REGIONAL REPORT : Merchants Begin to Shift Their Ad Focus to Cable TV : Communications: Technological developments give cable systems the capacity for broader use of commercials. Local advertising is estimated to have risen 21% last year.

Once, TV time was so costly that a spot buried in a Godzilla movie on a UHF station at 3 a.m. was all a local car dealer could afford.

Now, thanks to the explosion in cable TV channels, Tony Buttacavoli of Fullerton Dodge is popping up at every click of the remote control.

For $12,000 per month--his entire ad budget--Buttacavoli becomes an ubiquitous pitchman, with 30 commercials a week reaching 87,000 cable subscribers in Orange County. Sales have soared to 100 cars per month from 40 since he started a year ago, he says.

Retailers from car dealers to furniture outlets to restaurants are at the forefront of a shift in the way advertising dollars are being allocated--a switch to local cable ads that doesnot bode well for traditional media outlets, such as local TV and radio stations, newspapers and even magazines.

Local advertising on cable is estimated to have jumped 21% to $761 million last year. In 1992, it is expected to increase 19%. Though still a fraction of the $15.4-billion local broadcast advertising pie, cable ads are projected to hit $1.5 billion by 1995 and to continue mushrooming.

“A significant amount of viewership has shifted from broadcast to cable over the last decade,” says Alan McGlade, founder of Ad Link, which places national advertisers on a network of 29 local cable TV systems in the Southland. “The next step, which is already beginning to happen, will be a shift in advertising from broadcast to cable.”

In Los Angeles, local cable advertising is expected to reach $50 million this year, rising at a rate of 15% to 20% annually. And Ad Link is projected to take in an additional $20 million from national advertisers.

Until recently, many cable systems did not have the costly equipment needed to run local commercials, though cable networks allocated two to three minutes per hour for local advertisers. Instead, viewers saw promotions for upcoming shows.

But thanks to recent technological developments in tape storage and video transmission, many cable systems can now insert local commercials into 12 different cable networks at the same time. Within a year, cable systems are also expected to begin installing digital commercial equipment that will significantly upgrade the quality of the commercials.

“Virtually any system of any size is now selling local advertising,” says Stuart Schley, editor of Cable Avails, a newsletter covering the nascent local cable advertising market.

Cable systems on average earn about 5% of their revenue from local advertising, Schley said, but are aiming to boost that to 20% over the next few years. That, he notes, will help keep the cost of cable TV down for subscribers.

It will also help spawn better programming, says Patrick Esser, vice president of advertising sales for Atlanta-based Cox Cable, which operates a 323,000-subscriber franchise in San Diego, the largest in the state.

Esser notes that the increased prices charged local cable systems by ESPN and TNT for certain sports programming have been absorbed, in part, by advertising revenues. In San Diego, for instance, local ad sales were up 17.4% in 1991--which was widely regarded as the worst year for TV advertising in memory.

Cable systems that sell local advertising used to generate annual revenues of about $10 per subscriber, Esser says. Today those systems are generating more than $16 per subscriber.

“As cable penetration reaches a saturation point, we need to find other ways (than signing up new subscribers) to grow revenues,” he says.

For the most part, local cable TV attracts mom-and-pop retail advertisers who want to appear on television but can’t afford the rates charged by local broadcasters--rates that can run to thousands of dollars for a single 30-second commercial.

By comparison, local cable systems charge from $25 to $50 a pop, although most advertisers buy packages that include multiple airings of a commercial over several different cable networks, such as ESPN, CNN, USA Network and Lifetime.

Cielto Lindo, a Mexican restaurant in South El Monte, spends $1,000 a month, for example, to reach about 50,000 cable households in the San Gabriel Valley. The commercials trumpet the restaurant’s mariachi band and feature interviews with departing patrons, much like some ads for motion pictures.

“The commercial sells the music as much as the food,” owner Jose Hernandez says. “There are a lot of good Mexican restaurants around here, so we wanted another form of exposure.”

Most of the major advertising agencies steer clear of producing cable TV commercials, since the business does not yet require the expensive, high-production-value commercials produced for network television.

Indeed, if many of the commercials on cable TV look as if they were made with a home video camera, that’s because cable systems do not invest a lot of time or money in their production.

“You get what you pay for,” notes Jack Myers, president of Parasippany, N.J.-based Myers Marketing & Research.

Nonetheless, Myers estimates that local cable advertising is the second fastest growing segment of the advertising market, behind place-based media such as the Airport Channel or Checkout Channel, which are beamed to captive audiences in airports and supermarkets.

“These commercials work because they are basic, hard-sell, come-in-tomorrow-type commercials,” Myers says.

Some small production houses, such as San Clemente-based Larry Huffman Enterprises, specialize in low-cost cable TV ads.

President Larry Huffman says he makes 100 to 150 cable commercials a year. His clients include the 39th Annual Los Angeles R. V. Show, recreational vehicle dealer Traveland USA and auto dealer Sunset Motors.

Huffman does the voice-overs, while his wife, Kathleen, produces and edits the commercials. “We do it out of our home,” he says. “It’s profitable.”

But the majority of cable TV commercial production is done by the local cable systems themselves. Most in the Southland have in-house production units staffed with a producer/writer/director, a camera operator and a technician.

The frequently amateurish look of local cable ads is one of the most criticized aspects of the business, along with a paucity of empirical data to back up industry claims about cable’s effectiveness.

Dot DeLorenzo, media director at Kresser Craig, a Santa Monica-based ad agency, says much of the buying and selling of local cable advertising is done on a “strong gut feeling.” Results are measured “in sales. You know the next day whether the ad worked or not.”

Local cable advertising does not pose an immediate threat to other local advertising outlets, such as radio stations or newspapers. But it could present a bigger problem down the road, says Terry Egger, advertising director of Copley Newspapers, which publishes the Outlook in Santa Monica, the Daily Breeze in Torrance and the Union-Tribune in San Diego.

“One area that is measurable is automobile dealer advertising, where I have seen some budgets atrophy to cable,” Egger said. “It’s going to hit radio hard, and newspapers will also suffer somewhat.”

That’s good news for Cable Networks Inc., the advertising arm of Century Cable in West Los Angeles, which produced over 300 commercials last year. Advertisers included automobile dealerships, restaurants, rug stores, pet shops and even a Santa Monica man promoting a pooper-scooper of his own invention.

“We sell 13 different channels,” explains Dena Kaplan, advertising sales manager for Century Cable. “We can pretty much find something for anyone.”