Cable Operators

Adding Demand to On Demand

11/07/2004 7:00 PM Eastern

For years, operators have been talking about interactive and on-demand content that would take advertising to a new level. They envisioned video-on-demand platforms that included streams of paid advertising, allowing consumers to pick the kinds of messages they wanted to see and when. Advertisers, in turn, could beam specific ads to targeted audiences — and even track aggregate consumer interest through addressable set-top boxes. Operators would rake it in. Remember that?

All exciting visions, but as the dot-com bubble burst and economies faltered, the revolution that was to be televised turned out to be an evolution instead. As it turns out, on-demand ads are, well, hard. “It adds some complexity that people are working through,” says Tom Hagopian, senior vice president of programming and advertising at OpenTV Corp. “These things tend to take time, but they will start to pick up some speed in ’05. When we talk to the operators, this is a focus that they’ve got.”

OpenTV two years ago purchased Wink Communications Inc., a leader in the interactive television field and, by extension, interactive advertising. But Wink lost ground in the ITV race last November when it parted ways with DirecTV Inc., it’s largest customer.

Given that kind of challenge, is Hagopian right? Are we finally ready for on-demand advertising? To be sure, operators are intrigued but not committing major dollars — at least not yet. “I think we’re very much in the experimental stage,” says John Barrett, director of research at Parks Associates. “They’ve tried a few things here and there, but the advertisers aren’t sure whether they’re getting the bang for their buck.”

That is one of the major hurdles for on-demand ads. Historically, advertisers have sought the broadest audience possible, but they are still unsure about a new medium that emphasizes localism and smaller, more targeted consumers. “There’s a media-buying bias,” says Eric Schmitt, an analyst at Forrester Research. “There are those out there that don’t want anything to do with advertising that’s not national.”

However, there is one media force that works to cable’s advantage: the Internet has proven that consumers are willing to proactively seek more information about goods and services. “Thanks to Web advertising, there’s some model for cable operators to point to,” says Gary Arlen, president of the media consultancy Arlen Communications. “So most importantly, advertisers now understand what this is all about.”

Indeed, cable operators are breaking it down just that way. “This is the Internet on steroids,” says Larry Fischer, president of Time Warner Media Sales. “And there are people out there thinking about how to profit from programming that people actually want to go to.” For example, an operator could show movie trailers while a VOD selection is loading, perhaps at a reduced fee in return for watching the ad. “There’s an opportunity to capture and a very capturable viewer,” he says.

In its Albany, N.Y., system, Time Warner Cable is using middleware from Navic Networks to overlay static messages on selected TV commercials. One spot by the Ford Dealers Association lets viewers hit a button on their remote to indicate whether they might buy a car in 30, 60 or 90 days. Then, it asks for a car preference, after which viewers might receive a special offer for a rebate, 0% financing or some other incentive. The system can also identify the closest dealer to the subscriber’s house. (The overlays go away if a viewer doesn’t respond after the first five times they appear over the same commercial.)

In Hawaii, Time Warner is running similar campaigns with Bank of Hawaii and Pizza Hut. The company hasn’t indicated to what degree it will roll out such systems in other markets, but Fischer says one thing is clear: “There is this train coming,” he says, even if operators, programmers and advertisers still must determine how such arrangements would work. “I have more questions than I have answers,” he says.

Consider this scenario: An advertiser that paid a programmer to run a spot may also have an arrangement with an operator for an on-demand overlay that takes the viewer away from the commercial — and the four or five commercials that follow. In addition, the programmer might lose that viewer altogether if he or she gets tempted by an on-demand ad.

“The operators are still playing footsy with the programmers to see who can put what where,” says Schmitt. “There’s sort of a land-grab mentality here.” According to Schmitt, one solution might involve bookmarking VOD ads, so people could view them later without interrupting live programming. Schmitt says the metrics will eventually gel. “I don’t think they have a lot of choice,” he says. “A lot of interesting technology coming down the pike is from operators. You’re going to have to deal with the operators.”

Time Warner isn’t alone. Comcast Corp.’s ad sales unit, Comcast Spotlight, has been inviting content providers to use its VOD platform to present advertorials or to showcase special offers for direct response with long format videos. And Cox Media (Cox Communications Inc.’s advertising unit) has already deployed its Cox FreeZone product in San Diego, where it’s beaming on-demand movie trailers from Warner Home Video, Paramount Pictures and the Starz premium network, as well as promos from automakers and local casinos. Cox spends much of its time working to educate advertisers.

“The on-demand environment is one that a lot of advertisers are still trying to get their hands around,” says Leslie Talansky, Cox regional marketing director for the Western region. “But we feel like this has been a success for us.”

September