Making VOD Pay for Basic Nets

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Video-on-demand services are available from every major cable operator, and will be approaching ubiquity in major markets over the next year. VOD is turning out to be the killer app the industry needs to win the battle with direct-broadcast satellite.

That’s the good news. Now the challenge: How can we supply subscriber-controlled on-demand with the best programming from ad-supported cable networks without loss of ad revenue?

The answers are right within our own industry. The networks are creating excellent programming to take advantage of the operators’ infrastructure, enabling on-demand programming. What is missing is the right business model to attract programming from the ad-supported networks to VOD.

Currently, ad-supported cable networks choose programming for VOD that doesn’t divert viewers from watching their best content played during the traditional telecasts from which their advertising revenue is generated. If these networks were to put their marquee programming on VOD, they could lose the ability to bill advertisers for those viewers, due to ad-skipping and the newness of VOD audience measurement. Subscription models have not been shown to provide enough compensation for lost ad revenue.

The solution: bring addressable advertising to VOD, allowing the cable networks and operators to gain significant new financial benefits. Through VOD’s ability to deliver addressable TV signals, cable networks can deliver advertising to individual households based on their known lifestyles.

Addressable ad vendors and their technologies, now being tested with digital ad insertion, can also be leveraged in the VOD environment. Skipping and fast-forwarding may also be disabled on VOD platforms, if desired, but that will come at a cost. These are the capabilities that customers like. Addressable ads should garner higher rates per impression, delivering relevant viewers to advertisers, much like direct mail. The value of a VOD ad, as measured on a CPM basis, could trend towards the $1,000 to $2,000 level received for direct mail, compared with $5 to $30 that network and local-cable ad sales generate.

Cable network and local operator ad-sales revenue could migrate from a combined $16 billion today towards the $45 billion earned by direct mail.

By putting more cable-network content on VOD satisfaction with digital cable will increase. Plus, VOD offers programming otherwise only available on DVRs.

Deploying VOD requires less capital than deploying DVRs. Cable operators receive a significant free cash flow benefit by attracting the best and latest cable network programming with addressable advertising capabilities on VOD.

Addressable advertising on VOD benefits advertisers, networks and local cable ad sales. Advertisers reach only those consumers who are likely to buy their product and therefore optimize their ad budgets. Ad-sales businesses will segment their inventory for the same programming based on viewer lifestyles and geography, and will sell the same program multiple times at higher rates due to the specificity of the audience lifestyles they can deliver.

Working cooperatively, cable operators, cable networks, advertisers and vendors have the ability to set goals to achieve the content and ad sales objectives — and the technologists can make the bits and bytes happen.

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