Cable Operators

Ops Look to 'Playlists’ To Unlock Ad Potential

2/09/2007 7:00 PM Eastern

To Paul Woidke, vice president of technology for the Comcast Spotlight advertising unit, the way ads are packaged with free on-demand content today is like stitching together two sheets of metal with steel thread.

The two elements are inextricably fused together: “That ad has to stay with that content for the rest of its life,” he said.

Want to place a new ad? That whole stitching process has to be repeated. Today it takes at least two weeks, and sometimes as long as six, from the time an ad is sold to when it shows up in a subscriber’s home.

“There’s money changing hands in VOD advertising. If you’ve seen free on-demand, you’ve seen ads,” said Braxton Jarratt, senior vice president of marketing and business development at video-processing equipment vendor Tandberg Television.

But often, he said, the same ad stays in rotation for three months, and “that has a limited appeal to most advertisers.”

Now, Comcast and other operators are kicking the tires on technologies — referred to as “playlisting” or “dynamic ad insertion” — that are more like using Velcro to affix ads onto VOD content.

That will shave the lead-time needed to place such ads from weeks to as little as a few hours, and open the category to more time-sensitive campaigns, such as, say, a retailer’s this-weekend-only sales promotion.

Moreover, dynamic VOD ads will help track actual commercial views much better than in the past, and eventually let advertisers target individual viewers based on demographic or other information.

The increased flexibility of dynamic ad insertion will uncork the potential of nonlinear advertising, National Cable Communications senior vice president of advanced media sales Matt Timothy said. The New York-based company, a joint venture of Comcast, Cox Communications and Time Warner Cable, sells spot advertising on behalf of cable operators.

Dynamic on-demand advertising is “something that everybody on the sell side of the industry wants to do,” Timothy said. “Every sales manager would like to have this in their quiver. But it just takes time to get in place.”

The bottom line: By making the process of buying and selling VOD ads easier and more efficient, cable hopes to expand the market.

DOLLARS ON THE TABLE

There’s a feeling that the industry is leaving millions of advertising dollars on the table, an issue that will grow more acute as Internet video sites start to grab more ad dollars.

“This is an opportunity that’s the cable operator’s to lose, because the highest-impact advertising is in the passive, lean-back mode in the living room,” said Scott Ferris, senior vice president and general manager of emerging media for advertising-management software vendor Atlas. “There’s absolutely high demand on the advertiser and agency front for this.”

Research firm Parks Associates estimates that on-demand advertising will grow from $132 million at the end of 2006, to $433 million by year-end 2010. That’s well under projections for broadband TV ads: In 2007, for example, eMarketer expects spending on Internet video advertising will total $775 million, which itself is just 4% of overall U.S. online ad spending projected for the year.

Broadband TV plays are “already sucking a lot of oxygen out of the room,” Woidke said.

But he thinks that once cable gets its ducks in a row — and can offer ad placement across a large number of VOD households — the industry will prove its value. “I don’t think [online video sites] can get to a broad, national footprint, which is critical to major advertisers,” Woidke said.

A big part of the drive toward ad-supported VOD is that it helps distinguish cable from its rivals, particularly direct-broadcast satellite operators.

“VOD remains the single biggest differentiation between cable and DBS,” said Marc Tayer, senior vice president of marketing and business development for Imagine Communications, a startup whose products are designed to more efficiently deliver on-demand streams. “The DBS on-demand stuff is pseudo-VOD at best.”

CRAWLING AHEAD

For now, it’s safe to say dynamic VOD ads are in the experimental stage. Or, if you’re partial to the crawl-walk-run metaphor, cable is just starting to creep forward on this front.

Operators and VOD technology suppliers basically had to “start from scratch” when they wanted to come up with a technical solution to the problem of dynamically inserting ads into on-demand programming, Tandberg’s Jarratt said.

“At first, people thought, 'This can’t be very hard. We’re doing local ad insertion with linear,’ ” he said.

The problem is, VOD is a completely different beast: Every single viewer is watching a unique programming stream. Assuming 10% on-demand utilization rate, a standard industry rule of thumb, a system with 100,000 subscribers would be serving as many as 10,000 different programs at any given time during peak times, eliminating the ability to do time-based ad insertion as it’s done for linear TV.

Technically, video-on-demand ads look “more like Internet advertising,” Jarratt said, with an intelligent ad-serving capability that manages the whole process from start to finish.

The technology has finally come together to make such a system real. In late October, Charter Communications initiated a trial in its home market of St. Louis to insert playlisted video ads from Sears and Allstate into two free on-demand channels, from Vehix TV and Hollywood Media. That trial, which was set to run through the end of January, has been one of the biggest to date, available to 250,000 subscribers in the market.

