After Spending $200 Million in 2 1/2 Years, Cable MSOs Have Given Up on Canoe's Big Ad Plans. It Was Touted as 'Groundbreaking.' TVWeek Looks at How It Ran Aground
Of all the young turks of media who emerged during the late 1980s and early 1990s, David Verklin was always the most gregarious -- outgoing, social, smart, articulate, a superlative communicator with seemingly boundless enthusiasm and energy.
We’re talking about the media part of the advertising world, which was for so long considered the step-child of that business, compared to the golden child that was the creative arm of the ad agencies.
But that began to change during the late 1980s and early 1990s, as the importance of the media part of an ad campaign became more apparent. Furnthermore, it became clear that media could be a profit center for agencies and their big holding company parents.
At the time Verklin was at a hot creative shop, Hal Riney & Partners in San Francisco. He arrived there in 1987, just five months after Riney had left ad giant Ogilvy & Mather to start his own shop. When Verklin showed up there were just 12 people at Riney handling the media part of the business.
Five years later, in 1992, Riney was handling the ads for General Motors’ Saturn brand, and the agency’s billings had increased from $65 million in 1987 to $350 million, according to Adweek . While many of his up and coming colleagues at other agencies were press shy about their work and what they were doing for their clients, Verklin, Riney’s media director, wasn’t.
With the increase in billings, Verklin’s media department had grown to 80 people. And Verklin was named 1992 Media Director of the Year by Mediaweek and its sibling publication, Adweek.
Near the top of the article, which ran in both publications, it said, “Verklin, a boyish-looking 37, is describing the all-star qualities that helped him win recognition as Mediaweek’s Media Director of the Year. ‘I present like an account person. I’m good at relationship building, I have a marketing orientation, and I’ve combined that with the skill of a media person…' ”
Verklin speaks in the article about the importance of good relationships. And then, the article notes, “This approach [of maintaining good relationships and treating people square] is paying off in spades. Riney got a lot of attention for its outdoor Saturn blitz. ‘But it was Patrick Media that came to us with that idea,’ [says Verklin.] ‘They knew we’d be able to do a straight deal. It’s a competitive advantage that helps us overcome being a mid-sized agency.”
Later in the piece, Verklin talks about his media philosophy: “We are leaders in longform communications -- :60s, [magazine] spreads, full-length [TV] programs. There’s a tradeoff between the higher quality of longer messages in return for less frequency. And we have an overall strategy of high-intensity media in return for shorter duration. If you stretch a limited budget too far, there’s a threshold where your media becomes invisible. We’ll advertise for a short period of time. It’s the only way to survive in the media environment of the ‘90s: you’ve got to shout louder.“
Near the end of the story the article says, “What’s next for Verklin? ... Down the road, Verklin would like to move up the agency ladder. ‘Very few media people have gone on to agency management,’ [Verklin says.] ‘Maybe in five or ten years.’ “
He didn’t have to wait that long. Within the year he was named managing director of Riney.
Five years after that, in 1998, Verklin and his wife were just putting the finishing touches on a dream project -- a home they were building across the Golden Gate Bridge from San Francisco, in picturesque Marin County. But they never moved into the house.
Instead, Verklin was offered -- and took -- his dream job: becoming CEO of Carat Americas. After living in the Bay Area for 11 years, Verklin and his family moved to the East Coast.
Verklin’s skill set served him well at Carat. Along with Charlie Rutman, the well-respected media director at DMB&B who joined Carat shortly before Verklin did, they built Carat into a media power player. “The two of them, Verklin and Rutman, were the yin and yang of the business,” said one top media executive at a shop that competes with Carat. “David, the always eloquent face of Carat, with Charlie more the quiet COO kind-of-guy. They were a great team.”
Ten years later, in the spring of 2008, Verklin announced he was leaving Carat. Here’s what Ad Age wrote at the time:
“David Verklin once gave a speech in which he coined the phrase ‘the crackle of change' as a way to get at the digital transformation sweeping the ad business. The crackle caught up with the loquacious media thinker last week, when he announced that he's leaving Carat, the platform from which he became one of the industry's most visible figures during the past 10 years.
“Mr. Verklin's departure seems to be based on a number of different factors. There has been some tension between Mr. Verklin and Mainardo de Nardis ever since Mr. de Nardis came on as Aegis's worldwide CEO [Aegis owns Carat]. ... Those tensions were stoked, these people say, in part by Mr. Verklin's clear pursuit of other interests such as writing a book and becoming a media-business celebrity in his own right.”
The article added that some sources said Verklin was departing so he could head up a cable MSO joint venture called Project Canoe. The idea behind Canoe, the story said, “is to make a hyperfragmented market more scalable for advertisers and more universally measurable.”
