Cable Operators

On-Demand Ads Slip Into Content’s Clothing

3/30/2007 8:00 PM Eastern

When is a TV ad not really an ad? When it’s cleverly dressed up as entertainment — or as an instructional or informational video.

“It’s like we’re back to the 1950s where marketers are sponsoring and creating TV content,” said Expo TV president Bill Hildebolt.

A growing number of video-on-demand programmers are employing the art of weaving promotional messages, including product placement, into their content. Meanwhile, cable operators are trying to expand the reach of their advertisers’ longer-form, on-demand “showcases” that provide detailed product demos, rather than hard-selling pitches.

The goal: to break VOD advertising out of the traditional 15- or 30-second television spot format and take advantage of the interactive attributes of the platform.

Such integrated sponsorships can provide “an immersive brand experience,” said Hildebolt. “We’re creating new types of inventory for marketers to exploit.”

Expo TV, which launched in October 2004, basically provides on-demand infomercials. The New York-based firm delivers 20 hours of content, refreshed every two weeks, to 25 million households on Comcast, Time Warner Cable, Charter Communications and Insight Communications systems.

About 80% of Expo’s content is sponsored by direct-response TV marketing mainstays like Bowflex home gyms, Oreck vacuums, and the Miracle Blade III knife set “presented by Chef Tony.” The rest of its lineup is original content, including user-generated product reviews picked from among 40,000 videos uploaded to its Web site.

But why would viewers seek out infomercials on VOD in the first place? Aren’t consumers averse to getting ad pitches?

“Product research is the No. 1 thing to do on the Net, and it’s nowhere on TV,” Expo TV CEO Daphne Kwon said. “All you have are 30-second commercials that are trying to be funny to get you to remember them. You can’t do anything in 30 seconds except get somebody to remember your name.”

Video for the Masses
VOD penetration in the U.S. as a percentage of households
SOURCE: Multichannel News research
2005 21.4%
2006 26.2%
2007* 30.6%
2008* 34.5%
2009* 38.4%
2010* 42.0%
* Projected

FAST-FORWARD PROOF?

You can count Jake Steinfeld, of Body by Jake fame, among the believers in the idea that ads in on-demand programming must be threaded into the content itself.

Steinfeld’s Comcast-backed ExerciseTV provides more than 200 on-demand workout sessions, including yoga and weight training. The venture has just two core advertisers: New Balance Athletic Shoe (which is also an investor) and The Gatorade Co., which promotes its namesake sports drink brand along with its Propel Fitness Water line.

The network reaches 22 million homes, providing 23 to 50 hours of content to Comcast, Time Warner Cable and Cox Communications. In January 2007, ExerciseTV had 4.7 million views. “On-demand was born for fitness videos,” Steinfeld said.

Product placements and sponsors’ logos pop up throughout the workouts. For example, in the middle of a sports-training video, there may be a hydration tip sponsored by Gatorade. In other cases, the video instructor takes a break and takes a swig of Propel.

That embedded approach pays off with better brand recall than traditional ads, Steinfeld claimed. “A, that can’t be TiVo-ed out, and b, the consumer won’t feel like they’re getting humped,” he said. By that, he means the marketing pitch is naturally integrated into the segments instead of being a more conspicuous stand-alone ad.

The strategy behind having a limited number of advertisers is to ensure the service isn’t cluttered. “It’s like selling naming rights,” Steinfeld said. “It’s a different approach than just selling fifteens [15-second ad spots].” ExerciseTV emphasizes with its partners that it can “create programming with you, to make it more effective,” Steinfeld added.

Steinfeld isn’t very high on preroll or post-roll ads — brief commercials that run on either side of a piece of VOD content — or viewer-initiated ads. “Some on-demand services have a button you can push to watch an ad, but I don’t want to take that chance with my marketing partners.”

City On Demand is also pursuing the sponsor-driven content model. The small programmer is a partner with Time Out Group, which produces entertainment magazines and travel guides for 10 U.S. cities. The duo’s first channel, Time Out New York On Demand, has carriage on Time Warner systems in New York and New Jersey, covering about 1 million households.

