Kagan: Ad Recession Hits Cable TV Next Year

The ad recession that's devastated newspapers and now, local tv, has yet to hit cable TV. But that's about to change, according to research firm SNL Kagan.

Kagan says cable TV advertising will have grown 10.7% by the end of 2008, a very healthy increase in a down year. Next year, however, the bottom drops out: ad revenues will grow a mere 4.7%.

Kagan doesn't offer much explanation for the drop, besides the obvious. Analyst Derek Blaine tells us the prediction is based on a weakening economy in the second half of 2008, which will last at least through the cable upfront sales period next June. During the first half of 2008, cable hasn't felt the weakening economy a much because it gained viewers during the writers strike, and the effect of Olympic ad dollars taking up ad inventory at NBC-owned cable networks. But that doesn't explain why Kagan predicts the market will bounce back to a more typical 11.1% pace in 2010.

Cable TV has been weathering the downturn well in part because cable is still taking audience share and ad dollars from broadcast TV; the writers strike likely helped accelerate that shift. Overall cable dollars have also been shielded from the recession because the networks get about 50% of their revenue from affiliate fees paid by cable operators.

This explains why the media congloms have been busily loading up cable, via new launches (Fox Business) and acquisitions (Oxygen). And the relative health of the business has helped Viacom (VIA), Disney (DIS), Time Warner (TWX) and NBC U (GE) overcome some of their more deeply challenged units like publishing, network TV and local stations. But if Kagan's right, tougher times lie ahead.