Why Bargain Prices Lure Cable Advertisers
Utica National Bank & Trust Co. in Tulsa used to advertise on local spots during CBS-TV's "60 Minutes." Then the bank encountered tough economic times and was forced to cut its advertising budget, says senior vice-president Dick Barber. So the commercial bank switched from its conventional television advertising to Cable News Network's "Freeman Reports," a one-hour interview program. "It's a think program that appeals to the chief executive officers we want to attract," says Barber. At $30 a spot, the bank is able to run 40 spots a month, compared to the 1 spot for $1,200 it ran on "60 Minutes."
Totem Lumber Co., a division of Industrial & Wholesale Lumber Inc. in Schiller Park, Ill., wanted to reach customers in its northern Illinois trading area. "My manager in Spring Grove pointed out that Lakes Cablevision, with more than 9,000 subscribers, was up there," says John R. Kathrein, executive vice-president of the company that employs 90 people in four locations. Kathrein signed up for four spots per day for 13 weeks at a cost of $6.40 a spot to advertise the company's windows and screen doors. Since it is more like a special-interest magazine than broadcast television, cable allowed Kathrein to tailor advertising to the rural lumberyard's customers. "What's hot for people around our northern yard isn't right for our suburban Chicago customers," says Kathrein. "Vacationers want screen doors, while people in the city want grates over their doors."
As growing numbers of local cable TV systems offer commercial time to advertisers, many businesses are finding that, for the first time, they can afford to advertise regularly on television. Attracted by prices that compete with radio air time and newspaper space, companies are signing up for local spots on satellite-delivered programming -- for example, the all-news Cable News Network (CNN), the 24-hour Entertainment and Sports Programming Network (ESPN), and the nonstop-rock and roll Music Television (MTV) -- as well as for locally produced programming. With cable, advertisers can choose specialized programming that suits their products and services, sponsor their own programs, or experiment with longer commercials while reaching a precisely defined audience within the boundaries of a cable franchise.
Across the country, prices for cable fluctuate like the price of a leather handbag in an Italian flea market. "I have hundreds of rate cards," admits Tulsa Cable Television's advertising manager, Ray Klinge, whose accounts include auto dealers, banks, furniture companies, trade schools, coin dealers, radio stations, and shopping centers. Klinge notes that while prices generally range from $20 to $80 a spot, some special programs command more. A 30-second spot during the Sugar Ray Leonard and Tommy Hearns fight fetched $1,000, for example. "None of us in cable knows what it's worth yet,' adds Donald M. Olson, executive director of broadcast operations at Colony Communications, a cable company that operates systems in suburbs of New York, Boston, Miami, and Providence. When Colony first offered commercial advertising time two years ago, its rates were pegged to the cost of local radio -- about $15 for a 30-second spot. Today the cost ranges from $30 to $40.
While salespeople tout cable's bargain rates, specialized programming, and its ability to target an audience practically by zip code, a lot of cautious advertisers are confused by cable's vast offerings of satellite-delivered programs and local shows. For instance, cable companies franchising metropolitan areas are typically offering 36-, 52-, 104-, and even 166-channel systems with an array of special-interest programs, from news in Spanish and portuguese to all-music and homeshopping channels.
Cable TV now reaches more than 29 million U.S. households, or 35% of the total 83 million homes that have television sets, according to A. C. Nielsen Co. "These audiences have a different ebb and flow than regular broadcast television viewers," notes Bob Woletz, an analyst with Paul Kagan Associates, a communications research firm based in Carmel, Calif. "For example, people constantly tune in and out of 24-hour news programs so advertisers have to buy a lot of spots to increase the chances that a viewer will see a commercial."
Many advertisers and ad agencies are also concerned by the lack of audience data, such as those provided by A. C. Nielsen and Arbitron Co. for regular broadcast TV. Although some systems are hiring research companies to measure response, most local systems are still able to tell an advertiser only the number of cable subscribers. They cannot document, for example, how many or what type of people are watching a program.
