Cable Operators

Cracking the Code for An On-Demand Ad Model

9/22/2006 8:00 PM Eastern

After predicting for the past three years that advertising-supported video on demand would be a hit business, Comcast Corp. is finally beginning to reap some of the fruits of its efforts.

Comcast has long been a cheerleader for free VOD. But analysts and observers wondered where the financial model for such bullishness was going to come from. And advertisers have been intrigued, but sluggish to jump on the bandwagon.

But things are beginning to change. The average percentage of advertising and marketing budgets devoted to alternative media — including the Internet, mobile phones and on demand — is expected to nearly double from 8% in 2005 to 14% in 2006, according to Entertainment Marketing Letter’s January 2006 “Alternative Media Promotions Survey.” Some 37% of entertainment, brand and media marketers are earmarking 15% or more of their overall budgets for alternative media in 2006, up from 23% who did so in 2005, the survey reported.

Over 29 million households in the U.S. have video-on-demand capabilities — more than double the number of households three years ago and almost the same penetration level as digital cable, according to Forrester Research data. With VOD programming continuing to improve and expand, marketers are beginning to take notice.

“We have hundreds of brand-name advertisers working with us now,” Comcast Spotlight president Charlie Thurston said. “They’re not waiting anymore.”

VOD AD CHALLENGE

Forrester Research senior analyst Josh Bernoff believes VOD advertising has been a challenge, but said: “Comcast is really the only company that can really do it right now because of its scale.”

Every cable company has a shared vision for the success of VOD advertising, said Dave Leitner, vice president of sales and marketing for the Cabletelevision Advertising Bureau. “And each company is taking a different path to reach those goals. Comcast is taking a leadership role in advancing this technology.”

Comcast has been very good at educating consumers about on demand and making them comfortable using the technology, Leitner said. The company is now trying to do the same thing with advertisers. Comcast shook up the Madison Avenue community this year by sponsoring the industry’s first video-on-demand upfront presentation. The operator is also sponsoring a Clio Award for on-demand advertising.

“Comcast is clearly making traction with this business,” Bernoff said. “Even if they don’t generate a lot of revenue now, the parameters are being set and the boundaries are being drawn.

Thurston said he’s pleased with the growth of on-demand advertising so far. To be sure, the company has scored a few coups in the past year. Automotive manufacturers were among the earliest to jump on the VOD advertising bandwagon. General Motors Co. has expanded its on-demand advertising significantly this year and executives say they plan to augment their VOD strategy next year on a local and national level.

Exercisetv, an on-demand network created by Comcast and Jake Steinfeld of Body by Jake, cut a deal in May with The Gatorade Co. Gatorade Thirst Quencher and Propel Fitness Water are now exercisetv’s exclusive sponsor in the sports beverage and water categories. The deal includes brand messaging as well as product placement, branded graphic overlays and branded educational video segments.

CHASE’S PHILADELPHIA CAMPAIGN

Chase Card Services ran an on-demand ad campaign last December with Comcast in Philadelphia. The VOD component was part of a broader campaign to promote its Blink card and also included linear TV, direct mail, public relations, radio and out-of-home. Chase ran two long-form VOD spots, each between one-and-a-half and two minutes long, on the Comcast Spotlight platform — now called Comcast Searchlight — in Philadelphia, which has about 785,000 VOD-enabled subscribers. The ads demonstrated how the Blink card works and directed viewers to a Web site to fill out a survey and register for a chance to win a home theater system.

To drive viewers to the on-demand spots, Chase ran traditional 30-second linear TV spots telling viewers they could get more information on VOD. The long-form on-demand ads were sandwiched between messages encouraging viewers to visit a Chase-branded Web site, where they could fill out a survey and be entered to win a home theater system. The goal of the survey was to gauge the effectiveness of the ads.

Chase also sponsored movie trailers, which were seen by 167,000 unique viewers during the month. Nearly 2,400 of those watched the long-form Chase spots.

Thurston believes this kind of synergistic marketing will propel VOD into the forefront of advertising delivery methods.

“Chase was very pleased with the results from this campaign,” Thurston said. “We recently ran a VOD spot with FX that featured a sweepstakes and behind-the-scenes look at Rescue Me in 19 of our markets. We’ve not received all the results yet, but the data we have received has been very positive.”

Although the on-demand advertising business is growing, it’s still a toddler, Leitner said. And there are several hoops that must be jumped through before the business really takes off.

For one thing, programming networks and operators must come together and work out a fair and equitable revenue sharing plan. In the early days of VOD advertising, it was an all-or-nothing environment where one party took all the revenue from on-demand ads, Leitner said. “But the networks and cable operators now realize they need each other to make this work, and we’re seeing more cooperation so that everyone takes away something.”

