The cable industry has an unprecedented opportunity to change the face of TV advertising — which has been one of one-way messages ever since commercial interruptions started flying over the airwaves — by serving up more relevant, interactive and measurable ads on a mass scale.
The drive to make it happen is clear.
Major advertisers and agencies are hungry for marketing techniques that reach would-be customers as precisely as the Internet, coupled with the power of the highly engaging and visual TV medium. Technology platforms to deliver and track advanced-format ads are already available, and in some cases have been deployed.
There’s a lot at stake: National cable networks pulled in $19.6 billion in advertising in 2007, according to SNL Kagan. Cable operators also want a bigger slice of the pie, with the research firm pegging local TV ad revenue at $4.7 billion last year.
Cable TV is banking on advanced advertising technology to not only play offense, but defense as well.
The industry wants to protect its ad dollars from being vacuumed up by the Internet — the most addressable and interactive advertising platform yet. Internet advertising rocketed up 36% in two years, from $8.3 billion in 2005 to $11.3 billion in 2007, per TNS Media Intelligence estimates.
Pulling it all together, though, won’t be easy.
“The urgency [behind advanced advertising] must be tempered with the reality that this is hard,” Time Warner Cable group vice president of advanced advertising technologies John Collins said during a discussion panel held at The Cable Show.
“From an individual operator perspective, we believe we’re done with the testing. Now we need to make it a business,” Cox Communications senior vice president of advertising sales Billy Farina said on the same panel.
The traditional 30-second commercial “is still the only way to get a message out to the masses,” Farina said. “But the end user wants a different experience with their television set.”
Operators and programmers are taking steps to make the potential for interactive and targeted advertising a reality, primarily through the standards-setting initiative code-named Project Canoe.
Backed by Comcast, Cox Communications, Cablevision Systems, Charter Communications, Time Warner Cable and Bright House Networks, Canoe is supposed to allow the industry to be able to sell interactive and addressable advertising on a mass scale, using standardized technical interfaces and reporting metrics.
The venture, which reportedly has $150 million in initial funding, is also choosing a new name.
“We need that scale on the national network side,” said NBC Universal senior vice president of marketing and sales strategy, TV networks distribution Brian Hunt. “We’d really like to take advantage of that across a larger footprint.”
Canoe’s push toward a centralized, cross-operator technical and business infrastructure for buying advanced advertising campaigns will happen through an iterative process, according to Time Warner Cable’s Collins.
“We don’t expect to have a marketable, national product within three to six months,” he said. “But we’ll see milestones — and we’ll build on the tests.”
There’s also the fact that cable operators have many other projects vying for resources, said Advance/Newhouse Communications senior vice president of policy and product Arthur Orduña.
“We have a hell of a lot on our plates. We have the triple play, soon to be the quadruple play” with wireless services, Orduña said. “It’s going to be a challenge to make sure advanced advertising gets the attention and focus on it.”
The operators behind Canoe expect to announce the chief executive for the standards-setting initiative next week. While not naming the executive, Comcast chief operating officer Steve Burke said at the Cable Show that a new chief executive has been hired to run the venture.
One possibility: Former Aegis Media Americas CEO David Verklin, who stepped down in April. Verklin was reported by AdAge.com last month as the group’s choice.
Verklin, in fact, was originally scheduled to speak on a general session at the Cable Show, presented in association with the Cabletelevision Advertising Bureau. According to CAB CEO Sean Cunningham, Verklin was unable to appear because of the death of a close friend.
'ON THE VERGE’
Given the concerted push behind Canoe, some players see cable capitalizing on interactive ads in the not-too-distant future.
Cox president Pat Esser said the industry is poised to generate “material” revenue from interactive and addressable advertising formats in the next two years, and said his company is “on the verge” of bringing out such capabilities.
“Shame on us if it’s not material by 2010,” Esser said, speaking at that general session on advertising at The Cable Show. “It’s going to be heavy lifting … but we can do it.”
Esser was responding to a question from Sanford Bernstein senior analyst Craig Moffett, who moderated the panel.
Addressable ads will result in higher ad rates, more engagement and more accountability, Esser said. Cox has said it plans to begin dynamically inserting ads into video-on-demand content in its MyPrimetime service in Orange County, Calif., and hopes to broaden that to encompass targeted advertising as well.
“Our platform is on the verge of bringing those kinds of services to the market,” Esser said.
Other operators also are ready to expand their interactive-advertising footprint.
For example, Time Warner Cable’s Los Angeles system will soon be relaunching the Navic Networks interactive TV platform—on about 1.8 million digital cable set-tops—to enable advanced advertising and other services, but the timing has not yet been determined.
Time Warner Cable spokesman Justin Venech said the L.A. system had previously run Navic’s interactive TV software, but the services were put on hold during the Adelphia Communications transition. The company is in the process of determining what the proper timing will be for the relaunch, Venech said.
Cablevision Systems has run a trial of targeted advertising in part of its New York City systems, in which different spots were broadcast to different households based on their demographic profile, chief operating officer Tom Rutledge said.
“Dynamic ad insertion is just the first step,” he said.
Cablevision vice president of media relations Jim Maiella said the tests took place recently in Brooklyn and the Bronx, N.Y., and involved the company’s own cross-channel spots and no outside advertisers. For example, Cablevision’s video-only subscribers would have received a spot promoting the triple-play bundle.
Discovery Communications CEO David Zaslav said that interactive advertising coupled with video-on-demand content could be the answer for cable operators and programmers looking to fight back competition from the Internet.
