The flip side to all the worry about viewers skipping ads by using personal video recorders and video-on-demand may be the growing expectation that VOD ad sales will generate substantial revenue as soon as next year.
“I think that 2005 is going to be a major year in the continued emergence of VOD,” said Sean Cunningham, president and CEO of the Cabletelevision Advertising Bureau. “Major advertisers have committed agency resources against VOD … and they are very much ready to flip the switch and go live as soon as it is appropriate to do so.”
Discovery Networks US, which is testing VOD advertising with Comcast and other operators, is on the verge of claiming VOD ad revenue. “We’re going to be in business in 2005,” said Ken Ripley, VP, ad sales and business development, at emerging networks for Discovery Networks US. “Beginning in January, this is a for-profit business. We’re expecting revenue to come back from it, and I think most advertisers are ready to do this.”
Some networks and advertisers are already doing significant VOD business. Last month Turner Broadcasting debuted a VOD service with about 10 hours of content from Cartoon Network’s Adult Swim block, with Norelco as its charter sponsor.
For more than a year Turner has offered programming from Cartoon Network, Boomerang and CNN on VOD, said Kevin Cohen, senior VP and general manger, interactive and enhanced television, TBS. It also plans to add 20-25 hours of content from Turner Classic Movies “All of that except for Boomerang is ad-supported,” said Chris Pizzurro, VP, multimedia marketing, TBS Sales.
Xerox is a big sponsor of CNN’s VOD service. Cartoon Network on-demand sponsors include Nintendo, Kellogg’s and Lego.
Mr. Pizzurro said VOD advertising revenue doubled last year and is running at more than $1 million annually industrywide. He expects it to double again next year.
Even at that rate, VOD is a tiny part of the TV advertising market and it will take a lot of fast-forwarding before it becomes a big-time contender.
But John Muszynski, chief operating officer of Starcom Worldwide, said that marketers who have moved early into VOD have reaped benefits, both in learning about the new medium and in actual sales.
Several Starcom clients are involved in VOD, but Mr. Muszynski said it’s too early to say how traditional TV budgets will be impacted in 2005 by the growth of VOD. “It’s reasonable to assume that linear TV budgets will morph into more holistic `video’ budgets over time. It’s simply a matter of following the viewer wherever they choose to go.”
Mr. Muszynski warned that advertising on VOD doesn’t offer insurance against avoidance of ad messages. “Simply put, if messages don’t resonate with the consumer, the consumer will find ways to avoid it.”
VOD advertising is still new and being defined, but it’s already being eagerly eyed by big advertisers.
“I was amazed at the number who were really interested in it,” said Josh Bernoff, analyst with Forrester Research. “The typical thing with a new advertising technology is that people with the technology say, `This is great,’ and the advertisers say, `Go away and come back when you have 10 million people.’ Here the advertisers are saying, `Well, where is it?”‘
For its April report titled “Ad-Skipping Still Haunts Advertisers,” Forrester surveyed 55 national advertisers and found that 57 percent were very interested or somewhat interested in 30-second spots in VOD programs. A whopping 76 percent were very interested or somewhat interested in targeted ads to specific households in VOD programs. And if technology prevented viewers from skipping ads in VOD programs, 69 percent wanted in.
But Mr. Bernoff said VOD still faces some significant obstacles.
First of all, data about who is watching VOD ads is not tracked. “It’s both a technical problem and a political problem,” Mr. Bernoff noted.
Cable systems aren’t compatible enough to report viewership on VOD from a number of multiple system operators in a consistent way. But on top of that, “The cable operators definitely recognize their data is the key to these metrics, and they’re being careful about how they make that available.”
The CAB last month had a meeting of presidents of sales of several cable networks to discuss VOD and is forming a CAB -on-demand group that will meet in the middle of this month.
Mr. Cunningham said establishing a data infrastructure is critical. VOD needs a trading and measurement currency and reporting metrics and practices. Discussions of revenue-sharing models are also taking place. “This is very important to the advertising business and an enormous opportunity for the cable business,” he said.
Comcast Spotlight works with advertisers on a case-by-case basis for VOD measurement and can provide the following data on total unique set-top boxes: duration of viewership, total views and VOD universe.
Another problem is that operators have not yet decided whether or not they’ll allow viewers to fast-forward or skip ads on VOD. The issue for operators is that consumers may not embrace VOD if they aren’t able to skip ads. On the other hand, there may not be any content for VOD unless it is ad-supported.