Eric Levin, City On Demand’s president and co-founder, said his five-person company’s business model is different from when it launched about a year ago.

A big barrier for on-demand advertising, he said, is that the technical process of getting ads paired with content is cumbersome. Advertisers and operators are still waiting for “dynamic” VOD ad-insertion technologies to be widely adopted, which will allow spots to be changed out virtually instantaneously. Today it takes as long as six weeks to get an ad sold and placed into VOD content. (“Ops Look to 'Playlists’ To Unlock Ad Potential,” Feb. 12, 2007, page 16.)

“VOD today doesn’t have automated ad-insertion, so the world of one- to two-week campaigns doesn’t exist,” Levin said. “That means we’re in the business of relationships. It’s not about shoehorning in 100 advertisers. It’s about your audience in total and finding the right brand fits and in many ways customizing each deal.”

For Levin, there’s another problem in placing traditional TV ads in front of VOD programs: “Each piece of our content is two minutes long. So we’ll never put 30-second ads in front of that —it would just be a disappointing experience.”

SNAPPLE TV

So, in a new revenue stream for City On Demand, the company is developing customized segments that incorporate an advertiser’s logo and marketing messages. Initially, it has teamed up with juice-maker Snapple Beverage, which is sponsoring six three-minute segments themed around different experiences in New York City.

“We literally sat down with Snapple and their ad agency and talked about how we can jointly produce entertainment segments that deliver on their message,” Levin said. “It’s about creating messages that can last several months, as opposed to several weeks.”

The Snapple segments, which Levin said will last at least six months, will be marked under a separate category, like “Snapple’s New York,” on the Time Out New York On Demand channel. The sponsor’s message takes various forms: the microphone held by each segment’s host is wrapped with the Snapple logo; a graphical overlay of the logo is inserted at strategic points.

“These aren’t commercials,” Levin said. “It’s like American Idol being sponsored by Coke with the Coke-branded couch. It’s brands that are responsibly integrated into entertainment.”

Cablevision Systems’ Rainbow Media Holdings is also getting into the action with its own VOD networks. The programmer’s on-demand channels, Sportskool and Lifeskool (which, until February, was called Mag Rack), offer an array of instructional and how-to videos.

In March, Rainbow Media announced a deal with Jeep to promote the 2007 Jeep Patriot compact sports-utility vehicle on Sportskool. Jeep Patriot will be the sole sponsor of a new programming block, called “Action Sportskool,” which includes the original series Skateboarding with Mike V, Skiing with Bode Miller and other content.

The Jeep Patriot will be branded throughout the VOD content with show graphics, branded pop-ups and pointers to jeep.com. In addition, the SUV will also be integrated into a series of four short films created by Sportskool featuring pro skateboarder Mike V.

“We’re looking for longer-flight, uncluttered deals — that’s what advertisers are looking for,” said Phil Summers, vice president of integrated sales and marketing for Sportskool and Lifeskool.

The Jeep deal is the first of its kind for Rainbow Media, but the company is planning to use the approach sparingly. “We’re trying to do that where it makes sense, where the voice of the network is clear,” Summers said. “Jeep didn’t want this product hitting young adults over the head. This product has an anti-advertising feel.”

The main goal for Sportskool, Lifeskool and any other ’skool that comes along will continue to be producing high-quality content, said Dan Ronayne, executive vice president and general manager of Rainbow’s on-demand properties.

“The first thing we do is think about the viewer,” he said. “The content has to be very engaging, because all the control is in the viewer’s hand — they can hit stop and move on to something else.”

DRIVING INTERACTIVITY

None of this is to suggest preroll or post-roll VOD ads are falling from favor. Advertisers often like to place their traditional 15- or 30-second spots with on-demand content because they’ve already spent money creating them for linear TV.

But cable operators, like content producers, are looking to provide longer-form marketing opportunities under their on-demand umbrellas.

