The cable industry is hopeful that the increased advertising targeting ability it expects to have at its disposal in the near future will greatly increase its revenues. Think again, says Pike & Fischer.
The view of the future held by P&F and the CATV industry diverge greatly. For starters, P&F notes that cable revenues were down 8% in 2008, and figure to be down 22% when the dust clears from the largely miserable media year of 2009. And whereas the cable industry is projecting income in the $15B range in 2014, P&F is projecting a far more modest total of $5.3M.
“Cable operators want to target advertising more effectively by sending personalized ads to individual subscribers based on such measures as demographic characteristics and household viewing patterns,” says P&F. “This capability will attract both local and national advertisers who want to make their promotional campaigns more effective. Eventually, users will be able to engage with television advertising much like they do on the Internet, clicking on ads to obtain additional information or make a purchase.”
However, P&F sees numerous speed bumps which it expects will hamper results, including “…reduced spending by advertisers (based largely on the recession), the lack of agreed upon value for the new ads, price pressure, and the intensive privacy protections that will have to be deployed.”
P&F admits there are a wide range of possible results. “If cable operators, programming networks, and advertisers are able to agree on new business models that take advantage of the new technologies and processes the cable industry is putting in place, however, that growth rate could accelerate and result in significantly higher revenue,” said P&F chief analyst Tim McElgunn. “But even in an optimistic scenario, we believe it will be at least 2016 before U.S. cable MSOs surpass $10 billion in annual advertising revenues.”
RBR-TVBR observation: Before the internet was trying to siphon off broadcast revenues, cable was doing so, particularly by beefing up its local sales presence. And if it vastly increases its functionality, cable will be coming back again.
The fact that P&F thinks CATV revenue projections are unrealistic does not necessarily bode well for local broadcast, but at least the social issues involved in broadcasting are a non-factor. But the more targeting capability cable can offer, the more it barges into broadcast territory. It will be important to keep an eye on what’s happening with this competitor going forward.