Comcast, which has been a proponent of free VOD content-that is, free to the operator from the programmer and free to the consumer-has recently switched from equipment that did not allow fast-forwarding to equipment that does, said Victoria Lins, VP, marketing and communications, at Comcast Spotlight, the operator’s ad sales arm.
Mr. Bernoff believes that unless the ads are skip-proof, “It’s very hard to persuade advertisers there’s any value here.” And if advertising doesn’t develop, “The content won’t show up and the whole thing won’t fly.”
Another issue is who sells the ad. Mr. Bernoff said the cable operator is in position to sell targeted ads that reach viewers who have children or who have incomes of more than $100,000 a year. But the programmers, who aren’t getting paid for their content, want to sell the ads to cover their costs.
“If there’s some collaboration here, there could be even more value, but it’s so embryonic that it’s yet to be worked out,” he said.
Comcast has been aggressively rolling out free VOD and recently began rolling out VOD advertising. The cable operator invested millions in its plant to offer services such as VOD, and it expects to grow its ad revenues from $1 billion to $2 billion over five years.
Ms. Lins said VOD advertising is something neither broadcasters nor satellite providers can offer. He said there’s already significant interest in VOD advertising and expects there will be significant demand.
“We want to define the future of VOD advertising in tandem with our clients, so we’re working with and talking to a lot of agencies about how the technology will impact advertising and how to make it work for the advertisers as well as the consumers,” she said. “No one really has answers at this point. It’s all very developmental and still in the early stages of being refined and defined.”
Comcast has different arrangements with content suppliers. It gets to sell some ads in some time-shifted content. It also sell ads in some content it develops and buys for VOD. Even more interesting is linking regular 30-second ads to longer-form VOD ads, Ms. Lins said.
Networks also are refining how they work with advertisers on VOD. At Turner, advertisers are attached to an individual show. The shows open with a “Brought to you by” message, and a 30- or 60-second spot. Then the program plays commercial-free. When it’s over, another message can appear, sometimes a longer-form spot.
Mr. Pizzurro said most advertisers buy VOD ads as part of larger packages. But some buy individually. The cost is based on the number of times a show is viewed. “While the reporting we get back is not Nielsen or certified in any way, it’s enough for us to work off of and give a fair idea of how many views we’re getting,” he said.
Turner’s VOD offerings are getting more than 1 million views per month. “That’s not a test to a consumer. That’s an ad impression,” Mr. Pizzurro said. “Advertisers
may want to call it a test, and that’s fine, and truly, it is a test to them. But this is real inventory and real impressions to a real audience.”
General Motors is the key sponsor of shows A&E Networks offers on VOD. Those shows range from A&E’s “Biography” to History Channel’s “Modern Marvels.”
Walter Oden, VP, business development, for A&E, said VOD shows begin with a commercial no longer than 30 seconds, then run with the other breaks removed. They are able to run a longer-form message when the show concludes.
Mr. Oden said A&E is still experimenting with business models for VOD. “It’s still nascent,” he said. He wouldn’t say how many people were watching on VOD, or what A&E is charging advertisers, but he noted that since A&E got into the space, “There are a lot more advertisers that are very interested” and that the majority of the marketplace is doing much better with reporting. “That was an issue in the beginning,” he said.
Discovery launched a VOD program last month in homes where Comcast offers the service. “We probably have 12 advertisers we’re rotating through and testing with right now,” Mr. Ripley said. “What we hope to do in the first quarter is really just work with a small amount of advertisers who are really going to work with us, embrace it, and try to use the next year to build a business.”
He said that advertisers and agencies have been getting ready for VOD for three or four years and appear to be ready to roll. But he noted there are still unanswered questions.
“How are they going to put it to work?” Mr. Ripley said. “Is it a straight typical 30-second spot? Is it a longer-form message? Where does that spot show up? Is it in the middle? Is it at the end? Is there a call to action? Do you potentially use the opening commercial to tease a message that comes later in the program? These are all different ideas that have come from different advertisers. And what we hope to do is figure out what works best and make a business out of it.”
FX has just launched a VOD offering and is in conversations about a test with a major advertiser about an on-demand sponsorship. Bruce Lefkowitz, senior VP, entertainment network sales, at Fox Cable Networks Group, is guarded about the short-term prospects for VOD advertising.
“I think this has more promise than online advertising, but I think it would be very easy to get caught up and follow some of the same mistakes,” he said. “If you go back in history, there were some people who were projecting that in 2005 online advertising was going to surpass broadcast advertising. So I think that there is such an excitement about the possibility that it does need to be tempered. Will there be a business? Yes. Is it going to be a business that takes away from the core cable business? Not in the foreseeable future.”