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ANALYSIS: TV Everywhere Could Remake Online Ad Model

Related: Time Warner and Comcast Start TV Everywhere Trial

TV Everywhere, Time Warner and Comcast's initiative aimed at preserving the subscription revenue for cable programming distributed online, may end up altering the current advertising model for online video--for better or worse.

Time Warner and Comcast are hoping to pursue C3 commercial rating accreditation for shows that are offered online. In order to gain that rating, however, video providers must run commercials in the same format they air on TV, according to Nielsen. A typical ad load on TV is on average around 15 minutes per hour.

One Madison Avenue executive thinks it’s highly unlikely that viewers of online content will agree to watch that many spots. “The billion-dollar question is: How do you capture revenue if you lose it in TV? There is no way you can have the same ad load,” said Chris Allen, VP, video innovation director at media agency Starcom. “Maybe there’d be four to five commercials, but there is no way we’ll get to 13.8 minutes plus promos and local.”

Allen suggested such a plan to simply move the ad load from TV to online in order to gain C3 ratings could “stifle creativity,” since some advertisers seek to use online programming as a test bed for new ad formats with interactive capabilities.

Bloomberg reported Thursday that online video providers can command as much as double a typical primetime TV CPM, which is around $30. Marketers are prepared to pay more for the uncluttered environment and the chance to do something longer form, or be the exclusive sponsor of a show.

Still, digital revenue is light years from equating traditional TV dollars because there aren’t that many advertisers willing to do specialized creative while their options online are infinite.

Miller Tabak & Co. analyst David Joyce thinks the TV Everywhere plan--which aims to make cable programming available on any distribution platform for consumers who can verify they are cable subscribers--might make TV shows more attractive to advertisers looking for better metrics.

Indeed, General Motors' executive director of advertising and media operations Betsy Lazar told Bloomberg Thursday, “As the economy improves, we expect that demand for premium programming on the Internet will increase as well.”

In an interview with B&C, analyst Joyce said, “What’s been going out for free on Hulu and other platforms are one 30-second spot or pre-roll and something in the middle, but nowhere near the same kind of commercial units.”

Speaking at the Time Warner/Comcast press conference Wednesday, Time Warner CEO Jeff Bewkes explained the plan moving forward: “What we’re going to do for the test and as our concept, that current viewing will just move the TV feed onto on-demand, both on TV and on the broadband connection.”

Bewkes later added that the question of the optimal ad load was still being considered. “We are going to look at it and see what is the best way to evolve the advertising model.”

Comcast CEO Brian Roberts added: “The goal would be to have this aggregated C3 rating that we could present back to the programming and advertising community.”

Separately, Joyce estimates just how dependent the various media conglomerates are on cable subscription revenue versus ad revenue. In the first quarter of 2009, Disney derived 94% of cable network unit revenue from affiliates while just 6% came from advertising (ESPN is heavily reliant on affiliate revenue). At Discovery, 40% of revenue came from affiliate fees and 48% from ad revenue. For News Corp.’s cable unit, 72% comes from affiliate revenues while 28% is ad revenue. At Time Warner, 65% of its cable network revenue came from affiliates and 26% from advertising, while Viacom's ratio is 39% and 50%. Said Joyce: “Retaining the subscription-based model for the video product is crucial for survival."

He also noted that Hulu, the online joint venture between News Corp., NBC Universal and Disney-ABC, now accounts for approximately 10% of TV households. That figure is only set to grow, though with 90% of TV households yet to watch online regularly, Joyce says there is still time to create new models before viewer habits are settled.