Marketing

VOD Advocates Face Tough Upfront Crowd

4/28/2006 8:00 PM Eastern

Like a much-hyped show touring the country before facing the Broadway critics, advocates of video-on-demand advertising will be facing a reality check when they arrive at this year’s upfront selling season in New York City.

No doubt, on-demand advertising comes to town with a lot of momentum, thanks to all the buzz generated at last month’s National Show in Atlanta. “Right now, there is phenomenal interest,” said Terri Swartz, director of advanced advertising at SeaChange International Inc. “The top MSOs are moving very quickly” to test and deploy dynamic ad insertion technologies that promise to boost VOD ad revenues by making it much easier to track and insert ads into on-demand content.

But it is not clear if the kudos from Atlanta will play well in Manhattan. While vendors of on-demand tools and some programmers are bullish, many ad sales executives doubt that on-demand advertising will finally take off in the 2006-2007 season.

“As we go into the upfronts, there is a lot of chatter about the importance of VOD advertising,” said David Kline, president and chief operating officer of Rainbow Advertising Sales Corp., who heads the sales efforts at Cablevision Systems Corp. and Rainbow Media Holdings Inc. “But the discussion is a little schizophrenic. There are not a lot of dollars or content out there. It will be an important part of the discussions but not a significant revenue generator.”

CABLEVISION PUSHING HARD

That doesn’t mean that Kline and other cable executives discount the importance of video on demand. Cablevision has, in fact, been pushing heavily into the area and has hired Barry Frey, as senior vice president of advanced platforms to spearhead the effort.

“We think VOD advertising is crucial to our future,” Kline said. He noted that the company has set up specific channels for auto and real estate advertisers with VOD content that are already pulling significant cash away from traditional print outlets because customers can use Cablevision’s interactive applications to request more information about products.

“We are getting a million page views a month,” at the sites, Kline explained. “We are sending thousands of real leads for customers to local advertisers. That’s something no other media can do.”

Larry Fischer, Time Warner Cable’s president advertising sales, agreed. The company’s sales division has set up sponsored on-demand areas for travel, music, autos and movies and is increasingly linking those efforts with interactive ads and applications.

“When you combine the engaged audience of VOD with advanced services [like including interactive TV that can generate concrete leads] you can offer advertisers something that is very compelling,” he said.

INTERACTIVE EDGE

This combination has paid off heavily in some rust belt areas of upstate New York served by Time Warner Cable systems that have deployed interactive tools and on-demand ad sales efforts.

“VOD and interactive ads have allowed us to achieve growth rates as strong or stronger than any other region of the company,” Fischer said. “We will be offering interactive advertising in New York before the end of the year to 1 million homes. I think that has the potential to make history.”

Robust demand for on-demand advertising can also be found at Discovery Networks U.S., Scripps Networks and Turner Entertainment, where sales executives report they’ve sold out their on-demand inventory at least through the third quarter.

“There is much stronger interest from advertisers in VOD and all emerging media,” said Andrew Snyder, vice president of new media at Discovery. Bundling buys on linear TV with video on demand, broadband, mobile and other media, he added, will be a major focus.

Chris Pizzurro, Turner Entertainment vice president of digital and new media advertising sales and marketing, agreed that bundled digital pitches, including video on demand, will be a major part of this May’s upfront selling season. He predicts that about 60% of the pitches they will make at this upfront will include various digital media, including on demand and the Internet, up from about 25% last year.

NEWER NETS BENEFIT

While VOD revenues remain a small part of the overall sales pie for big players like Discovery and Turner, they can offer newer networks significant cash. David Pantillo, national sales manager at NFL Network, said the National Football League-owned service’s extensive on-demand offerings are already producing “seven figures in revenues.”

Similar sentiments can be found at Music Choice. That service streams over 30 million music videos per month, more than any other on-demand programmer, said Christian Tancredi, senior vice president of marketing and advertising and sponsorship sales for Music Choice. “We think that VOD offers us the greatest opportunity for advertising growth,” she said.

Tancredi and others admit that a number of major problems limit the short term potential of video on demand.

“If you start from the premise that 2006-2007 will be the year for VOD advertising to take off, my answer is an unqualified no,” said Bruce Lefkowitz, Fox Cable Networks Group executive vice president of entertainment sales. “There are not enough impressions and avails to reach a scalable business.”

