Marketing

Cover Story: Testing VOD's Mettle

3/22/2009 2:00 AM Eastern

Sure Mötley Crüe can rock, but can they sell interactive ads?

The owners of Mag Rack Entertainment, Joe Covey and Matthew Davidge, want to add interactive advertising to their video-on-demand networks without waiting for new cable TV technology to do so.

Their plan: use viewers' cell phones as the interactive bridge.

To kick-start the plan, Mag Rack formed a marketing alliance with “Crüe Fest 2: The White Trash Circus,” the summer 2009 tour headlined by heavy-metal rockers Mötley Crüe and supported by such bands as Godsmack, Drowning Pool and Theory of a Deadman.

Last summer's Crüe Fest, with reported gross intake of $16.6 million, was the top rock tour last year.

Testing VODStarting March 25, cable and satellite viewers watching a Mötley Crüe concert video from 2008 on Mag Rack's free-basic VOD outlet Concert.tv will see a message prompting them to text-message ROCK CRUE to a five-digit phone number (70734).

The message enters the sender in a drawing for Crüe Fest 2 tickets, and a clickable link on the return message connects the Web-enabled phone user with content like Mötley Crüe trivia questions. The number also enters a database for possible marketing later by the band or Concert.tv.

“By adding SMS calls-to-action we can go a little way to making television more interactive but a very long way to connecting the consumers to the content they're watching,” Davidge said.

The plan is one of a variety of efforts by cable operators and TV firms to harness the popularity of VOD with genuine revenue-generating ideas and businesses. Interactive advertising is a natural avenue for advertisers, since audiences are already paying to be in a particular viewing environment.

Crüe Fest 2 was announced at a press conference at the Fuse network's studio across from Madison Square Garden in New York City last Monday, to which band members Nikki Sixx, Vince Neil, Tommy Lee and Mick Mars arrived via ambulance, accompanied by models dressed like nurses. During Crüe Fest 2, they're performing the songs from Dr. Feelgood, on the album's 20th anniversary.

Crüe Fest 2 has lined up extensive media coverage, on Fuse, VH1 Classic, Palladia HD and HDNet on the cable-network front alone, according to Eric Sherman, a former cable-network executive who's consulting Mötley Crüe on the tour.

“What made Concert.tv's partnership different is that they're taking it a step further with interactivity, the texting function, which is something that we're very interested to pilot with them,” said Sherman, who's also consulting Mag Rack Entertainment.

Covey and Davidge bought Lifeskool — being renamed as Mag Rack, the brand it started out with when Cablevision Systems launched it in 2001 — last October, then bought Concert.tv in January. They wouldn't disclose the purchase terms or revenue, as a privately held firm.

They envision using text-back interactivity with Mag Rack shows, too. They currently include teaching program Guitar Xpress, magician-hosted Turning Tricks and Steve Schirripa's Hungry.

“What we want to do is connect the viewer with the content — whether it be a cooking show or a rock band — in one easy step,” Davidge said. “You're watching TV, you send a text, you're connected to the content.”

The Mag Rack Entertainment partners say they developed the underlying technology doing interactive experiments involving video, speech and text messaging at MTV Networks, for MTV's Beavis & Butt-head and VH1's Hogan Knows Best.

Davidge is a former management consultant, at MTV Networks and Cablevision and with Bain & Co., with a stint doing motion-picture sales and development in between.

He was working with Cablevision's Rainbow Media when Rainbow decided to sell the Lifeskool VOD businesses. He then stepped in with Covey, with whom he had worked on the MTVN projects, to buy Lifeskool. (Sportskool was sold to Grace Creek Media of Washington, D.C.)

Covey, a jazz pianist, is a venture capitalist, lately at Manhattan-based Milestone Venture Partners. Earlier, he ran early-stage technology firms and he said he wanted to return to an operating role.

Covey, 42, and Davidge, 44, work in a small office suite on West 57th Street in Manhattan, traveling frequently to advertising agencies, pitching their interactive VOD concept. They have nine employees, including themselves.

Covey said Mag Rack (Lifeskool) has solid distribution and affiliate revenue, and Concert.tv, with no affiliate revenue, has “a nice advertising business, even in this crazy, horrible economy.”

Mag Rack is scheduled to get a distribution bump this week, to 25 million homes, after being added to Comcast digital subscribers across the country, Davidge said. (A Comcast spokeswoman confirmed the imminent rollout last week.)

Other Mag Rack cable affiliates include Cablevision, Insight Communications, Mediacom Communications and some Time Warner Cable systems, as well as Verizon Communications's FiOS TV and AT&T U-verse. Concert.tv claims more than 25 million subscribers today, on Comcast, DirecTV, Charter, Cox, Insight, Mediacom and FiOS TV.

The businesses are profitable, Covey said. “But really the story with what we're doing is the interactive play.”

The benefit of adding text messages, also known as SMS (short message system), to an ad buy is it gets potential customers to spend more time with the content and really engage. So says Craig Woerz, managing partner at strategic advertising agency Media Storm, which works frequently with video clients and VOD.

“The bottom line is that we see entertainment multitasking way on the rise,” Woerz said. “Just in general, it's huge. People are essentially not just watching linear television, not watching on-demand television anymore. They're doing that while they're on the phone, while they're on the computer. We see as much as 70% overlap of these other activities while you're watching television,” depending on the network.

Consumers have shown that they are willing to interact with TV content, either via remote or SMS, said Rob Aksman, executive vice president of client management and experience design at agency BrightLine iTV.

He and Woerz (neither of whom has met with Mag Rack) both noted that VOD platforms on cable don't have the capability now of two-way interaction via remote.

“If it's relevant or entertaining in some way, people will respond or engage with the television and initiate that two-way dialogue,” Aksman said.

A viewer who interacts with a brand via SMS also is a customer who, if he or she opts in, can be marketed to again.

“In the case of Mag Rack, it's a great idea, because we have found that people do want to participate if it is part of their television experience,” Aksman said.

Covey said he and Davidge were drawn to these VOD businesses because they reach a large base of homes and because it's self-selected programming. They weren't overwhelmed by the interface consumers have to navigate through to get to the programming, though.

“The idea behind watching what you want to watch when you want to watch is certainly intuitive to everyone,” he said. “The actual embodiment is really in some cases pretty unpleasant.”

They also weren't about to wait for two-way interactivity to be something the cable operators add to VOD platforms. “They've got their own big plans, which will take many millenia,” Davidge said.

Enter the cell phone, the device that, as Woerz noted, is usually in the consumer's pocket or even hand while watching TV.

“We believe that we can go the final yards and actually connect the viewer to the content,” Davidge said. “That's where we can change the business model and we can add real value.”

VOD USE GROWING
The percentage of U.S. cable subscribers — about 39 million of whom have access to video-on-demand programming — who say they've used VOD has risen ...

SOURCE: Leichtman Research Group survey, summer 2008.
 VOD USE GROWING
The percentage of U.S. cable subscribers - about 39 million of whom have access to video-on-demand programming - who say they've used VOD has risen ...
2004 10%
2005 23%
2006 32%
2007 36%
2008 43%
... along with the percentage of digital-cable subscribers who say they've used VOD.
2004 25%
2005 50%
2006 60%
2007 58%
2008 68%

SOURCE: Rentrak OnDemand Essentials
 MUSIC RULES FOD
Music videos and kids' programming rank atop the categories of free on-demand viewing, which grew 36% in orders in 2008:
Music 27%
Kids 25%
TV Entertainment 15%
Free Movies 13%
The Cutting Edge 5%
March