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Opting In

When viewers take the time to hunt a video-on-demand version of the Discovery Channel's popular Deadliest Catch reality series, it's because they really want to see it. And that “opting-in” choice makes the sole sponsor, drugmaker GlaxoSmithKline, pretty sure those viewers will watch its commercials.

That advantage, plus the low-clutter ad environment, is what networks sell when they create free VOD programs they peddle to a single sponsor.

The advertisers' messages occupy a fraction of the ad time used for commercials on a traditional primetime telecast, but they are not competing with other messages.

“Advertisers are telling us they're looking for meaningful ways to engage consumers, and what better platform than an environment where their messaging is unmistakable and consumers are clearly choosing to engage with the content?” says Andrew Snyder, VP of new media ad sales at Discovery Communications.

Universal McCann Executive VP David Cohen likens VOD to the Internet, where consumers are more open to ad pitches. “If someone has chosen to view a piece of content,” he observes, “they're very much in a lean-forward, active-engaged mode prior to seeing it.”

Neither the Cableadvertising Bureau or the Cable & Telecommunications Association for Marketing (CTAM) can say how much VOD advertising is out there. Forrester Research analyst Josh Bernoff estimates annual ad spending is under $100 million, less than 1% of the total cable market. But everybody likes the potential.

Cable programmers like Discovery, Turner, MTV Networks and Scripps' umbrella networks are still experimenting with VOD advertising models.

Generally, an ad-supported VOD begins with a “Brought to you by” billboard at the start and then a 15-second “pre-roll” spot. That's followed by a commercial-free program taken from the network's existing schedule. At the end, there's a longer-form “post-roll” ad that can run up to two minutes. Usually networks don't interrupt the show with commercials. But there are some variations.

A few advertisers—automakers and movie studios, mostly—have used the post-roll spot to air commercials that can last for five minutes or more.

Rentrak, a company that monitors television commercials, is beta-testing a VOD-measurement application that will tell clients how or if their ads are being seen. Nielsen plans to launch a VOD service this fall with demo information, which will include minute-by-minute breakdowns to help gauge ad-skipping.

One early finding from Rentrak: Viewers usually watch the 15-second spot at the start because it's easier to watch it than to make the effort to skip it.

Separate research from Universal McCann shows that 75%-80% of consumers don't skip any of the ads. “There's definitely a novelty to video-on-demand in general and the advertising that precedes it,” says Cohen. “As consumers become more savvy, potentially, they will fast-forward through it or tune it out.”

Advertisers wish VOD were more adaptable. As it stands, advertisers must deliver spots to networks two to four weeks before air date. Then, the ads run for a minimum four-week flight and can't be altered.

SeaChange International is test-marketing AdPlus, a dynamic ad-insertion system that enables ads to be replaced easily and also permits two viewers watching the same content to get different ads.

“That allows us to do all kinds of cool things, such as targeting advertising down to the subscriber level,” says Phil Simpson, SeaChange product marketing manager.

C-COR, another vendor, is in the “home stretch” on its own dynamic device, according to Chief Technology Officer Joe Matarese.

Improving the capability is crucial to VOD advertising's success. “As an industry, there's a lot we need to do collectively to make it a more viable and more robust platform,” says Stefanie Schwartz, MTV Networks VP of research and business development.

Still, advertisers are trying it. Chris Pizzurro, Turner VP of new media ad sales, says the Turner networks topped last year's VOD revenue by April. Snyder says Discovery is sold out through the third quarter.

Jeff Meyer, Scripps senior VP for interactive sales, says the five networks he oversees could sell out in the upfront but are holding back inventory. “We've seen the number of advertisers interested in VOD multiply dramatically over the last couple of years.”

For the first time, NBC Universal Cable's Sci Fi and USA networks are selling VOD ads in the upfront.

Magna Global estimates that 28 million homes have VOD and projects an increase to 65 million by 2010. But price, programming and distribution are still issues.

Buyers and sellers agree on some of the benefits of VOD, but they aren't completely in step on pricing. Costs per thousand viewers for primetime cable programs are in the $8-$10 range, for VOD $30-$40. Sellers argue that the higher price is justified by the low-clutter/high-engagement environment.

Buyers are checking it out. “It's worth more than linear [TV],” says Tracey Scheppach, video innovations director at Starcom. “How much more is the question we're trying to answer.”