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The Making of a Revenue Stream 2006

11/03/2006 7:06 PM Eastern

On Tuesday night, Americans will gather around their TV sets to discover which candidates will represent them at the local, state and federal levels.

For local cable-advertising executives, however, Election Day results for 2006 are already in, and they have won. The only question is by how much.

When all the campaign spending is counted, executives at National Cable Communications, the largest firm representing cable providers in spot-time advertising sales; and Comcast Spotlight, the ad-sales arm of the nation's largest cable operator, estimate the medium will reap about $250 million from local and spot advertising sales.

“It's been a breakthrough year for cable,” said Comcast Spotlight vice president of advertising sales Kevin Cuddihy. When you add up the dollars brought in by cable operators themselves and by NCC, he said, “you're probably looking at a quarter of a billion dollars.''

Labeling it “a banner year,” NCC senior vice president of marketing and business development Andrew Capone said spending has been up “across the board” — and spiked at the finish.

“The last week has been relentless, with money from the Democratic and Republican senatorial committees sprinkling into our markets, state political groups and local candidates,” Capone said. “Yes, $250 million is realistic, but I'd bet the over.”

GRABBING SHARE

Fueling this growth: Hotly contested races across the country, as Democrats push hard to win back both houses of Congress. Democrats must win six seats from Republicans to take control of the Senate and grab 15 in the House to assume power in that chamber.

There are also a number of tight gubernatorial races and many referendums.

“In 31 of the 36 gubernatorial races, there is no clear favorite,” said Leo Kivijarv, vice president of Stamford, Conn.-based research firm PQ Media, which estimates that spending on those contests will exceed $1 billion collectively for the first time. “By our count, there are some 300 referendum items in 33 states.”

All told, PQ Media estimates that political ad spending will total some $3.1 billion this year, up 15% from $2.7 billion in 2004. TNS Media Intelligence's Campaign Media Analysis Group predicts $2 billion will be spent on national broadcast and cable networks and broadcast stations, up from $1.7 billion during the 2004 presidential campaign year.

TNS does not track spot-cable sales. But either way, major dollars are flowing.

Cuddihy estimated the spot market will jump 29% to $1.4 billion in 2006, from $1.1 billion in 2004. That's where NCC and operators compete for political dollars.

Cable has increased its share of that pie from between 6% to 7% in 2004 to between 16% and 17% this time around, he said.

NCC estimates that when all of the political dollars are accounted for, it will have taken in some $135 million this year, up from the “mid-seventies” in 2004. NCC put its share of the political ad dollars in the “mid-thirties” in 2002.

Cable operators declined to delineate their projected political take for the season. But it's clear it's growing significantly.

“We doubled our revenue versus 2004 thanks, in no small part, to the efforts of NCC and to a strong local sales focus,” Cox Media regional vice president of advertising sales Tom Forst said via e-mail.

Comcast Spotlight, meanwhile, reported that as of last week, it expected to finish close to 90% ahead of its political ad take for 2004. Cuddihy noted that nearly 75% of Comcast markets had garnered political revenue to that point that was twice their budgets.

Time Warner Cable — which jointly owns NCC, along with Cox and Comcast — declined to comment, citing the quiet period associated with its proposed initial public offering.

NCC and cable operators would not provide estimates for the industry's collective total from political ad spending for 2002 and 2004.

However, calculating that NCC's expected $135 million from the current season would represent about 54% of the $250 million the industry may rake in this year, then some estimates can be made.

Applying that ratio against, say $35 million and $75 million for NCC in 2002 and 2004, respectively, cable's overall take from political ads in local spot markets could have been on the order of $64 million four years ago and $136 million in the Bush re-election year of 2004.

It should be noted, though, that these estimates don't account for such factors as local ad sales staffing and the spending activity levels of races in different markets, among other considerations.

REASONS WHY

Cable's increased political-ad take can be traced to a number of elements. Both Cuddihy and Capone said their companies got out early in 2005 and met with Republicans, Democrats, ad agencies and political action committees.

“We were in the state capitals and in Washington, D.C. We got ahead of the curve and did a better of communicating and telling our story,” said Cuddihy.

Comcast Spotlight's sales team talked about the wider availability of interconnects in key markets; Nielsen's Local People Meter results, which show higher cable ratings; and the ability for campaigns to use software like Ad Copy, which can deliver multiple versions of a spot to viewers in a single market, he said.

For NCC, some of the key talking points include geographic targeting within certain zones for key state and local races; and schedule options afforded by commercial insertion on 40 to 60 different networks.

Capone also cited the deployment of plans that enabled candidates to use a mix of networks, shows and dayparts that could target Republican, Democratic or Independent viewers, or those who were deemed likely to vote, with more precision.

Robin Swanson, communications director and political consultant for Kauffman Campaigns, which buys time for state Assembly candidates and propositions in California, said the company has been “increasing its budget for cable over the years. In some markets, we bought all cable, because the broadcast stations were so prohibitively expensive.”

Out-of-pocket considerations notwithstanding, Swanson said the “ability to fine-tune a plan when you want to reach a group” gives local cable a leg up.

“If I'm trying to reach women 35-plus, it might be with HGTV in Los Angeles or Hallmark Channel in San Francisco,” Swanson said. “It depends on the market and target audience, but cable can provide effective reach.”

Political Payout
Ad spending in 2006 is projected to reach record levels:
Medium 2002 2004 2006
Broadcast TV* $912M $1.45B $1.58B
Direct Mail $335M $648M $707M
Radio $155M $175M $256M
PR/Promotion $128M $43M $254M
Cable** $35M $103M $144M
Newspaper $34M $58M $104M
Outdoor $25M $34M $55M
Online $5M $29M $40M
Other $1M $2M $2M
Total $1.63B $2.74B $3.14B
M=millions B=billions
*Includes national network and broadcast spot dollars. **Includes national network and spot cable dollars.
Source: PQ Media

September