“Media buyers are really looking at long-form video advertising, because they have a captive audience that’s engaged and interested,” said Charlie Lougheed, president of Everstream, a division of Concurrent Computer that sells VOD usage-tracking software.

The drive toward advertiser VOD showcases, however, also comes partly because of the existing limitations on placing ads into on-demand content.

“We’re looking at categories that have long-form [ads], frankly, because I don’t have a lot of inventory to sell for short-form ads,” said Todd Stewart, Charter Communications’ vice president of national ad sales and development. “Not being able to insert ads on the fly means we have to find other ways to drive revenue.”

Charter in February wrapped up what is considered the largest dynamic VOD ad trial to date, in its St. Louis market. Ads from Allstate and Sears were rotated into content on two free on-demand channels, from Vehix TV and Hollywood Media. “We technically proved it’s possible,” Stewart said.

But until dynamic VOD ads see wider action, Charter is exploring new on-demand advertising deals. One example: Breaking up the paid content from its linear real-estate channels — video listings bought by local brokers — into VOD segments organized by price range and neighborhood.

“We can break a four-hour block of programming into 30 chunks, just like in DVD chapters,” Stewart said. “We’re looking to make it more functional for viewers because if it’s useful, people will come and use it.”

Charter has started to offer the supplemental on-demand real-estate listings in Birmingham, Ala., and Los Angeles systems, either as an upsell or “value-add” for advertisers.

Time Warner Cable of New York City has already started linking to the VOD showcases of General Motors, GE and Warner Bros. Studios from linear TV spots. Starting last fall, those advertisers’ traditional 30-second spots, running in Time Warner Cable’s advertising inventory on about 30 cable networks, provided interactive overlays that viewers can click on using their remotes to go directly to an on-demand section.

For example, Time Warner’s Movie Trailers On Demand channel includes GE’s “Imagination Theater,” a series of short films intended to “engage consumers with its brand.” GM’s VOD showcase, meanwhile, has about 60 different pieces of video, including profiles of new car models and test-drive segments.

For its part, Comcast will begin testing interactive promotions in mid-2007 that link to long-form on-demand advertising, said Warren Schlichting, vice president of new business strategies at Comcast Spotlight.

“The dream has always been that we’d be able to have short spots that could telescope you to a longer-form showcase,” Schlichting said. “Selfishly speaking, once we sell the showcase, we want all roads to lead there”— from linear ads, from VOD content, and from ads on the program guide. Once those dots are connected, he continued, advertisers will have a greater incentive to put more high-quality material on the VOD platform.

For operators, there’s also a competitive urgency to build such interactive hooks into on-demand platforms: HealthiNation CEO Raj Amin said cable will need to enhance VOD’s interactive capabilities if it expects to keep up with the broadband video world.

HealthiNation, which provides about 10 hours of health-related informational segments of eight to 15 minutes each, has cable distribution with Bresnan Communications, Cox, Insight and Comcast’s Northeast region. All told, it currently is available in 3 million VOD households, increasing to 5 million in the next few months.

“Advertisers are really excited about the transactional nature of VOD,” said Amin, such as letting a subscriber request additional product information through the mail or even making a purchase. But today, such interactive-advertising features are available only sporadically in certain individual systems, rather than across the entire footprint of video-on-demand households.

“It’s very important as VOD continues to keep its premium position in the living room, to develop those interactive TV capabilities to keep up,” Amin added. “Broadband video has really caught up.”

HealthiNation inked a deal in March to provide video clips to Yahoo’s Health section. Amin said his company, founded in April 2005, had accelerated the launch of its broadband offering by eight months because of increasing demand.

While Amin conceded that “your reach is still limited on VOD no matter how widely you’re distributed,” he said on-demand provides advertisers the opportunity to reach target audiences in a more receptive “lean-back” mode on a TV as opposed to a “lean-forward” one online.

“VOD isn’t about number of impressions. It’s about engagement,” he said. “The right advertisers clearly understand that.”

September