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Belch: Advertising and Promotion, Sixth Edition V. Developing the Integrated Marketing Communications Program marathon of athletic events. Another reality show is planned called The Life, which is based on a feature in ESPN The Magazine and will show viewers how rich and famous athletes manage to spend all that money. Analysts explain these recent moves by noting that the Walt Disney Company didn’t just buy a 24-hour sports cable network when it bought ESPN as part of a package deal for ABC/Capital Cities back in 1995. Disney bought a valuable brand, out of which it wants to squeeze as much value as possible. The ESPN-produced programs will have secondary markets on other channels owned by Disney, and they may also help expand 11. Evaluation of Broadcast Media cable advertisers generally do not have to make the large up-front commitments, which may be as much as a year in advance, the networks require. The low costs of cable make it a very popular advertising medium among local advertisers. Car dealers, furniture stores, restaurants, and many other merchants are switching advertising spending from traditional media such as radio, newspapers, and even magazines to take advantage of the low rates of local cable channels. Local cable advertising is one of the fastest-growing segments of the advertising market, and cable systems are increasing the percentage of revenue they earn from local advertising. Limitations of Cable While cable has become increasingly popular among national, regional, and local advertisers, it still has a number of drawbacks. One major problem is that cable is overshadowed by the major networks, as households with basic cable service still watch considerably more network and syndicated programming than cable shows. This stems from the fact that cable generally has less desirable programming than broadcast TV. Another drawback of cable is audience fragmentation. Although cable’s share of the TV viewing audience has increased significantly, the viewers are spread out among the large number of channels available to cable subscribers. The number of viewers who watch any one cable channel is generally quite low. Even MTV, ESPN, and CNN have prime-time ratings of only about 1 or 2. The large number of cable stations has fragmented audiences and made buying procedures more difficult, since numerous stations must be contacted to reach the majority of the cable audience in a market. There are also problems with the quality and availability of local ratings for cable stations as well as research on audience characteristics. Cable also still lacks total penetration, especially in the major markets. As of 2002, cable penetration was 74 percent in the New York City designated market area and 65 percent in Los Angeles and Chicago. While cable programming now penetrates 78 percent of all U.S. television households, this still means that nearly a quarter of the market cannot be reached by advertising on cable. The Future of Cable Cable TV should continue to experience strong growth as its audience share increases and advertisers spend more money to reach cable viewers. However, the cable industry faces several challenges: increases in the number of channels, leading to fragmentation of the audience, changes in government regulations, and competition in the programming distribution business from other telecommunications companies and direct broadcast satellite services. Advances in technology such as digital video compression and fiber optics, coupled with massive investments in system upgrades, are making it possible for cable operators to offer more channels and thus subject existing cable channels to greater competition. In 2002, over 42 million U.S. homes could receive at least 54 channels. An average 95 percent of cable subscribers could receive 30 channels or more. Increases in the number of channels available lead to further fragmentation of the cable audience and make it more difficult for cable networks to charge the ad rates needed to finance original programming. Some © The McGraw−Hill Companies, 2003 the viewing audience beyond the core sports junkie. However, some media experts argue that ESPN is taking a big risk and may alienate its core viewers in an effort to get higher ratings. ESPN’s success may ultimately depend on how elastic the brand is to viewers and how far the network can stretch the definition of “sports coverage.” It will be interesting to see what happens as the “E” in ESPN steps forward. Sources: Tom Lowry, “ESPN’s Full-Court Press,” BusinessWeek, Feb. 11, 2002, pp. 60–61; Joseph Guinto “Against the Grain,” Southwest Airlines Spirit, Feb. 2002, pp. 67–70. 369 Chapter Eleven Evaluation of Broadcast Media
370 Part Five Developing the Integrated Marketing Communications Program Belch: Advertising and Promotion, Sixth Edition Exhibit 11-7 CNN International is the authoritative source for news throughout the world V. Developing the Integrated Marketing Communications Program 11. Evaluation of Broadcast Media © The McGraw−Hill Companies, 2003 of the growth in cable channels will come from multiplexing, or transmitting multiple channels from one network. Several major cable networks, including ESPN, VH1, and the Discovery Channel, own several channels. The cable industry has also been affected by changes in government regulation. In the early 90s, concerns over poor service and high rates led to a revolt against the cable industry. As a result, Congress passed legislation in 1993 that rolled back the provisions of the Cable Television Act of 1984, allowed local governments to regulate basic cable rates, and forced cable operators to pay licensing fees for local broadcast programming they used to retransmit for free. The Telecommunications Act of 1996 allows local phone companies to offer cable service. However, as part of this act, federal regulation of the cable industry expired on April 1, 1999, and cable rates are now deregulated. 26 One of the biggest threats facing the cable industry is competition from direct broadcast satellite (DBS) services, which use a system whereby TV and radio programs are sent directly from a satellite to homes equipped with a small dish. DBS companies such as DirecTV and EchoStar now have nearly 10 million subscribers, many of whom have come to them at the expense of cable companies. DBS companies have been aggressively marketing their service, superior picture quality, and greater channel choice as subscribers receive as many as 200 channels that include news, music, and sports in crisp, digital video and CD-quality sound. A major competitive restriction to DBS services was removed in late 1999 when the federal government passed legislation allowing satellite TV companies to carry local broadcast signals in most major markets. 27 The future of cable as an advertising medium will ultimately depend on the size and quality of the audiences cable stations can reach with their programs. This in turn will depend on cable’s ability to offer programs that attract viewers and subscribers. Cable’s image as a stepchild in program development and acquisition has changed. Cable networks such as VH1, E!, TBS, and others have been creating original films, documentaries, and other programs that draw significant ratings. Networks like A&E, the Discovery Channel, and the Learning Channel provide outstanding cultural and educational programming. IMC Perspective 11-4 discusses how MTV recently created one of the most popular entertainment shows ever shown on cable—The Osbournes. Cable TV will continue to be a popular source of sports programming and is very important to advertisers interested in reaching the male market. There are over 11 regional cable sports networks, and with companies such as Fox Sports, advertisers can buy multiple regions with one media buy. Cable networks are also paying large sums for the rights to sports programming. Deals by ESPN for exclusive Sunday night coverage of National Football League and Major League Baseball games, along with its new six-year deal to broadcast National Basketball Association games, have proved that cable networks can compete with the major networks in a sports bidding war. 28 As cable penetration increases, its programming improves, and more advertisers discover its efficiency and ability to reach targeted market segments, cable’s popularity as an advertising medium should continue to grow. Many agencies have developed specialists to examine the use of cable in their clients’ media schedules. Cable networks are also looking to international markets as a source of future growth. Both ESPN and MTV have expanded into South America, Europe, and Asia, while TV viewers throughout the world tune to CNN International for news (Exhibit 11-7). Measuring the TV Audience One of the most important considerations in TV advertising is the size and composition of the viewing audience. Audience measurement is critical to advertisers as well as to the networks and stations. Advertisers want to know the size and characteristics of the audience they are reaching when they purchase time on a particular program. And since the rates they pay are a function of audience size, advertisers want to be sure audience measurements are accurate.
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