News

Kraft Not Alone Cooking Up Addressable Ads

5/03/1998 8:00 PM Eastern

Every time an announcement goes out about big shipments of
digital set-top boxes heading to the major MSOs, executives involved in the addressable
advertising field are heartened. The more widespread those boxes become, the closer they
come to their dream of targeting commercials more precisely than ever to consumers.

Active discussions regarding at least four possible U.S.
testbeds and one in Europe began last December, after the Addressable Advertising
Coalition's second annual summit meeting (attended by 110 executives from advertising
and media), said Peter Harris, senior vice president of marketing for Next Century Media
Inc.; Harris was an AAC co-founder two years ago, while at Nissan Motor Corp. He declined
to identify any of the potential participants and was unavailable to comment on whether
anything further had since been developed regarding the addressable tests in the U.S.

But Next Century has announced that The Media Partnership,
a European media-buying consortium, is joining its addressable tests planned for France,
Germany and the United Kingdom. The consortium's members include BBDO, DDB Needham,
J. Walter Thompson Co. and Ogilvy & Mather.

Your Choice TV, whose time-shifted programming is now
available in 15 markets, will soon be moving into its next phase, offering so-called
"feeder channels" containing addressable commercials, said John McOskey, the
company's senior vice president for operations.

The company hopes to begin "test-bed situations"
involving unspecified advertisers that will "target a couple of thousand
[susbscribers] somewhere in the third quarter," added Art Cohen, vice president of
advertising for Your Choice, a division of Discovery Communications Inc.

First, YCTV will complete a technical trial in a single
unidentified market. Although the MSO involved is pressing for more than one, McOskey said
YCTV prefers to move cautiously. Tele-Communications Inc., Comcast Cable Communications,
Cox Communications Inc. and Cablevision Systems Corp. have been clearing YCTV on many of
their systems, and McOskey said the technical trial will involve one of those MSOs.

Later, YCTV hopes to have "everybody we can get"
involved in the subsequent market trials, he said. Some of its test situations are
"in common" with those mentioned by the coalition, he noted.

Bill Harvey, president and CEO of Next Century, has said he
would like to use some of the expanded channel capacity that'll come with the digital
boxes for these "feeder channels." Viewers watching programs would, during
commercial breaks, be switched to feeder channels to view addressable spots, then be
returned seamlessly to their shows afterward, he said.

Meanwhile, TCI, National Cable Communications, Kraft Foods
and Grey Advertising last February announced their own long-term multimillion-dollar,
micro-targeting alliance, involving cable time buys that eventually will lead to truly
household-addressable spots. That phase, however, is probably "a year or two
away," according to NCC chief operating officer John Sawhill.

Jerry Machovina, senior vice president of ad sales at TCI
Media Services, has been busy pitching "a select group" of other major
advertisers as well on going addressable, in at least six categories, ranging from beer to
fast food to financial. TCI is "real close" to signing four of those, he said
last week, citing accounts in automotive, retail and telecommunications.

Procter & Gamble Co. and General Motors Corp.
undoubtedly are among TCI's targets, since everyone from Leonard Matthews to Burt
Manning cites their strong interest in addressability. Matthews, chairman of Next Century
and a former president and CEO of the American Association of Advertising Agencies,
singled out P&G and GM at the December summit, as did Manning, chairman of J. Walter
Thompson Co., though neither indicated whether the companies have acted on that interest.

YCTV's Cohen, however, said that he has begun talks
with Grey Advertising, which handles both P&G and Kraft, as well as with GM and
American Home Products. He argued that YCTV is "probably the only realistic venue for
addressable advertising right now."

Harris and other members of the coalition like to talk
about addressability as a "win-win situation" for all involved.

Cable operators should be able to command higher CPMs
(cost-per-thousand homes) for their more targeted addressable-subscriber households, in
much the same way that women's fashion magazines garner double the CPMs of the more
general women's books, they said.

Advertisers that are typically hesitant to buy into
anything new, especially something reaching a small number of homes, should get involved
in addressable tests to learn more, said Next Century's Harvey -- also an AAC founder
-- as well as to secure a foothold in a new medium the way Anheuser-Busch Cos. Inc. did
when ESPN first began.

