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Tower of Babel, on Demand

Cable systems have never made it easy for advertisers. Until recently, the process of ordering and verifying a local spot in a big city meant a mountain of paperwork and dealing with several cable operators. A new ad campaign for Comcast's local ad sales is almost an apology: Spot cable finally delivers.

Now comes a whole new source of frustration: the difficulty of running commercials on cable's video-on-demand systems. That was the vibe among ad buyers and researchers who gathered in New Orleans last week at the annual media conference of the 4As, the American Association of Advertising Agencies, whose members control the bulk of the estimated $60 billion that will be spent on all TV advertising this year.

Morgan Stanley analyst Richard Bilotti estimates that cable systems generate $3.5 billion of that and cable networks get $12 billion. VOD advertising could allow them to steal even more business away from broadcasters.

Ad buyers are quite anxious over the complexities presented by technologies like VOD and TiVos, which shatter a cornerstone of the television business: the schedule. But they're also eager to get into the sandbox and play, exploiting the possibilities VOD advertising presents.

Falling Short

Give Comcast CEO Brian Roberts credit for not glossing over the problems. He jetted to the conference to woo ad buyers and confronted cable's track record up front. “For too long, cable has fallen short of the promise of its potential as an advertising medium,” he told the crowd. “We're committed to change that.”

The opportunities are tantalizing. Comcast—which serves 22 million cable homes alone—expects to double the number of programs and movies available on demand at any given moment to between 8,000 and 10,000, 90% of those viewable for free. Roberts expects his subscribers will summon 1 billion separate VOD programs this year as easily as they call up a Web page.

Other operators aren't quite as aggressive in providing “free VOD,” but it's clear that massive changes are coming to a TV near you. Companies see the ability to target commercials far more narrowly than scheduled TV allows.

Advertisers need detailed data in such a splintered marketplace. “The fragmentation that we've had to deal with for the past 10-15 years is nothing compared to what's going to happen when consumers can watch TV on their time and view from thousands and thousands of programs,” says Adam Gerber, MediaVest USA's group director for strategy and innovation.

So VOD and ads sound like a match made in heaven, right? But it turns out, cable operators have planned miserably to take advantage of VOD advertising. It's an on-demand Tower of Babel. Major operators use different VOD equipment vendors, so their technologies are all a little different. Operators didn't establish standards for delivering and tracking spots, so there's little uniformity. And the process of actually getting a commercial onto VOD systems is complicated.

A major reason Roberts appeared was to unveil the new tracking system developed by Rentrak, a product that has been long delayed but will give programmers and advertisers their first look at who's actually watching VOD. But the reports are very limited. What do advertisers want from a VOD “Nielsens”? Precision.

Advertisers demand detailed receipts and reports on what spots aired. Rentrak is merely offering monthly summaries of programs watched, not specific commercials. Viewing is broken down by town, not even by ZIP code, and there's no demographic breakdown. As imperfect as Nielsen's TV ratings may be, its people meters offer information about the age and sex of who's watching. Cable's advanced set-top boxes do not.

Advertisers targeting young men will know that someone in a certain household watched their spot in MTV's Pimp My Ride but won't be able to tell if it's a 17-year-old boy or his 50-year-old father.

“A Backlog of Antipathy”

Warren Schlichting, VP of new business strategies for Comcast's ad-sales unit, got a dose of buyers' frustration at the meeting. The three biggest operators with VOD—Comcast, Time Warner and Cox—have incompatible systems for handling commercials, so networks have to order three separate systems to encode spots. Then delivering them takes weeks. Spots, files describing the commercial and any on-screen banners promoting them have to be delivered to each operator, then re-sent to dozens of servers around the country.

“For me to get a spot on Comcast's home page April 4, I'd have to send it on March 4,” says a network sales exec. “There's a backlog of antipathy over the data issue that came out here.” But he adds that the VOD data is better than advertisers can get from any other media, including the Internet, and will improve.

When cable operators designed their VOD systems, advertising wasn't the big driver. They were thinking movies. “We're retrofitting a cable infrastructure that was originally meant for pay-per-view,” Schlichting says. A movie-heavy VOD system would need only to freshen its lineup with a dozen or so new titles a week. There's no capacity for quick insertion of ads into 10,000 titles that Roberts plans to offer on-demand.

Cable operators have been talking about VOD ad sales for a decade. One thing is clear: It will be a long time before cable can tell advertisers “VOD Cable Finally Delivers.”

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