Addressing Advertising's Future

1/04/2010 12:35 PM Eastern

If 2009 was a record year for video usage, it was a dismal one for the TV ad business.

Prospects are better for 2010, but not great in the years ahead, making efforts to create a viable business model based on a variety of devices critical to the future of TV advertising.

One example of that potential payoff can already be found at Cablevision Systems. Like many local cable operations, Cablevision's Rainbow Advertising Sales Corp. struggled in 2009, with third-quarter sales down 9%. “It has been a rough year, but Cablevision has consistently had the best local cable performance in the business and a lot of that has to do with the advanced advertising products we've launched,” said RASCO president and chief operating officer David Kline.

Those products include both interactive ads that allow consumers to request more information or coupons and an addressable advertising system that lets advertisers send different ads to different households based on their demographic profile.

“It marries the easy functionality and rich metrics they can get from the Internet with the big-screen experience of television that everyone agrees is still the most powerful form of advertising,” Kline said.

Next year, Cablevision plans to expand the addressable-advertising platform to its entire footprint and will launch a commerce system that will allow subscribers to view ads and then purchase products with a click of the remote.

“The distributors are deploying technologies that will have a very large impact on television advertising” by making it more efficient and accountable, said Starcom MediaVest Group senior vice president and innovations director Tracey Scheppach. “Advertisers want more of this addressability and accountability and I think we are going to wake up from this recession and see a whole burst of innovation. TV Everywhere is a fantastic opportunity to advance that.”

But a number of business-model issues need to be resolved. Traditionally, programmers have been reluctant to make all their highest-profile programs available online or on video on demand, fearing that would hurt ratings and ad revenues.

Cox Communications was able to overcome some of those fears by disabling the fast forward button on its “MyPrimetime VOD” offering, said vice president of video-product development Steve Necessary.

“It is a scenario where everyone wins,” Necessary said. “The consumer gets to access the content in a convenient way, and the programmers and advertisers win because their ads are viewed. We've had programmers who have seen gains in their ratings as a result.”

Given that success, a number of programmers would like to apply the same model to TV Everywhere, keeping the full ad load and disabling the fast-forward button for online video. Nielsen is currently in the process of expanding its panels so that online viewing will be included in the overall program ratings by Aug. 31, 2010.

Turner Broadcasting System chief research officer Jack Wakshlag said programmers want fast-forwarding disabled and the full ad load included because the current online video model of offering only limited ads isn't working. “YouTube and Hulu make up more than half of all video consumed online, yet the two of them have never made a profit,” he said.

A number of advertisers and analysts worry, however, that running the same ads online could irritate consumers and fail to deal with the existing problems of TV advertising. “This is why addressability is so important,” said Scheppach. “We need a process where the load is less but the payoff is greater.”

Coming to terms with these issues provides another reason why the Comcast NBC Universal deal is so important. “There are a lot of logjams that are going to have to be swept way and it is going to be a whole lot easier to do it if you own the content,” said Forrester Research vice president and principal analyst James McQuivey. “To me this is the number one reason to do the deal. It would be a very positive thing for the whole industry.”

Even so, negotiations won't be easy.

“Operator-programmer agreements have always been like nuclear-arms agreements based on mutual assured destruction,” said Horowitz Associates president Howard Horowitz. “Without the programmers, the operators have dark pipes and without the operators, the programmers have no way to get their content to the consumer.”

In recent years, there have been growing worries that programmers might jump ship and make more content available online. A deal for TV Everywhere could remove a threat to the détente that has been important for the multichannel-video industry. “Either the business falls apart or they can come together with some notion of TV Everywhere,” Horowitz said. “It's a big deal.”

Following The Ad Dollars
(Billions of $)

Year TV Advertising Growth%
SOURCE: MAGNA Global, 2010 Advertising Forecast, December 2009. Actual numbers for 2007 and 2008; estimates for 2009; projections for 2010 to 2015.


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