And consumers will likely pay more attention to addressable
spots, and deem them less intrusive, since the spots will presumably be more relevant to
their lifestyles and needs, according to the idea's backers.

Cohen likes to describe YCTV viewers' ability to
time-shift TV and cable network programs they've missed as "advertiser-supported
pay-per-view."

Western International Media, Young & Rubicam and
Messner Vettere Berger McNamee Schmetterer-EuroRSCG are the first ad-agency buyers to
agree to participate in YCTV's addressable ad initiative. YCTV executives have said
they hope to reach 5 million cable homes by year's end.

Cohen and Y&R executive vice president Bob Igiel
believe that addressable ads combine the best of two worlds -- TV's full motion and
sound with direct mail's targetability. YCTV prospects at Y&R include AT&T
Corp. and the U.S. Army; Cohen left AT&T last year to join YCTV.

Next Century's Harvey and Harris have said that
addressable subscribers' interests could be determined by using the set-top boxes to
have them answer on-screen questionnaires and also by simply tracking their requests for
product information.

Despite Next Century's and YCTV's plans for
feeder channels, some cable executives are not convinced that that's the way to go.
They would prefer using many of those additional channels for more pay-per-view. But
Harvey said his research has shown that there are only so many hit movies available to PPV
and that, at a certain number of channels (which he didn't specify), the revenue
return starts to drop off. Feeder channels thus would offset that PPV revenue slippage, in
his view.

Some skepitcal operators, however, have suggested that
Harvey research whether there could be a similar fall-off in ad revenues beyond a certain
number of feeder channels. Harvey agreed that there's a need to conduct tests to
answer such concerns.

Last December, several MSO sales executives seemed cool to
the coalition. Some predicted addressable advertising wouldn't happen for "four
or five years." Others like Kevin Barry, vice president of local ad sales at the
Cabletelevision Advertising Bureau, have cautioned that MSOs would be hard-pressed to cope
with such precise targeting, since it'll multiply -- by about 10 times -- the number
of spots to be invoiced, scheduled, zoned, run and verified.

Such talk is not cooling agencies' interest. Coalition
summit attendees also saw 1996 video clips from such supporters as Arnie Semsky, executive
vice president, BBDO Worldwide, who noted that fast-food franchises tend to generate the
bulk of their business within a three-mile radius of their location. Now that Semsky is
due to leave BBDO by year's end, does Steve Grubbs, another BBDO media executive vice
president, share his enthusiasm for addressable ads?

Grubbs said, "We support Bill Harvey's
group," but added that he is not yet involved in addressable advertising. When asked
if TCI or YCTV had yet pitched BBDO, he said they had not, noting, "I think it's
still too early."

JWT's Manning has told the coalition that "there
are questions to answer, challenges to be met, investments to be made." Moreover, he
warned, "The unkept promise of interactive TV, and the disappointment with the
interactive TV trials, inevitably affects how advertisers and agencies respond to any new
promises in the interactive arena."

Then there's the issue of cost.

"Addressable advertising, like personal door-to-door
selling, does cost more per-thousand than conventional advertising. Most clients and
agencies aren't used to that," Manning said.

And there's risk for the MSOs too, he added, saying,
"To put digital set-top boxes on everybody's TV set will certainly require
substantial investment." But, Manning concluded, the risks are worth taking.

A key reason is that, as Mike Drexler, chairman of TN Media
Inc., told a past coalition meeting, the time's coming when marketers will be able to
pinpoint messages, one on one, to individuals within households.

And what Don Miceli, Kraft's vice president of media
services, calls "one-to-one communications" is the ultimate goal of the
Kraft/TCI agreement.

"I would not qualify this as an addressable test at
this point," said Alec Gerster, executive vice president and director of media
services at Grey Advertising, when the agreement was first announced in February.
"Our goal ... is ultimately to be able to deliver one message to the cook in the
kitchen and another to the family in the den."

But that will have to wait until the technology is
available.

"Near-term, this will involve geo-demographic
targeting," Gerster said.

For instance, as the participants explained at the time,
the No. 1 food advertiser could target different spots to urban and suburban markets
within the same region, much as Kraft already does with its direct mailings.

Machovina expects TCI agreements enabling other marketers
to follow Kraft's lead, "in the next month or so."

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