Forrester Bullish on Outlook for ITV Ads

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Despite the bearish general outlook for ad spending, Forrester Research Inc. has weighed in with a new report that's optimistic about the potential for interactive-advertising growth.

In "Cultivate Consumers with ITV Ads," a report released earlier this month, Forrester said 49 percent of survey respondents said they would allocate 1 percent to 2 percent of their television-advertising budgets on ITV in 2003. Twenty-three percent said they'd provide for such an outlay in 2001.

"Today's commercials fall on barren ground," Forrester noted in the report. "Assembled into predictable, ever-longer pods between ever-briefer program segments, TV's inflexible 30-second spots don't take root with enough consumers."

Other considerations will also drive ITV advertising's growth, in Forrester's view, including a projected upsurge in the use of personal video recorders (PVRs) and video-on-demand. Forrester estimated that PVR penetration could soar from 900,000 this year to 42 million by 2006.

"The average family with VOD services watches two ad-free movies a month," Forrester noted.

To offset those developments, Forrester suggested, "Leveraging interactive VOD, L.L. Bean could take viewers through a video catalog of well-dressed hikers."

The research firm based its conclusions on interviews with 35 of the top 65 advertisers that now use ITV advertising applications, such as enhanced commercials enabled by outside vendors (primarily Wink Communications Inc., with 5 million cable homes) or interactive program guides, mainly those from Gemstar-TV Guide International Inc.

Most of those surveyed were in the automotive (26 percent), packaged-goods (20 percent) and retail categories (14 percent), followed by media and financial services clients (9 percent each) and travel outfits (6 percent).

"Interviewees liked enhanced 30-second ads best because they leverage existing media with cheap-to-produce interactive overlays," Forrester noted in the report.

Still, respondents in the sample expressed annoyance about "primitive graphics and a lack of standards and … more flexible ad formats and payment structures."

Forrester's sample base was also bullish on projections for near-term ITV penetration, which is expected to reach 18 million homes in 2003, versus nearly 5 million this year. But evidently, it will take longer for ad spending to follow: Forrester projected that ITV ad volume will stay well under $1 billion until 2004, then approach $4 billion by 2006.

Forrester also noted that cost-per-thousand (CPM) rates for traditional television have soared at a rate greater than inflation, despite audience attrition.

"In 1990, broadcast networks charged an average CPM of $8.76 for primetime; by 2001, that figure had nearly doubled to $15.75," Forrester noted. It estimated the CPM for IPGs at "around $2.50."

On average, 1.6 percent of enabled households click on a Wink-enhanced spot; 0.6 percent of those users become leads, Forrester said. Automakers alone have notched 250,000 leads from November 2000 to August 2001, the firm noted.

"At $5,000 for the enhancement and $1.60 per lead, Wink is a bargain for advertisers in the auto, drug and financial sectors," Forrester said. (Some clients reported spending between $10,000 and $20,000 for such overlays.)

But advertisers in other categories see things differently. One packaged-goods executive complained: "The cost to deliver a coupon is too high. Maybe $1.60 per lead works for an automaker, but we need a different pricing structure."

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