VOD Ads Looming on Cable Horizon

Oct 24, 2005  •  Post A Comment

Working with video-on-demand vendors such as Tandberg Television and SeaChange, cable operators expect to take the wraps off the highly anticipated technology of VOD ad insertion early next year.

This could be a watershed moment for VOD, but programmers say essential business model issues must be resolved first. After all, if advertising is to be the financial underpinning for free VOD content, then ad-supported networks must ensure VOD ad insertion works for them.

Most cable networks are in talks with cable operators to determine exactly how to split the influx of money that’s expected to come from new ad opportunities enabled by VOD ad insertion. The issue is whether cable operators, who hold the technological cards because they deploy the software, are willing to play ball for something that ultimately most benefits programmers.

Advertising on the Fly

The ability to insert ads in VOD content-which means swapping them in and out of VOD content on the fly on a daily or weekly basis-could open the floodgates for the number and kind of advertisers in VOD. Most VOD advertisers today are resigned to branding or evergreen messages because the ads must be married to the content for three or four months. That’s because most programmers must deliver their VOD content, with the ads already baked in, to the multiple system operators about four to eight weeks before the programs air. Most VOD shows then have a one- or two-month shelf life.

As a result, “When [the ad] comes off VOD, the ad might be 4 months old. That is chilling for a lot of advertisers,” said Terri Swartz, director of advanced advertising for VOD server maker SeaChange.

That’s all expected to change with VOD ad insertion, because in theory more advertisers will want to pony up and VOD can be a medium for time-sensitive ads, which would bring some clear financial benefits.

“We can charge more money,” said Paul Woidke, VP of technology for Comcast Spotlight, which has been aggressively testing VOD ad insertion technology for deployment early next year.

But who gets to claim that money is still unsettled. MSOs and programmers have a lot at stake. MSOs badly need VOD to work because it’s their key competitive advantage. But because they also expect basic cable networks to provide their content without charge, MSOs know they must do their part to create a robust infrastructure for advertising to be profitable for programmers. Hence the need for VOD ad insertion.

However, to add yet another wrinkle, MSOs also sell some on-demand ads themselves and thus have a financial interest in keeping some of the ad pie for themselves. The question becomes how the inventory gets split.

“One of the contentious issues in renewing some of these [programming] deals and moving forward is this issue with ad insertion and who gets what,” said Steve Schiffman, executive VP of marketing and new media at National Geographic Channel, which offers VOD content to several MSOs. “If the MSO is getting the free content and we are offering them that as an olive branch gesture, why does the operator feel the right then to be able to monetize the content they get for free?”

Other networks are also talking to MSOs.

“We don’t want to create a situation where they are selling the same shows we are selling,” said Bob Rose, executive VP of affiliate relations for Court TV. “We’re not just going to throw our avails away so the MSOs can go out and create a business for themselves. This is a very big issue.”

But programmers know they have to play ball, too. Because programmers will likely be in a position to charge more for inserted ads, any extra bounce may create some leeway in sharing revenue on a VOD ad insertion buy, said Chris Pizzurro, VP of multimedia marketing at Turner. “In order for VOD to scale to its full potential, programmers need dynamic ad insertion. We’re open to everyone getting compensated fairly,” he said. There will be give and take from each side, he added.

Mr. Woidke acknowledged that business issues must be resolved for ad insertion to flourish. “The technology is the easy part. It’s the business case that is the hard part,” he said.

“The MSO community is strongly motivated to work with programmers to get that content, and as the programming community sees rapidly increasing viewership in the on-demand space, they are motivated to put ads there. The programmers and MSOs have every reason to find a way to work together,” Mr. Woidke said. “For free on-demand content to be funded and financed, we have to find a way for the advertising model to function in that space in a reasonable way for the advertiser.”

Software Testing

Against that backdrop, MSOs and vendors continue to put their products through the final testing phases.

Comcast is testing Tandberg AdPoint software and said that solution is among those the MSO plans to offer on a trial basis in 2006, Mr. Woidke said.

AdPoint is also in labs with other major operators, said Braxton Jarratt, VP of marketing for Tandberg TV. Because ads will no longer be present for a program’s lifespan, ad insertion also opens an array of possibilities, he said.

For instance, Mr. Jarratt said, an advertiser can deliver one piece of creative to an MSO, which then inserts it into all the networks where the advertiser has bought, rather than having that ad cooked into the program by each network before the network even ships it to the MSO.

As ads are uncoupled from the content, the ads can be targeted elsewhere based on information advertisers have available to them. “You could put a different ad in every stream that goes out there,” he said. However, there will still be value in a broader reach even on a VOD buy. “The idea of instantly turning a TV into an Internet sales and targeting model isn’t going to happen that quickly,” Mr. Jarratt said.

But more targeting than is possible with the blunt tool that VOD is today seems inevitable.

The first generation of VOD ad insertion will allow targeting to ZIP+4, which designates a city block or group of apartments, for instance, said SeaChange’s Ms. Swartz. If a VOD user requests the highlights of a soccer game, for example, the request will go out to the VOD server, which will look at the ad insertion instructions to determine which ads are available. As an example, if the spot belongs to General Motors, the server could send a Cadillac Escalade ad to homes likely to have incomes over $100,000 and a Chevrolet spot to homes likely making less than $60,000, she said.

SeaChange has trialed and tested its ad insertion software, called On Demand Advertising Manager, and expects first-quarter deployments by at least two of the top five MSOs.

The current model makes advertisers reluctant to invest in the platform because their content is presented for a relatively long period of time, said Scott Ferris, senior VP and general manager for Atlas On Demand. Atlas is working with SeaChange and VOD server maker C-Cor to incorporate its ad management and measurement tools into their equipment for advertisers and agencies to plan, buy and manage VOD ads. Mr. Ferris said he expects first-quarter MSO pilot tests and that Atlas is also talking to other VOD vendors to secure a national footprint.