Doug Hurst, senior vice president of on demand and affiliate marketing at Scripps Networks agreed, even though his networks have been extremely successful in the on-demand sales sector. “The amount of VOD programming is limited by what they can put on the servers and that limits the inventory,” he said. “Broadband does not have those limitations. It is more flexible. There is better measurement and accountability.”

Not surprisingly, Internet and broadband video has been getting more hype going into the upfronts. “Broadband video is at a tipping point that VOD hasn’t reached,” Lefkowitz said.

A recent report from the media buying agency Magna Global tends to confirm that. It found that on-demand advertising amounted to a mere $50 million in 2005, far less than the $907 million spent on Internet ads in 1997, three years after Web ad models were first developed.

The difficulty of measuring usage of on-demand ads and the cumbersome process of inserting ads into on-demand content are the two biggest reasons many programmers and advertisers cite for the relatively slow growth of on-demand advertising versus the booming Internet ad sector that will top $13 billion in sales this year.

MEASURING SUCCESS

To improve measurement, major operators are working with Rentrak Corp. to collect data from set-top boxes on video-on-demand usage. But the data the operators have agreed to release remains relatively limited.

Rentrak senior vice president of OnDemand Essentials Cathy Hetzel admitted that “there have been a lot of ad dollars that have been moving to broadband and the Internet because it is so much more measurable.”

“It is an important competitive issue for cable,” said Joe Matarese, C-COR Inc. senior vice president of global technology. “Google may make $10 billion off of Internet advertising this year. The cable industry has to look at that money and wonder why it isn’t getting its share.”

INSERTION ORDER

Hetzel and other vendors argue that this money can be recaptured as the operators roll out dynamic ad insertion technology over the next year. These applications will allow ads to be inserted and refreshed daily or weekly — much faster than the 4 to 6 weeks today — and will produce data on whether the ads were actually viewed. Ultimately, dynamic insertion will allow advertisers to instantaneously insert ads each time a program is streamed and target those ads to specific regions or demographics.

“The problems that have limited VOD advertising will be solved this year and next,” said Braxton Jarratt, Tandberg Television senior vice president of marketing and business development.

Comcast has announced a series of trials using Tandberg’s dynamic ad insertion applications and executives at SeaChange International Inc., C-COR, Rentrak and Atlas On Demand said they are either about to begin trials or will start them by the third quarter of this year with their on-demand advertising products.

“The technology isn’t the issue,” said SeaChange’s Swartz. “It is ready and will be deployed faster than you think.”

THE RIGHT MODEL

A more perplexing issue maybe the business models that will support on-demand programming. Traditionally, networks have been unwilling to put their most popular shows on on-demand platforms, fearing that it would cannibalize the ratings on their linear channels.

Scott Ferris, senior vice president and general manager of Atlas On Demand, which provides a number of tools for advertisers to easily track and manage their video-on-demand campaigns, argues that economics will soon break this logjam.

“The networks are under huge pressure as the advertisers demand more accountability and move to on demand media,” he said. “Last year, Procter & Gamble [Co.] moved 5% of its broadcast budget and 25% cable network to the Internet. That’s why you are seeing a huge rush to the Internet and broadband video.”

In the short run, the ability to bundle 30-second spot sales with long form sponsored on-demand programming will be the biggest play for operators, said Todd Stewart, corporate vice president of national sales and development, at Charter Media.

“We are looking at an evolution, not a revolution,” he said. “VOD sponsored programming gives us an opportunity to extend the clients media plan beyond 15- and 30-second spots.”

RASCO’s Fry added, “By bundling VOD with linear spots you can drive people to longer form programming. Your 30-second spot can get you 20 minutes worth of involvement with long-form content.”

One example of that concept can be found in a recent Ford Motor Co. video-on-demand campaign that ran on Cablevision and Charter Communications Corp. It used 30-second spots to drive consumers to longer form content for the Ford Fusion and Ford Explorer.

Brian Bos, convergence director of JWT Detroit, says “the campaign dramatically increased the awareness of a new brand [Ford Fusion] and provided many leads to local dealers.”

COX AND WAL-MART

Similarly, Cox worked with Wal-Mart during the holidays to promote singer Jesse McCartney with a combination of 30-second spots and longer form content, explained Cox Media director of new media business development David Potter.

“It produced over 2.5 million streams and created a very valuable two-way interactive dialogue with customers,” he said.