New VOD Revenue Targets

In the four or five years since major video-on-demand vendors began peddling their systems for targeted advertising, the idea seemed to have one fatal flaw: target dates for major deployments remained disappointingly distant, always 12 to 24 months away.

As cable operators and vendors prepare to head to New Orleans next week for the 2008 Cable Show, some more delays are also on the horizon. Mass deployments advertising systems that allow operators to insert different ads that target or address the different demographic characteristics of a household remain at least nine to 15 months away.

And, some thorny problems — notably the revenue splits between programmers and operators for ad revenue on VOD and other advanced digital platforms — remain unsolved.

But, notable progress has been made. In late 2007 and early 2008, a Society of Cable Telecommunications Engineers working group at CableLabs issued some major standards to make it easier for advertisers to provision and insert ads across multiple operators and VOD vendors.

As part of the industry-wide effort, the six largest cable operators have joined together to launch Project Canoe, which will allow advertisers to easily place targeted ads on interactive TV and other advanced digital platforms.

The New York Times has reported that the companies are investing about $150 million in the venture, which is designed to wrest market share away from competing media by offering advertisers the tightly targeted audiences and measurability they can find on the Internet.

While cable executives interviewed for this article declined to discuss Canoe, they acknowledge that the effort represents an unprecedented commitment to use targeted ad technologies to make advertising revenue a much larger and more integral part of the cable business.

“There has clearly been a realization at Cox Media and the other MSOs [multiple-system operators] that we need to work together to offer the advertisers a more unified product that can reach across [individual operators and systems to] 30 million VOD-enabled homes.” said David Porter, vice president of marketing and new media at Cox Media. “The commitment that top management in this industry [has made to advanced advertising platforms shows that] these executives recognize that the ad sales department is not off to the side of their core business, contributing 8% or 10% of their revenue. It is something that will be a much more important part of their future growth,” Porter said.

Still the two major trials set to get underway this summer indicate that progress is likely to be gradual -- over the next 18 months.

For starters, some of most notable developments involve linear channels, not VOD, as has long been predicted. “One of the areas where we've seen more progress than expected is targeted advertising for linear channels,” SeaChange International director of engineering, advertising systems Andy Fransman said. “We are seeing a lot of interest in linear by operators.

In December 2006, Comcast began testing a targeted ad insertion system in Huntsville, Ala., on eight linear cable networks, working with Starcom MediaVest Group and its clients, according to senior vice president of new business strategies at Comcast Spotlight Warren Schlichting.

That successful trial, which used the OpenTV SpotOn ad system, is being expanded by Comcast and Starcom this summer to about 100,000 homes in Baltimore.

Schlichting said Comcast Spotlight will use third party data to target ads to specific demographic groups, much as direct-mail campaigns are crafted. But they will not be using behavioral targeting that is often used on the Internet. They will also be careful to protect privacy concerns and allow users to opt out of the system.

Sometime later this year, Comcast will begin placing targeted ads in on-demand content, according to Schlichting. “We hope that it will be a serious business in 2009 and 2010.”

The industry is also moving to speed up the process of inserting ads into VOD systems.

Cox's Porter said the major operators and National Cable Communications have developed a VOD channel “Elections 08 On Demand” that allows political campaigns to place VOD content in just a couple of days in cable systems across the country.

The targeted advertising products offered by all the major VOD equipment and software suppliers — including Arris, Motorola, SeaChange, Tandberg Television — allow for dynamic, or nearly instantaneous insertion of ads, much faster than the two to six weeks it often takes today to deploy VOD ads today.

This summer, Cox Communications will begin dynamically inserting ads into primetime, as well as cable network VOD content in its MyPrimetime offering in Orange County, Calif., using the SeaChange's platform. If all goes well, Porter said the MyPrimetime trials will be expanded relatively soon to include targeted advertising.

In the MyPrimetime VOD trial, Cox will not sell the ads; it will simply insert ads provided by the networks.

But Porter hopes that successful trials will help convince programmers to offer more programming and participate in larger VOD advertising efforts: “As the tests go on and everyone sees the value proposition, we would like to negotiate rights to insert some of our own.”

Barry Frey, Cablevision Systems senior vice president advanced platform sales, which has built a successful video-on-demand and interactive TV ad business in recent years, said, “We will be doing both targeted and digital insertion. We are exploring an addressable targeting system that will provide viewing households with more relevant ads while upholding privacy concerns.”

Frey was unable to discuss specific timetables but said he expects them to begin deploying the new ad system “soon.”

In the meantime, he stressed that Cablevision is enjoying considerable success with their existing VOD and ITV advertising platforms, keeping existing clients and regularly adding new ones.

Recently, for example, Cablevision worked with Mars to develop a specific on-demand channel to promote the company's luxury chocolate brand, Dove. The VOD channel featured episodes shot by MediaVest that followed a young fashion designer as she developed her collection. “The Dove chocolate was very tastefully put in the episodes,” Frey said.

A pioneer in targeted advertising also stressed the potential of the VOD ad medium. In 2006, Sunflower Broadband became the first cable system to deploy a targeted advertising system and has since has had much success with it, said general manager Patrick Knorr, noting that the system is only using a small portion of its capabilities.

The small operator consistently sells out its targeted on-demand space and is seeing cost per thousands in targeted VOD spots as high as 500% above regular spots, according to Knorr.

In a difficult economic climate, “it's helped us make lemonade out of lemons,” added Misty Jensen, Sunflower's advertising sales manager. “We are several thousand dollars over budget and tracking ahead of last year.”

“If a system like Sunflower with 30,000 subscribers that can only tap into small town budgets can make money with this, I got to think this would be huge for the rest of the industry,” Knorr said.