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Ads in On-Demand: The Killer Ap?

With about 30 million U.S. homes equipped to receive on-demand content from cable companies, the medium finally has the scale to get advertisers' attention.

But the platforms that support large-scale advertising across cable's on-demand footprint aren't yet ready for primetime, according to many cable and video-on-demand (VOD) experts.

“We have buyers, and we have sellers, but who and what technology will play that middle role between ads and programs is unresolved,” says Todd Stewart, a cable ad veteran who heads new-media initiatives for Charter Media, the ad-sales arm of Charter Communications. “I wouldn't say that we don't have it, but I would say it needs work.”

Stewart is one of a few cable advertising executives who have gotten a first-hand look at the emerging technology trifecta of on-demand advertising: the video servers that spit out TV programs to individual households, the software that marries advertising messages with content streams, and a constellation of back-office software that ties it all together.

Last October, Charter's St. Louis advertising operation began working with media-buying shops Ogilvy Direct and Mediaedge:cia to stitch advertising messages into individual on-demand program streams requested by Charter's St. Louis customers.

In the trial, viewers who selected short-form video content—movie trailers supplied by or automotive reviews from—saw commercials that had some kinship to the content selected.

The trial was the largest yet to attempt to associate advertising with specific on-demand content.

Using a technique that has broadly come to be labeled “dynamic” advertising insertion, Charter's approach merged TV commercials into program streams right after customers hit the “play” button on the remote control.

The trial departed from prevailing on-demand advertising schemes in which ads are embedded within programs before anybody makes a selection.

While that advance-embedding approach works, it's often derided as a low-tech solution that fails to take advantage of an alluring attribute of on-demand programming: Every viewing session is unique.

In contrast, Charter Media introduced new agility into on-demand advertising by varying which commercials ran depending on what programs were selected. Stewart says, “You and I could be sitting in different rooms in the house, and truly different ads could be running.”

Lessons Learned

Among the lessons Stewart and Charter Media's advertisers learned was that the creative content of commercials had a big influence on viewer attention.

By poring over data describing the duration of viewing sessions, for instance, the advertisers could figure out which advertisements viewers appeared to watch in their entirety and which provoked viewers to hit the “fast-forward” button.

“That's really what this was about,” Stewart says. “Not only have we technically proven this is possible, but clients used the system to get the data to make better choices about what creative to run.”

But Charter Media isn't likely to launch a broad dynamic VOD business anytime soon.

Stewart and experts in the cable advertising-technology sector say the industry still lacks adequate processing muscle, in the form of new ad-trafficking platforms, to accommodate the millions of computing instructions that a widely deployed on-demand ad platform will require.

Joe Matarese, senior VP of advanced technology for C-Cor Inc., got a sense of how vast that environment may be during a visit to the offices of Atlas, a Seattle company that manages behind-the-scenes decisions tied to Internet ads and is pursuing a similar role in VOD.

C-Cor is a supplier of digital cable advertising systems, and Matarese noticed a digital counter displaying the number of decisions relating to advertising that appeared on the New York Times' Website.

“This odometer was spinning like crazy,” he says, “and I thought, 'That's going to be television someday.'”

Atlas is one of the companies building “buy-side” administrative platforms for on-demand advertising.

In Charter's trial and a similar effort staged by Kansas operator Sunflower Cablevision, media buyers used Atlas software to manage the flow of commercials into on-demand servers.

The “sell side” of that same progression is the campaign-management and advertising-traffic system that links commercials with corresponding on-demand program streams at the cable-company headend.

That's where some executives say there's work yet to be done. Mainstay cable-industry traffic-software companies, including Harris Corp.'s Encoda unit and OpenTV, are developing systems designed to accommodate a flurry of on-demand advertising instructions.

It's also possible that other providers with experience in managing Internet-advertising campaigns could step in.

Traffic-software providers must determine where to allocate their resources as the cable industry pursues many advanced advertising schemes.