All Verklin would tell Ad Age at the time was: "I am convinced that [in] the next three years an enormous amount of the focus will turn toward the TV set. I am convinced that the TV space is ripe for invention and reinvention.''
Verklin left Carat at the end of 2008. According to published reports, he had been making $1.5 million a year at Carat, and his severance, according to MediaPost, was $1.1 million.
In June 2009, the formation of Canoe Ventures was formally announced. It was a joint venture of the nation's six largest cable operators: Comcast, Time Warner Cable, Cox Communications, Charter Communications, Cablevision and Bright House Networks. Verklin, 52, was announced as the CEO.
Five months later, on Thursday, Nov. 13, 2009, Verklin felt comfortable enough in his new job to deliver a 20-minute speech -- billed as a “mini-keynote” -- at a conference in San Francisco called NewTeeVee Live.
It had been 11 years since he left San Francisco. That November day was beautiful, practically cloud-free, with the Mercury hitting 70 degrees, and Verklin told the crowd how pleased he was to be back in the City, and how lucky those in the audience were to live in the Bay Area.
And then he told them about Canoe.
“Its mission is clear, direct and simple. Open up and use cable’s unique two-way infrastructure to turn television into a platform, nationally.”
Then he said, “Write some of these numbers down. There are 101 [million] multichannel households in the United States. Seventy million of them are cable households. Thirty-one million get their TV from satellite. Canoe represents about 60 million of the 70 million cable households as of today.
“Canoe has a digital set-top box in over 32 million households as I speak to you today, and it’s growing rapidly. Canoe is also the ISP for over 35% of American households.
“We get it. We see it. We see the threat and we see the opportunity the digital revolution is creating. And if we act quickly, we intend to take advantage of it.
“The TV advertising business is a $60 billion business (annually). The cable MSOs get about $5 billion out of that $60 billion today.”
Then Verklin talked about what Canoe had to offer: “Let’s get specific. Two new features are coming to your television set. Interactivity and addressability. … Interactivity will come in four flavors. If you’re interested, write them down:
“Voting and polling. Request for information. T-Commerce. And telescoping.” He defined T-Commerce as buying product by just hitting a button on your remote control. Telescoping, Verklin said, is the ability of pushing a button on your remote while watching a commercial for an upcoming movie and getting the entire trailer. Or pushing a button while watching an auto commercial and getting a short video about the car.
“And addressability, [which] is the ultimate promise of the new platform called ‘television,’ " Verklin intoned. “No more diaper ads if you don’t have or are not expecting a baby. No more dog food ads if you don’t own a dog. And no more denture cream ads if you have a really good set of choppers.”
“This isn’t Buck Rogers stuff that I’m talking about, ladies and gentlemen. It’s merely a small technological evolution from video-on-demand, which has been used by 80% of all cable households with a set-top box.”
Verklin then said the MSOs would be able to carry off addressability because of the data in the 32 million set-top boxes that the owners of Canoe reach.
“Finally, when?” Verklin said to the crowd. “When? When’s all this going to happen? ‘David, you’re part of the cable operators. They’re slow and they never make anything happen. When’s this platform going to start?’ Faster than you think.”
Interactive advertising, he said, will come to 15 million to 20 million households by November 2010. “As for addressability,” Verklin said, “Canoe hopes to bring you a fairly basic version of it -- something called network addressability -- or national addressability -- into the marketplace in 100 days.”
So that was it. The vision and the promise.
Most of it never came to pass.
In July 2011, it was announced that Verklin was leaving Canoe when his contract expired at the end of last summer. It had been widely believed that despite all of the setbacks in getting product out, Verklin’s contract would be renewed. A number of sources said they believe that Neil Smit, who had replaced Steve Burke in running the Comcast MSO, had much input in not renewing Verklin’s contract. A Comcast corporate communications executive said Smit was not available to comment for this story.
Last month, on Feb 22, 2012, Todd Spengler at Multichannel News broke the story that 120 of Canoe’s 150 employees would be laid off, as most of what Verklin had outlined that November day in San Francisco -- addressability and four flavors of interactivity on a large-scale basis -- was being abandoned, having never been achieved. From now on, with the 30 employees left, Canoe will focus on ads for video-on-demand.
Verklin had been replaced by Kathy Timko, who had worked with him as the COO at Canoe. She’ll be among the 120 leaving the company.
The MSOs that own Canoe publicly said they were spending $150 million on the joint venture, including, according to a separate article in Multichannel, an annual salary to Verklin “commensurate with” the $1.5 million he was making at Carat when he left there. Sources say that, in fact, the MSOs will have spent closer to $200 million on Canoe from the time it was announced in June 2009 to the time all of the laid-off employees leave in May 2012.
What happened? How come this highly publicized venture that was to change the shape of a platform called “television” went south in what was a relatively short period of time?
