Cable getting ready for future of TV ads

Jun 18, 2001  •  Post A Comment

The avails, they are a-changin’.
Cable thinks it has a better idea-namely video on demand and the other forms of digital broadband interactivity and addressability it can offer-that could fundamentally alter the very nature of television viewing and thereby change the way advertising works.
Cable 2001, held last week in Chicago, was perhaps above all a massive, concentrated information download about that proposition. Speaker after speaker at panel after panel said that competition from satellite had spurred cable’s much-vaunted infrastructure upgrades.
The upgrades mean that cable is poised to offer services that satellite can’t match, and the paradigm-altering future is imminent. All that is missing to entice national advertisers aboard the broadband bandwagon is scalability, said several panelists, and that’s coming too.
For example, 2 million Comcast Cable homes will have the VOD option by the end of the year, said Steve Burke, president of Comcast Cable Communications, the nation’s third-largest multiple system operator with 8.4 million customers.
“Right now, we have a superior technology,” he added. “It will mean a fundamental change in the way people watch television.”
Forrester Research Senior Analyst Joshua Bernoff, for one, predicts there will be 40 million devices such as TiVo, with the ability to fast-forward through commercials, in U.S. homes at the end of five years. That same period will see a 20 percent drop in the viewing levels for TV commercials, Bernoff said.
“Television in which you sit through the commercials is about to be replaced,” he added. He predicted that traditional TV ad spending will peak in 2003 and then decline, losing up to $12 billion in traditional ad revenue in that five year period, only to be replaced by the same dollar amount of new revenue coming in from so-called walled gardens or other interactive and addressable applications.
What do the advertisers think about the new paradigm that’s coming? Procter & Gamble, for example, one of the single-largest TV advertisers, finds itself in a “delicate position … very concerned [by the] fundamental disruption” ahead in the traditional advertising model, said Sekhar Krishnamoorthy, interactive strategist for P&G.
Mr. Krishnamoorthy characterized the present system of scattershot national advertisements designed to reach mass demos as the “spray and pray approach.” Looking ahead to a future in which millions of potential customers have the ability to tune that out, he added, the advertiser’s “initial reaction has got to be one of fear.” The key to mastering the future, he suggested, is to find “more engaging viewer reward,” perhaps an “emotional reward” if not an actual financial one, for customers to view commercials.
Several experiments have recently been conducted or are about to get under way that will test various advertising options for broadband and interactive TV.
AT&T Broadband’s recent (October 2000 to March 2001) interactive experiment in Waterloo, Iowa, taught the simple but important lesson that “we need to treat customers as TV viewers,” not as PC users, said Marc Favaro, the company’s vice president, national advertising sales.
That experiment, in which “six or seven” advertisers (including Kraft) participated, tested three options. Option 1 was to click on an “enabled” 30-second spot. Interested consumers might be taken to a site where they could, for example, enter ingredients and receive a recipe. Option 2 was the walled garden, or managed content site, and Option 3 was the ability to click from a program to the the Web site address behind it.
At the beginning of the Waterloo experiment, only 14 percent of viewers were interacting with their TVs once a month; by the end of the experiment, 93 percent of all viewers were interacting. The Waterloo experiment also found that viewers were spending an average of 21 minutes per week linking directly from programming to the Internet, and were spending an average of two hours and 19 minutes per week in the walled garden.
The experiment found that viewers who clicked on an enabled 30-second commercial essentially doubled the amount of time they spent with the advertiser. To avoid cutting off other ads in the process, Mr. Favaro said, all enabled commercials were placed at the end of commercial “pods.”
A more massive test of addressable advertising in the Denver area is imminent, said Mr. Favaro. Beginning in August, 30,000 digital subscribers will participate in a 26-week experiment. In that experiment’s second phase, viewers will be aggregated into demographic and psychographic “buckets” that can be separately targeted: Do you want to reach customers who have purchased Pepsi (or Coke) recently, or those who’ve bought health foods or baby foods or Domino’s Pizza? How about customers whose automobile lease is about to expire? If so, Denver may be of interest to you.
Of course, when the new paradigm is fully realized in five or so years, the goal of all this will be “one-on-one advertisements, converter-to-converter,” said Charlie Thurston, president and CEO of AdLink, which provides targeted spot ads to approximately 80 MSOs in the Southern California area.
In the future, Mr. Bernoff suggested, advertisers may even pay people who click on an interactive icon that will send them to a company’s Web site or to a walled garden.
Several panelists also suggested the product-placement option, among them Carole Black, president and CEO, Lifetime Entertainment Services, who pointed to a very visible Diet Coke can in one “Sopranos” episode as well as the commercials that now precede most theatrical films. Feature-film commercials, despite initial audience resistance, are accepted by the paying customers because they are entertaining, she said.
The clear implication of Ms. Black’s remarks is that there may be analogous places for advertising in VOD.
VOD rollouts, despite current Hollywood resistance to licensing films for the new technology, will continue as well. AT&T, for example, will be launching a VOD pilot program in the Los Angeles market this year, according to C. Michael Armstrong, the company’s chairman and CEO; and Charter Communications has rolled out VOD in four markets thus far, according to Jerald Kent, its president and CEO, while Comcast Cable Communications plans “pretty aggressive” VOD rollouts in the next 12 to 18 months, according to Steve Burke, its president.
But not everyone is convinced that the road ahead will be smooth or trouble-free for the various new technological options. Take addressable advertising, for example: Yes, addressable advertising will be the “great equalizer” for cable, allowed Wes Hart, corporate vice president, advertising sales, Charter Communications. But “not until we have that adaptation across all television advertising, whether it be local spots, national spots or various entities of broadcasting,” Mr. Hart cautioned, “are we going to get the agencies to adapt to this medium.”