertising.
Dual revenue streams and high margins enable cable nets to invest and experiment more than most cash-strapped media companies.
Cable networks earn more money from affiliate fees than advertising (54% versus 46%, according to SNL Kagan). This is a large reason why their profit margins are so high – up to 40% in some cases. With most traditional media companies struggling to turn any profit, the cable nets will have more resources than most to put to work, which will enable them to focus more on emerging technologies, while others fight to keep their flagship businesses alive.
Though online viewing isn’t even a blip on the overall ratings screen, networks are starting to take notice beyond just putting some of their content online.
Nielsen told us that its recently introduced Internet video audience measurement tool was driven by client requests for such a product and they are in talks with the networks to roll it out beyond the test stage soon. This indicates to us that the networks are realising their strong position as both a thriving traditional medium and growing new medium. In turn, they are taking steps to ultimately include both traditional and digital metrics in the overall audience and ad-sales conversation.