TVWeek asked that question to a number of people who have intimate knowledge of Canoe, and their thoughts on the matter follow. All of the people we spoke with said they would only talk to us if we did not use their names, since they all have business dealings with the MSOs who make up Canoe’s owners. Oddly, even the one person authorized to speak on behalf of Canoe asked that his or her name not be used, saying that they are in the marketplace looking for a new job since they are being laid off by Canoe.
One statement concerning full disclosure. Several years ago Verklin and I met about my perhaps joining Canoe. Outside of a discussion with one other person at Canoe, nothing came of it.
“What happened with Canoe?” one source parroted my question. “About five years ago or so -- don’t hold me to an exact date, the MSOs did a study with McKinsey or someone like that -- it was basically a review of their business. And one of the outcomes was the recognition that the MSOs had ad inventory, but that it paled next to the inventory the networks have that gets passed through the pipes owned by the MSOs. So the question was raised, 'Is there a way for us to play in that sandbox?'
“That’s where Canoe came from -- out of this review that indicated a potential to marry up the technology of the cable industry -- most importantly the targetability of the data cable has -- with the massive amount of advertising revenue that comes through the networks. As Verklin mentioned in that 2009 speech we talked about -- at that time the MSOs were getting about $5 billion out of a pie of $60 billion. There’s surely opportunity there, the MSOs decided.”
Said another source familiar with Canoe: “The MSOs realized that they have a restricted territory in which they can operate. They can’t grow their territory unless they buy another MSO. They had -- and still have -- tough competition from satellite, and increasingly, from the Verizons and AT&Ts of the world. You can try and increase your share of market against your satellite and telco competition, but that will dilute your margins and profits. And they were maxing out on their revenue per sub with their triple plays and such. So, for them, the ‘Bingo!’ moment was to try and figure out how to increase their ad revenue. So they came up with Canoe.”
Yet another source put it this way: “Because of the billions that are spent on TV advertising, you’re always going to have companies looking for a seat at the TV ad table. The table has seats at it for television networks -- cable and broadcast, for TV stations, for MSOs, for media agencies and their clients. All those who do business and support national and local advertising. That’s the table those who circle the TV business want to sit at.
“Canoe clearly had an advantage. They had a seat at the table. Canoe was owned by the MSOs. They had access to ad inventory. They had access to data and technology. So, in a way, they had a much, much better chance of succeeding than an outsider who’d come up with a device that could enable addressability and interactivity. So the flaw wasn’t coming up with the idea for Canoe. It was the execution.”
So what about the execution didn’t work? There are varying opinions.
“Ultimately, Canoe was about national TV advertising. But where at Canoe were the national buyers and national sellers?” asked one knowledgeable source. “Yes, Verklin came from Madison Avenue, but at a high level. How many years since he’d really been in the buying and selling trenches? On the other hand, David’s not a cable operator with that background, which is very insular. You have no idea how insular. “
There were two major issues, this source said. “Where in Canoe was the national ad sales culture? I love David. I really do. Bright, bright guy. But I think Canoe needed to build a sales organization. The model at first was that Canoe was to sell the ads, and then that moved to a model where the networks would sell them. That’s more time consuming and more of a challenging sale. As important as the technology side of what Canoe was trying to accomplish was, I think David needed a No. 2 like he had Rutman at Carat -- an operational sales guy, not a No. 2 who was basically a technology guy, which is what he got.
“But the second big issue was the technology. Canoe would come out with product and technically couldn’t align all the MSOs. So one of the core issues was getting these technologies to work in the same fashion and work consistently and in the same way amongst all the cable operators. Big challenge that never got met.”
Another source put the issue of technology this way: “When you’re a cable MSO, the perspective from the engineering side is always ‘don’t do anything that might cause me a problem. Because if I have a problem we could lose subscribers. We know what that costs us. We have no idea what the real value is of your proposition. So leave us the f alone.’ In so many words, that’s their attitude.”
Unfortunately, said this source, Verklin wasn’t able to overcome that attitude.
More on the tech issues. In Verklin’s San Francisco speech he explained there was supposed to be two parts to what Canoe would do: addressability and interactivity.
Of the two, it’s addressability that’s the Holy Grail as far as Madison Avenue is concerned. It’s the making sure that only the dog owner and potential dog owner get the dog food commercial.
A number of sources on Madison Avenue said in their eyes Canoe basically failed because it never did the addressabiltiy. When technically they realized how tough it was to do the addressability, Canoe went directly to trying to do interactivity. The argument goes thus: First you do addressability, then you enable interactivity. Because if you’re reaching the wrong target, you’re not going to get a response on the interactivity.
