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Tuesday, December, 4 2012

TWC’s Britt: ad sales biz has niche role for company

By: Stewart Schley Tuesday, December, 4 2012

For a brief moment yesterday on Twitter – where all moments are brief – there was a wee rumble of surprise in the digital air after Time Warner Cable Chairman and CEO Glenn Britt labeled his company’s advertising sales business as a “niche” contributor to the company.

Here's a Tweet from Simulmedia CEO Dave Morgan about the comment:

“Wow,” responded a follower who had read Morgan's recap of Britt’s presentation at the UBS Media conference 2012.

Morgan’s Tweet is an accurate summary of Britt’s comments. It’s the “wow” part we can’t quite agree with.

Cable’s ad sales business has always been a “niche” part of the picture. As we pointed out last month, total U.S. cable operator ad revenues make up less than 6% of the industry’s total, and are now being upstaged as a revenue contributor by business telecom services, a category that Britt yesterday praised as TWC’s fastest-growing business. As for advertising, “We’re in a relatively small niche…selling primarily local advertising that’s highly targeted,” Britt said at the UBS conference.

That’s not exactly news. Nor does it signal that somehow local advertising is irrelevant to the cable business. Cable companies can legitimately claim to have transformed the local TV advertising business by introducing new capabilities in geographic and demographic targeting, plus multi-network insertion that broad-stroke TV stations can’t match. Thousands of local businesses have been able to advertise on television for the first time thanks to affordable ad rates for geo-targeted advertising zones. And as a result, even though advertising is a “niche” part of cable’s picture, it’s still a big business – generating an estimated $6 billion-plus annually in the U.S., according to the Cabletelevision Advertising Bureau . Two companies – Comcast and TWC – now generate more than $1 billion annually from their advertising sales units.

What was more interesting about Britt’s comments yesterday wasn’t his observations about the size of the cable ad business, but the fact that he acknowledged its increasing sensitivity to broad marketplace trends. Pointing out the relatively large exposure to political and automotive categories, Britt noted that revenue growth is somewhat out of the hands of TWC. As go those two categories, so goes the business, to a large extent.

That’s different from the way things used to be. Until a few years ago, cable companies routinely registered double-digit revenue increased from advertising as they added insertion networks, upgraded to digital insertion systems, courted more local advertisers and improved their appeal to larger, agency-represented clients. The process and infrastructure gains that fueled that progression are largely done, however. Now, the industry is exhibiting signs of maturity.

What might change that? The big bet is a migration toward associating advertising with on-demand video streams that increasingly are siphoning viewers away from legacy linear viewing. Cable has made significant progress, with more than 30 million U.S. homes now outfitted for dynamic ad insertion into VOD streams. The industry also is chasing online ad dollars by weaving video and banner advertising into customer portals and other web sites.

But in the meantime, cable faces significant challenges from new video delivery technologies and the viewing habits they’re inspiring. The biggest of all is the movement to “second screen” viewing, which offers an alternative pathway to TV viewers. Cable companies are working feverishly to figure out how to maintain a presence in the advertising-placement business associated with getting TV network feeds onto iPads, video game consoles and mobile devices. The game’s in the early innings, so it’s difficult to predict whether cable will carve out a significant presence in a market where competitors already are active. But if cable advertising is going to grow faster than the broad local-TV economy, the industry is going to have to find ways to insert itself meaningfully between advertisers and viewers within the second-screen and VOD ecosystems. Otherwise, Britt’s observation about cable advertising’s exposure to the generalized TV ad world is going to rule the day.

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