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AUGUST 14, 2006
Growing Up Is Hard To Do Cable growth is slowing just a bit, but angst is in the air This summer MTV turned 25. Coincidentally, 2006 looks like the year cable TV grew up. This is good in human terms, more or less, but in media terms it's not. "Growing up" in this case means "maturing," which implies age, stagnation, and settling down to earthbound growth rates. This year cable networks' total ad revenues will rise 6%, says Aryeh Bourkoff, an analyst with UBS Warburg (UBS ), which has worked with key cable companies recently. This is a nice increase but only about half of last year's 11% gain. Add in the fact that this year's upfronts -- sales of future cable ads -- are slow, and you might start to understand why the stocks of companies owning cable channels have been whacked. For these and other reasons, Viacom (VIA ), with its stock down around 20% since December, has been paddled the most soundly. As a company, "it's doing O.K,." says Pali Research analyst Richard Greenfield, "but it's being valued as if it's in rapid decline." Even E.W. Scripps Co. (SSP ), owner of still high-flying cable networks Food Network and HGTV, has watched its stock sink 15% in the past year. Grown-up, remember, is a synonym for uncool. ALL THAT SAID, the situation doesn't quite make sense. A media universe moving toward a state of infinite niche would appear to favor cable TV, which finely slices demographically coherent audiences and serves up the kind of programming for which advertisers pay a premium. The broad metrics for the industry are not tanking. The "broadcastization" of cable -- that is, the gradual decline of audience share that has afflicted the big TV networks -- has not arrived. The percentage of households tuning into cable continued to rise, if slightly, through the first quarter of 2006, the latest period for which figures are available, according to Nielsen Media Research. Other indicators also show strength. In late July, Scripps, which last year derived more than 35% of its revenues from cable, announced that overall cable revenues rose 17% in the second quarter of this year and that it expects ad dollars to increase 13% to 15% in the third quarter. But there's angst in the air. The laggard upfronts worry onlookers. (It would be ironic should cable's upfronts end lower this year while overall audience share grows. It was just the opposite for broadcast, whose upfronts thrived for years even as its share sank.) A Wall Street accustomed to double-digit ad growth isn't happy when gains slow to single digits, even if cable still beats overall ad trends. Rino Scanzoni, chief investment officer at media buying agency mediaedge:cia, concedes that cable is "a victim of its own success." Most clients, he says, have already redirected broadcast dollars toward cable. "You run into a situation where you've kind of maxed out your investment" in the medium. And a world of infinite niche spawns infinite competition. The Web has a hard time manufacturing massive mainstream hits, but it can churn out niche all day long. If 2005 was the year of MySpace, 2006 is the year of YouTube and its Web-video brethren. In them, some see threats to cable, even if YouTube's manifold charms do not yet include a business model. Nor can cable leverage broadcast TV's ace in the hole. "Broadcast is program-driven," says Jack Kodesh, national broadcast supervisor for agency Media Planning Group. "Cable is network-driven." Broadcast's biggest successes are built on scarcity: Think of how expensive ads get on event shows à la the Oscars and season finales of American Idol. Cable's biggest hits can't command similar premiums. And the ever-expanding nether reaches of your cable system -- and now the Web as well -- lead to more ad inventory and price pressures. This is why, says Bourkoff, the big cable players can no longer drive up ad rates. Cable still faces the fragmentation of a young medium, but its slower growth leads to a perception that it's a mature one. Clearly, growing up these days is a complex business. You could hardly blame MTV if, like so many 25-year-olds, it's striving mightily to remain an adolescent. For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia  By Jon Fine
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