Said one source: “Canoe fairly quickly understood that there was less of an internal obstacle among the MSOs to interactivity than there was to addressability. The core of that internal obstacle to addressability is that the MSOs want to build everything themselves. Nothing off the shelf. They say, ‘Anything not invented here we don’t want.’ Which is why every cable MSO has a different infrastructure.
“Building addressability is not only difficult, but you start to step on other people’s intellectual property. So building interactivity, that Canoe thought they could do. But even the Canoe solution for interactivity was built by a committee of MSO technical people. The graphics were 1980 Pac Man. It was embarrassing. And then, when the viewer clicked on something, the marketer in question would mail the viewer something.”
That last point seemed especially galling to some on Madison Avenue. Said one source: “The mail thing Canoe set up as its interactive fulfillment had two problems. First, we live in a world where someone pushes an electronic button and they expect instant gratification. Not a coupon or brochure or whatever delivered several days later in the mail.
“And the second thing is the cost of mail. People don’t realize when you’re talking a 10 dollar per thousand on cable TV that’s a penny an impression. Now you change the equation to -- including stuffing and production and everything -- somewhere between 50 cents and a dollar. That’s an economic shift that’s just flat-out untenable.”
One source, when asked where and when Canoe went wrong, said: “Right at the beginning. It was the chutzpah and naivety of the MSOs to get into this. Marketplaces exist for reasons. They are very efficient. They might be ugly, and you might not know all the hand signals and cocked eyebrows and whatever, but they work. So say what you will about the upfront, it enables trillions of impressions to be exchanged pretty easily for billons of dollars. It’s an efficient marketplace and people participate knowing what to expect.
“Anybody that tries to introduce something to change that marketplace generally finds that it’s not all that easy. Because anything that complicates the flow of the money, or that requires a shaving off of dollars, or of shares, or whatever it might be, the players in the marketplace are not interested. Basically, the networks aren’t interested and the media agencies are not interested.
“So the MSOs formed Canoe and hired Verklin. And he tried what, five or six versions of a business model. My sense is that any of them would have required heavy lifting by the networks, by the agencies and by the marketers, and none of the players actually thought it was worth it.”
This source continued: “I thought Canoe was an odd play. Most of the MSO members of the consortium are also partners in the cable spot business, through NCC. It’s a good business. They run it well, have brought some smart products to market and make some good coin. If not for the fact the MSOs seemed to want to make a big splash, I don’t know why they didn’t try doing some national Canoe-type things layered on top of NCC.
“But I think making a splash was part of it. I don’t know how you can have 150 employees with basically zero revenue while you spend $200 million, which Canoe did. They acted like a venture capital-funded start-up from 1999.”
Officially, here’s how the decision was made to change Canoe’s mission, according to a Canoe spokesperson who asked that his or her name not be used:
“New management and some other industry leaders have been reviewing Canoe’s mission and product roadmap.
“In the course of doing that we looked very closely at our technology, the processes, the product roadmap. We looked at current market trends, emerging market trends. And at the end of that analysis, the board of directors [i.e., executives at the MSOs that own Canoe] decided to completely redefine Canoe’s mission to be entirely focused on serving national programmers in the monetization of video-on-demand.
“By that we mean, first, through the current platform capabilities for VOD dynamic ad insertion. And, then, eventually, in support of TV Everywhere. Both VOD inside the home and TV Everywhere outside the home.
“So, if you think about that, it’s like a domino effect. Consistent with that focus, all the other businesses -- the business and technical initiatives that were going on at Canoe -- are no longer going to continue, including all of our activities associated with the ITV business.
“Therefore the redefined Canoe is going to be a much smaller, leaner organization. It will be engineering focused, based in Denver at our current technical facility. We’re scaling from 150 employees to approximately 30. The New York office is closing as of May 23rd.”
So Canoe is adopting a new mission and scaling down. The word scale, in fact, is a key one in discussing what happened to Canoe.
Canoe scaled up, in terms of people and expenditures, before it had a viable business model in place. Scale, in terms of homes reached on a national level, with addressability and then interactivity, was one of the major promises of Canoe.
On Madison Avenue addressability and interactivity have been talked about for years. One source told me: “I’m forever optimistic that we’ll get there with addressability and then interactivity. DirecTV and Dish have made great strides. They should have 15 million to 18 million set-top boxes by the end of this year. And you’ve got to like what the MSOs are doing individually with the interesting things they’re trying on advanced platforms, led by Cablevision, Comcast and Time Warner. So hypothetically, you take what DirecTV and Dish are going to have, you layer in the No. 1 market with Cablevision, and Verizon’s FiOS on top of that, and you could end up with 20 million to 23 million set-top boxes. That should be enough scale for marketers to try some very interesting ads.”#
Here's David Verklin's speech delivered on Nov. 13, 2009, at the NewTeeVee Live conference in San Francisco: