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Peggy Conger
Cable ad sales operations, along with TV stations, are grappling with the news that General Motors Corp. will pull $500 million from local GM dealer groups this spring and redirect it to five regional managers who will use it to promote GM brands in areas where the car-maker's market share is low.
Auto dealers accounted for $2.6 billion in local and national spot sales last year for TV stations and were the No. 1 local sales category for cable ad sales operations.
Auto sales consultant Jim Doyle told Cable Avails magazine that although GM corporate pledges to continue local buys, overall local spending could drop "anywhere from 25%-50% less money, especially in markets where GM already is highly penetrated."
The $500 million fund comes from about 1% of the invoice price on every GM car sold. In the past, GM funneled that money back to 954 GM dealer groups to spend on local broadcast and cable buys.
Under the new plan media buying firm Local Communications Inc. will place the money selected markets to drive market share and build brand awareness. Local dealers will have to spend their own money to advertise sales or specials.
"If a cable system is in an area with high GM penetration, then their auto dollars are at risk," Doyle said, citing Cleveland, St. Louis and Rochester, N.Y., as places where GM's market share is over 30% percent. "In areas with low market share, such as L.A. where GM has only 3%, local cable systems might get more auto dollars.
But how those dollars are placed is another concern. LCI is expected to use cable rep firms to make the buys, which could idle cable sales reps who now specialize in GM dealers. Also, cable ad sales managers note that rep firms charge cable systems more commission than they would pay on those ads if their own salespeople sold them.
But one wrinkle in the GM plan could actually benefit cable operators: GM is expected to insist on pod protection for its brands, meaning that no other automaker's cars - or other GM brands - could appear in the same commercial breaks as, say, an ad for Cadillac.
For broadcasters, pod exclusivity will tie up precious inventory at a time when revenues from one of their major advertisers are shrinking. But it could actually benefit local and regional cable ad sales operations, which have far more inventory available.
Doyle is predicting a potential "windfall" for local cable because cable systems sell on multiple channels. Some cable sellers think GM's desire for pod exclusivity even among its own brands will naturally force GM into more cable buys and into longer term deals. But agency buyers note that certain cable inventory is more appealing than spots, for example, on low-rated cable networks and predict that cable eventually will have the same crunch as broadcasters.
There's also concern that the new buying firm LCI, by controlling such a big fund, will be able to dictate prices, further driving revenues down.
But even amid the worries, cable ad sales executives are expressing confidence. "I don't think (GM's decision) is a negative for cable," says Jerry Machovina, EVP/advertising sales, TCI Media Services, "because this is another example of how we can offer a product that is more cost-effective. If dealers have to use their own dollars for local advertising to reach specific local customers, cable will be their choice over local broadcast."
Whatever the outcome, the move is already unpopular among GM dealers. A group of Illinois GM dealers filed suit two weeks ago in Detroit, saying GM's action would violate the state's franchise laws.
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