Digitization of cable TV systems has permitted not only higher quality (HD) programming, but a proliferation of channel space, sparking a second wave of cable programming network entry since the late 1990s. Finer and finer segmentation of cable networks toward niche audiences, including racial and ethnic minorities, has thus been permitted. Yet, descriptive data indicate that average cost per thousand CPM advertising rates of basic cable networks remain far below those of the “broad appeal” programming on the major broadcast networks and the supply of programming orient toward racial and ethnic audiences (eg, BET), appears to be low. In this paper, we attempt to understand the limitations of cable television networks in more finely segmenting toward niche audiences, especially toward racial and ethnic audience groups. Our primary approach is by means of an empirical study of the determinants of cable TV network advertising rates, the source of about 2/3 of total revenues of basic cable networks on average. Using a database of 78 basic cable TV networks operating in 2010, primarily supplied by A C. Nielsen, preliminary results indicate that cost per thousand (CPM) advertising rates increase, at a decreasing rate, as the network’s household reach increases, but that the size of network ratings have no significant effect. The cable “reach handicap” is thus a significant damper on advertising revenues of basic cable networks, but there is no evidence that the small size of audiences, per se, reduces CPM rates. Viewer age has a significant effect in most models, but other demographic factors, including % black and % Hispanic, and audience homogeneity, have no measurable effect on ad rates (contrary to previous research in radio and TV which find lower ad rates for blacks and Hispanics). Finally, we investigate determinants of the distribution of blacks and Hispanics among 84 basic cable networks, and find that while content elements are an important factor, much of the variation can be explained by production values, as indicated by network production costs, a factor that attracts audiences without any regard to racial or ethnic origin