Despite such drawbacks, however, many small businesses like the Utica Bank and Totem Lumber report that they are pleased with cable's results -- usually a measure of the number of customers who mention they saw the company on cable. Last year, advertisers spent more than $250 million in cable advertising, says Paul Kagan Associates, up from $129 million in 1981. Of the advertising dollars spent last year an estimated $35 million was spent on local advertising a 110% gain from the previous year. According to New York City-based TAG Cable Information Exchange, which publishes a quarterly directory of cable systems, networks, regional interconnects, and program guides offering advertising, only 15% of the 4,800-plus cable systems in the country offer local advertising. Because most of these advertising carriers represent the country's largest systems, at least a third of today's cable subscribers -- more than 10 million households -- are reached by local advertising. The number, TAG says, is soaring, particularly as more and more Iocal systems interconnect with each other to swap cable programming and sell advertising.
While the majority of cable advertisers are running local 30- and 60-second spots on the satellite networks and local programming, other companies are buying classified ads on so-called alphanumeric channels that offer information such as news, stock quotations, and program guides in numerical and letter form. Tulsa Cable has a waiting list of small businesses that want to pay $1,000 a month to add their listing to the system's program directory, which carries about three hours of programming at a time with ads rotating every three minutes. In a few markets, cable subscribers can now order products or services they see on the air by interacting directly with the system.
Other companies are developing longer commercials, often called "infomercials," and producing full-length shows. Advertisers on The Cableshop -- a shopping information service developed by J. Walter Thompson USA, the advertising agency, and Adams-Russell Co., a multisystem cable operator (MSO) headquartered in Waltham, Mass. -- run threeto seven-minute commercials that provide in-depth information relating to their products or services. An automobile dealer, for example, talks about what to look for in a new car, an office equipment disbutor reviews how to buy a personal computer, and a pest-control company discusses when to call an exterminator. This summer, Cableshop will reach more than 250,000 households in several markets, including Chicago and Boston. The cost will be about $25 a month for every 1,000 homes reached.
Woofer & Tweeter Hi-Fi, a $2 million audio dealer in Durham and Chapel Hill, N.C., which runs 30-second commercials on CNN and MTV for about $18 a spot, also produces a half-hour monthly program for about $700, including commercial time and production costs. The "Woofer & Tweeter Consumer Electronics Show" airs nightly at 9:30 on Village Cable Inc.'s Home Shopping Channel. On it, Earl Roberts, a 27-year-old law student who works part-time for the audio company, reviews equipment and offers what he calls "sound" advice. Since the show started about a year ago, says Roberts, he has learned to make the program livelier by breaking it up into shorter segments. Vendors, such as Bose, Sony, Activision, and Technics provide free tapes of commercials for the show, which give the program a more professional appearance.
Local cable productions, when available, vary from highly professional to downright amateurish. "You get what you pay for," says Lisa Sullivan, advertising director for Colman's Sporting Goods, a retailer with outlets in Danvers and Woburn, Mass. Sullivan uses two systems -- Greater Boston Cable Corp. and Lowell Cable Television Inc. -- to reach seven towns northwest of Boston. Instead of paying the cable system's going rate of $50 per production for a 30-second spot in which the camera crew simply pans the store then adds some flashing prices, Sullivan prefers to spend $200 to pay for three extra hours of the crew's time to produce a better commercial.
Other advertisers use professional agencies instead of a cable system's production staff. Carol Frenier, a partner in Advantage Group, a company that produces television and radio commercials in Wakefield, Mass., says that good quality production among cable companies is still "spotty." She advises advertisers to explore a system's production facility and check out the commercials they have produced. "No matter how you cut it, you can't go on with something shlocky," says Frenier. "However, costs can be kept down." She suggests producing incomplete commercials by spending money on a professional 20-second spot with a "dead space," to which new messages and voice-overs can be added later at a reasonable cost, as well as producing several versions of a commercial during a single shoot.