Charter’s deployment fuses together components from multiple vendors: VOD “pumps,” the servers that play the video, from C-COR; video encoders from Harmonic; automated campaign-management tools from Atlas; and TVN Entertainment’s ad-distribution system.

Comcast, meanwhile, is readying a similar trial in the middle of 2007, with the operator expecting full deployment next year.

Step one for Woidke is to ensure the pieces of the infrastructure all sing together in harmony. Comcast is deploying Tandberg Television’s AdPoint system, which manages and places ads in on-demand content. The operator also uses VOD pumps from Concurrent Computer and SeaChange International.

Video-on-demand programming must be marked with metadata (information about the content) so the server responsible for delivering the appropriate spots can insert a specific ad before the main program runs, and one after it. Then, the VOD system must serve up that “playlist” in sequence with none of the seams showing.

“This has to happen without it appearing that there are three different pieces of content — you want it to look like linear TV,” Woidke said.

But, he added: “I don’t think any of these things are barriers. They’re things that are being worked out technologically at this point.” For example, Charter said it has already fixed an issue with a brief flash that was visible when its system spliced an ad in front of a piece of content.

LET’S MAKE A DEAL

The technical side is one thing. A possibly more dicey part of the equation to be worked out is that operators and programmers will have to agree on how this particular pie will be sliced.

To provide VOD placement in national avails, “the big networks would say they’re waiting for cable to open it up,” said Jarratt. “They aren’t able to do that yet because you have to reach an agreement with the cable operator about how it works, who does it and who pays for it.”

Several options are on the table for how such deals might work, he said, including programmers and operators splitting ad revenue, trading content or divvying up avails, or perhaps an operator charging an ad-placement fee.

“The sooner the operators and programmers have a standard way to do this, the sooner they’ll see that money go to VOD,” Jarratt said.

Atlas’ Ferris said dynamic VOD advertising changes the nature of the relationship between programmer and operator.

“This is the first time a cable network has to turn to a cable operator and ask them to do something for them,” he said. “Dynamic ad insertion now has the cable network turning to the operator saying, 'I just sold XYZ advertiser. Would you allow that advertiser to dynamically insert the ad into this avail?’ ”

Adding another complicating wrinkle, those negotiations over video on demand will inevitably get wrapped up with the bigger deals on linear channels. “These are big economic negotiations,” Ferris said.

And while a lot of advertisers are eager to exploit dynamic VOD ads, “they don’t want to pay for it,” Insight Communications senior vice president of advertising Kevin Dowell said. “They want to get it for free.”

It’s also something of a chicken-and-egg problem, because before an advertiser makes a big buy for dynamic VOD ads, the on-demand infrastructure must be widely available to carry out such agreements. Woidke sees making the infrastructure ubiquitous as the key factor.

“If you can do this only in Chicago, that’s nice for Chicago,” he said. “But if you’re Kraft or Procter & Gamble, you are trying to equate this to television households.”

NCC’s Timothy said his company is “taking a ground-up view” to figuring out how to create the back-office system and business processes to handle dynamic VOD advertising on a national basis. “One of the important roles for us is to facilitate the activity of larger regional and national advertisers,” he said.

Some operators are waiting to see how these issues play out before diving into dynamic VOD ads in any concerted way.

“Like other problems, we’ll find a solution,” said Pragash Pillai, vice president strategic engineering at Purchase, N.Y.-based cable operator Bresnan Communications. “Right now we’re sitting back and watching what Charter and others are doing.”

Meanwhile, others are pursuing new forms of on-demand advertising without going the dynamic-insertion route.

Insight, which has systems in four Midwestern states, is testing contextual advertising placed on the menus of the free video-on-demand channels offered to its Covington, Ky., subscribers.

Called Ingage, the service provides placement of what Insight calls “badges” — the equivalent of Web banner ads — next to relevant free on-demand content from various providers including DriverTV and Healthi Nation. When a viewer clicks on the badge, the service launches a video segment that’s several minutes long, not a 30-second ad repurposed from linear.

Insight’s Dowell said that unlike ads that are either hard-coded with a video-on-demand program or dynamically inserted into the stream, the Ingage ads aren’t intrusive.

With the Ingage platform, which Insight developed with SeaChange International, the operator is selling only advertising that is directly relevant to the VOD content. “You’re not going to see a Michelob commercial next to a segment about breast cancer,” he said. “Our theory is that by placing relevant ads next to relevant content, that will increase opt-in.”

September