Consumers need an incentive to not fast forward through VOD ads, according to Bernoff. “Every single person has their finger on the fast-forward button when they watch VOD programming,” he said. “Ads must be short and enticing to succeed in that environment.”

Which means advertisers must continue to be educated on the benefits and drawbacks of VOD advertising, Leitner said. Clearly, traditional 30-second TV spots won’t work in an on-demand environment, and the message and creation of on-demand ads must adapt with the flexibility of the platform, Thurston added.

MEASURING SUCCESS

The CAB is taking the lead on this issue. “We need to go into the ad community and educate the account services folks,” Leitner said. “They need a deep understanding of what VOD advertising is today and what’s to come down the road. They have to be able to think differently. It’s not rocket science, but when you do something new for the first time, it can be daunting. We need to take that element out of the mix for advertisers and agencies.”

Then there is the insertion of VOD ads and the measurement of their success. Several companies are working on these issues. Nielsen Media Research and Rentrak are working on ways to track on-demand ads. Rentrak’s AdEssentials program, for instance, will incorporate a number of transactional measurement tools and analytical capabilities so operators, networks and advertisers can measure the viewing and success of an ad.

Thurston maintains that while measurement and tracking issues need some refinement, “we already have more information on VOD in the two years we have been doing this than in 50 years on traditional television. Research is a positive opportunity we are already taking advantage of. We’re working on the audit and verification of VOD ads to perfect that loop.”

The way ads are inserted in video-on-demand programming is also morphing. Until recently, on demand ads were baked into the VOD content and lead times could take several weeks for ad insertion. That’s a problem for many advertisers who want to change ads on a more regular and timely basis. Comcast cut a deal earlier this year with Tandberg Television that will cut the lead time of ad insertion into on-demand ads down to about a week.

The Tandberg technology can also help solve some measurement issues by tracking ads, the company said. Other companies including SeaChange International Inc. are hot on the heels of rolling out dynamic digital insertion systems that will transform the way ads are placed on VOD platforms.

“When you break the ad apart from the programming, all kinds of possibilities exist for the advertiser, network and operator,” SeaChange director of advanced advertising Terri Swartz said. By separating ad assets from program assets, she said, advertisers can track viewer behavior and determine whether users watched the ad, watched a portion of it or skipped it altogether.

CHANGE OF NAME

To provide better experiences for advertisers and viewers, Comcast Spotlight in March changed the name of the platform that houses its on-demand advertising products to Comcast Searchlight. The platform features four ways for advertisers to reach consumers and viewers to access VOD ads. Viewers must still hit a button on their remote controls several times to reach the ad they want. But at some point in the next year or two technology should be in place allowing customers to make one or two clicks to reach ads.

Comcast Searchlight’s “feature” option showcases single pieces of content between two and 30 minutes in length. Most segments are between two and five minutes long, Thurston said. The Chase ads are an example of this type of advertising.

The “showcase” option gives advertisers their own space on the VOD platform. For instance, GM, which started out featuring 14 of its models in 10 markets, has expanded its offerings to include all of Comcast’s 80 markets with over 50 on-demand ads.

Thurston is very excited about Comcast’s “dynamic publishing platform,” which is allowing the operator to tap into the lucrative classified ad arena. The DPP platform is broken down into four categories today: automotive, real estate, retail and jobs.

“We’re rolling out real estate, automotive and jobs in our top 20 markets now,” Thurston said. “We’re very excited about the retail aspect of this. We’re going after the Sunday circular business, which is a $48-billion business today. We expect to get a big chunk of that business. The response for DPP has been through the roof.”

The last form of advertising available on Comcast systems today are “sponsorships,” such as the Gatorade deal on exercisetv. And Ford recently sponsored AMC’s Western miniseries hit Broken Trail in six Comcast markets, Thurston said.

At this point, the feature and showcase options are the most popular with advertisers, Thurston said. But he’s perhaps the most excited about the potential of the classified ad area.

“Classified ads open up a whole horizon for us,” he said. “It allows us to get into that very lucrative newspaper space. Until now, we have competed with broadcasters for ad dollars. Now we can go after a whole new area. It’s very promising.”

The VOD advertising model may still be young and underdeveloped, but Leitner believes that the time it takes to get to reach the next level with on-demand advertising will take much less time than it did to go from infancy to toddler stage.

“The rate of success for this business will be much faster than it has been in the past,” he said. “The name of the game is being relevant to consumers, and this technology does exactly that.”

September