Telcos Laying Groundwork for Offensive

Dec 11, 2006  •  Post A Comment

Now that Verizon has built out its video service to the tune of 118,000 customers, the telco is preparing to deploy local, interactive and video-on-demand advertising opportunities to its subscribers next year.

The prospect of additional advanced ad vehicles in the marketplace spells more competition for cable and satellite operators, and could also bring advertisers more detailed metrics on usage of such enhanced ads.

Verizon hasn’t formalized its specific advertising plans for 2007, but it is currently deploying the technological tools that will allow it to insert local ads into its programming during the first quarter of next year. On that foundation, the telco plans to introduce the first round of sexier ad options such as dynamic ad insertion, which allows fresh ads to be inserted into VOD programming on the fly, said Jason Malamud, VP and general manager of Verizon FiOS Media. More targeted and interactive ads will follow.

Verizon is not alone in its plans to provide a slew of ad vehicles to compete against existing video providers. AT&T also expects to begin offering local ads next year, and possibly to offer ad avails in VOD, as cable operators do today, as well as in shows played back on digital video recorders. AT&T began deploying video service commercially last summer. It counts a few thousand customers in its inaugural video market of San Antonio and just rolled out service in Houston at the end of last month. Verizon got a head start by selling video service in Keller, Texas, beginning in September 2005 and now reaches markets in eight states. Verizon projects that it will count 175,000 video customers by year-end.

While those subscriber numbers are small potatoes compared with Comcast’s 24 million or DirecTV’s 15 million-plus, mass reach isn’t as important when it comes to advanced advertising. That’s because the enhanced ad business is still new and most cable operators offer interactive ads in only a handful of markets because they must deploy the technology for such ads on a system-by-system basis.

Digital’s the Thing

Verizon’s advantage, Mr. Malamud said, lies in its all-digital footprint. When it fires up interactive spots for advertisers, it can offer marketers its entire subscriber base because it deploys technology and new services to all video customers at once. However, cablers do have a leg up when it comes to VOD, now found in 26 million homes, according to Kagan Research.

While Verizon and AT&T are still about a year away from realizing the early potential of what their Internet-based video infrastructure will enable, advertising agencies think the telcos will come to market with some advantages.

“The one area that will be really different for me is metrics,” said Jen Soch, VP and group director for advanced TV for MediaVest. Telcos have exhibited a willingness to build advanced ad opportunities from the ground up with input from marketers, especially when it comes to the data advertisers want, she said. “[The telcos] are coming in and saying, `What do you need, what do you want?”‘ she said.

Offering more detailed metrics to advertisers can be a huge competitive advantage. Cable operators and advertisers have butted heads for years over how much information they’ll release and how much information they want on VOD ads, respectively.

Telescoping Capability

Mr. Malamud said Verizon is relying on metrics guidelines from the American Association of Advertising Agencies as its starting point. “Plus we’re including measurement capabilities in the operating requirement of any advanced advertising functionality we develop,” he said.

Ms. Soch is also hopeful that telcos will be able to launch telescoping capabilities faster than cable operators. Telescoping refers to the ability for a consumer to jump from an interactive ad on a linear channel to an accompanying ad with more information located on VOD.

Though advanced ad deployments are still a ways off, the telephone companies should spur competition with cable, said Mitch Oscar, executive VP of Carat Digital. “That will cause cable operators to deploy things more quickly, such as targetability, addressability, ads that lead to long-form ads, micro-sites that lead to long-form ads and requests for information,” he said, Plus, he’s keen on the potential that AT&T possesses to integrate Cingular’s 57 million cellular phone customers into its advanced ad toolbox.

AT&T also likes the promise of an ad play that combines mobile phones, television and the Internet. “Once we get video and we have broadband and wired and wireless, we think that offers a pretty robust platform on which to serve marketing and advertising messages and commerce,” said Karl Spangenberg, VP of integrated advertising and commerce for AT&T. “Once our day arrives and we can do all we are seeking to do, we can be a good competitor to cable.”

He acknowledged that cable operators are way ahead, but that’s long been the name of the game for telcos as the newest entrants to the decades-old video delivery business.

Before it moves forward with advanced ads, Verizon still needs to iron out technical details, such as selecting an interactive TV vendor, Mr. Malamud said. But the onus is on Verizon to put out a better product, he said.

“We have to offer more targeted, more interactive and more measurable advertising than what they get elsewhere in order for us to be successful. A spot on FiOS TV has to work a lot harder than a spot elsewhere,” he said.