“You have everything from multiple ads, seamless switching of targeted ads, long-form content and telescoping to a VOD server,” says Tracy Geist, OpenTV senior VP of advanced digital TV marketing. “All of those things have implications for traffic and billing.”

That hasn't stopped some early entrants from making money by performing dynamic VOD insertion.

Sunflower, the first to announce a dynamic-insertion trial, has enjoyed strong demand for dynamically managed ad positions within localized on-demand content in Lawrence, Kan.

“They have sold out inventory, and they have happy, happy advertisers,” says Terri Swartz, director of advanced advertising for SeaChange International, a Massachusetts-based provider of digital-ad-insertion systems that works with Sunflower.

That may be, but Sunflower so far is unique in that it produces a range of local programming that's popular with advertisers.

Most on-demand programs available from cable companies today feature little or no advertising. A&E Television Networks, for example, allows affiliates to insert local spots into on-demand airings of shows like Dog the Bounty Hunter and Biography, but few are taking advantage.

Opportunity Squandered

“We do provide in-programming opportunities for our affiliates to insert locally on VOD,” says David Zagin, AETN senior VP of affiliate sales and marketing. “But the issue is the inability to do dynamic ad insertion at the local level. Until that technology is available and widely deployed, it's really an unused opportunity.”

Industry proponents insist that dynamic insertion is coming and, at some point, will be available on a wide scale across most of cable's VOD-household footprint.

But getting it right is hugely important for an industry that used to draw frequent criticism from national spot-TV buyers for cumbersome administrative procedures.

“Operators are very sensitive that, if something is launched, it needs to work for the advertisers, it needs to be electronically transactable, and it needs to be very accurate in its efficiency,” says Kenneth Little, executive VP of technology and operations for National Cable Communications (NCC), a rep firm that places advertising across multiple cable markets for national and regional advertisers.

For now, most cable companies generating revenue with VOD ads are doing so in a manner that skirts the dynamic-insertion issue entirely.

They're selling space for long-form messages and toned-down infomercials that reside on a video server and are available to viewers, either directly through an on-screen menu or through “triggers” embedded in traditional 30-second commercials.

Those triggers, when selected via a remote control, whisk viewers to the related on-demand content. (That's the “telescoping” approach.)

Easier Alternatives

Those on-demand advertising options are popular because they're easier to accomplish than inserting ads dynamically, and they get around a challenge of limited inventory within the current pool of on-demand TV shows made available by cable networks.

Some of the early successes in long-form, on-demand advertising are being supported by local cable's traditional advertising mainstay, the automotive category.

Cablevision Systems Corp.'s Optimum Autos channel, for example, lets viewers roam through showroom-style video demonstrations of cars and scan the available inventory from local dealers.

David Kline, president/COO of Rainbow Advertising Sales Co., which manages local advertising for Cablevision, says the Autos channel offers a sort of “living-room exposure” that Internet auto sites can't match.

“It's another touch point, and it's on television,” he says.

Auto Showcases

On a national scale, DriverTV, an on-demand cable channel syndicated to operators, showcases three-minute demonstrations of car interiors and exteriors. Automakers pay to have their cars showcased on the channel, now available in more than 20 million on-demand cable households, according to DriverTV's Website.

Automotive isn't the only advertising category starting to proliferate across cable's on-demand platforms, however. In the Los Angeles market, where Charter Media has launched an interactive-advertising platform incorporating an on-demand showcase, the first few customers include Agua Caliente Casino in nearby Rancho Mirage, which is televising a brief video about a special player's club offer and a new promotion involving slot machines.

For an industry hunting hard for incremental revenue sources, such within-reach, on-demand advertising deals are just as important as perfecting dynamic insertion.

“I don't mean to diminish the growth potential for dynamic insertion,” says NCC's Little. “But we do have opportunity for increased revenues with traditional VOD.”