Zaslav said that while Web video is important, most networks haven’t found a way to meaningfully monetize their content online.
“The DVR [digital video recorder] and the Web, both are being embraced by consumers, but neither model is particularly attractive,” Zaslav said. “VOD has great potential and with dynamic ad insertion could be a great business for us. … If we could get everything on VOD, the growth rates would go up and there would be some real value for all of us.”
Zaslav said that targeted advertising is particularly suited for VOD because the platform’s users have already made a conscious choice to watch that program.
NBCU Television Group chief operating officer Jeff Gaspin said that one of the most important aspects of VOD and interactive advertising is that it keeps people glued to the best device for viewing video — the television set.
“God intended for people to watch television on a TV set,” Gaspin said.
And then there is the question of quality, he added. “There is no question the Internet can target like no other, but the content itself is not necessarily high-quality content,” Gaspin said. “Television is still the best way to reach a broad audience.”
Indeed, television is the top medium as the primary source for product information and driving consumers to the Internet, according to a CAB research report released last week conducted in conjunction with Scarborough Research.
The report, based on responses from the 2,600 respondents in Scarborough’s syndicated consumer sample group, found that 26% of respondents who saw a brand ad on TV sought out more information on the brand Web site within the past 30 days.
Still, as Rutledge said in giving his take on how soon advanced advertising will contribute to the top line, “there’s a lot of technology to be deployed before this is ubiquitous. Our current model of selling subscriptions … is going to drive our growth for the near future.”
AD BUYERS: SALIVATING
Marketers are champing at the bit to be able to deliver targeted ads based on demographic data, Chrysler vice president and chief marketing officer Deborah Wahl Meyer said in a Cable Show keynote.
“Now believe me, your customers — us, the advertisers — are ready and waiting for you to develop addressable advertising,” she told the audience. “We just salivate for that opportunity. … We believe [cable] can take narrowcasting to the next level.”
According to Meyer, automotive marketers spent $1.2 billion with cable in 2007. But increasingly, auto marketers are turning to the Internet, she said, which provides better means of matching specific features of a car model with different audiences.
In marketing a vehicle like the Dodge Ram 1500, for example, Chrysler is trying to reach six or seven different constituencies with a single TV spot. Auto advertisers “want to deliver one message to the 55-year-old married man watching Battlestar Galactica and a different one to the unmarried 22-year-old woman the next town over,” Meyer said.
Meanwhile, cable’s competitors are stepping up their interactive game.
Dish Network last week struck a deal with NBCU, which will use the satellite operator’s interactive-ad platform for spots that run on the programmer’s 14 TV networks, which include NBC and its cable services, and 10 NBC owned-and-operated TV stations.
Dish subscribers who have a digital video recorder will be able to use their remote controls to request more information from NBCU advertisers about their products or to receive coupons for various product discounts.
According to NBCU president of sales and marketing Mike Pilot, the deal extends the programmer’s ability to provide request-for-information capability to any commercial on any NBCU network — which he called “a unique capability in the market as we work with our clients to better understand and adapt to the new ways consumers are watching television.”
Interactive and addressable advertising technology vendors say the holdup for cable is not whether the infrastructure “works.”
Rather, the hurdles are having established processes for selling and tracking the spots, which is what Canoe is focused on.
“The issue isn’t that the technology isn’t ready — it’s ready to roll,” said Dean Denhart, CEO of BlackArrow, whose server decides which ads to send different viewers based on their profiles. “The key is that the industry needs to 'operationalize’ it.”
The cable industry has coalesced around a key technical standard: SCTE 130, from the Society of Cable Telecommunications Engineers. That allows communication among “ad decision” systems, such as those from BlackArrow, Visible World, Invidi Technologies and Atlas; video-insertion platforms, like those from Motorola, Cisco Systems, BigBand Networks and RGB Networks; and VOD servers.
BUSINESS ISSUES
While there is still some “pairwise” tweaking necessary to ensure two systems are properly exchanging information using SCTE 130, there are larger business issues involved in the implications of deploying the technology, according to BigBand chief architect Doug Jones.
For example, cable companies wanted to be sure they were acting within their legal rights, complying with U.S. regulations that prohibit unauthorized disclosure of cable subscribers’ information.
“The operators had to be sure they wouldn’t get hauled into federal court,” said Jones, adding that this due diligence took as long as six months.
Cox’s Farina said ensuring subscriber privacy has been one of the highest priorities in dealing with targeted and interactive ads. The company uses double or sometimes triple opt-in confirmations before sending personal information to advertisers.
“It is of utmost importance that we protect the privacy of our subscribers,” he said. But, “I truly believe that under the right circumstance the viewer would prefer to have marketers know them better.”
Cable ad-sales reps also need to grow more comfortable selling units other than 30-second spots, said Jan Edwards, Bright House Networks’ Florida director of sales for news and advanced advertising.
And the industry still doesn’t have good rules of thumb for how to charge for these services. “The fact is, we don’t know what the model is [for pricing advanced advertising],” Edwards said. “This is really a learning process. You learn as you go.”
But there’s great value in the new formats, she said: “With multiplatform ads, we can go in and have a completely different conversation with prospective advertisers.”
The ideal endgame, in Farina’s view, is to figure out a way to blend all the platforms people are using to consume content — and to marry advertising campaigns to that content. But, he said, “it’s going to take us a while to get there.”
Tom Steinert-Threlkeld, Mike Farrell and Linda Moss contributed to this report.
