When it comes to attracting new advertising revenue, many cable executives hope that the best thing in their sales lives will be free.
Ad-supported free video on demand, that is.
The idea of turning free on-demand programming into an advertising medium confounds the common perception of VOD technology as a threat to the established advertising model. Still, operators contend free VOD's advertising potential is solidly based on the medium's growing popularity with viewers.
There's also a welcome side effect: Comcast On Demand vice president and general manager Page Thompson noted that his company's rapidly expanding free VOD programming has helped reduced churn by 20% to 30% while increasing the spending on pay VOD.
What's more, the demand for free VOD programming has also exploded. In May of 2005, Comcast Corp.'s subscribers watched about 106.9 million programs, up from 21.4 million views in December of 2003.
“I believe that the expansion of free VOD has been the whole secret to the success we've had with VOD,” Thompson said. “But to get to the next level, we will have to develop a solid advertising business.”
A solid free-VOD advertising model would allow programmers and operators to develop new revenue lines to fund programming without having to raise cable charges in a highly competitive marketplace. New research data collected from digital set-top boxes would also allow advertisers to craft extremely targeted media campaigns using specific VOD programs.
“The potential [for advertisers, programmers and operators] makes advertising a very exciting component of the on-demand business,” said Charter Communications Inc. director of marketing for VOD and pay-per-view Robert Ladd.
But Ladd and others do admit MSOs and programmers face a number of daunting technological, political and economic hurdles as they try to develop the business.
For example, cable companies currently use a variety of gear and software to deliver their on-demand programming, creating headaches for advertisers and programmers who want to provision and insert ads.
What's more, audience measurement of on-demand usage is still in its infancy and the long-term potential of tracking detailed data from set-top boxes raises a number of privacy issues.
Most important, perhaps, is the technology's ability to disrupt traditional advertising models.
“Giving viewers the ability to fast forward through commercials is like putting an elephant in a china shop,” said Scott Ferris, the former Comcast Corp. and MediaOne Group Inc. executive who is now senior vice president and general manager of Atlas. In May, the company — which already helps 1,000 companies place and track ads on the Internet — launched an Atlas on Demand platform that is designed to help companies manage their on-demand campaigns and insert spots into VOD programming.
Some damage can already be seen. In June, Procter & Gamble said it would cut 6% of its broadcast-advertising budgets and 25% of its cable budget, said Ferris. “That is a resounding confirmation that on-demand TV is beginning to breakdown the advertising model that the industry has relied on for so long.”
The new free-VOD ad platform also calls into question the traditional ad-revenue splits between broadcasters, cable networks, operators and other players for national and local avails.
“You're going to see a lot of jockeying for position,” said Dan O'Brien, chairman and CEO of Gotuit Media Corp., a company that provides VOD services and programming to some Time Warner Cable and Adelphia Communications Corp. systems.
PROGRESS TO REPORT
Still, headway is being made. On the research side, Nielsen is planning to expand its sample size so programmers will begin to get data on time-shifted viewing in 2006. And several research companies, notably Rentrak Corp. and erinMedia Inc., plan to use set-top data to provide much more detailed data.
Ken Papagan, executive vice president of strategic planning and business development at Rentrak Corp., noted the firm is already working with Comcast Corp., Cablevision Systems Corp., Insight Communications Co. and Charter, and providing some basic data to operators and programmers.
Some of the larger MSOs have agreed to release four types of data, including the number of times a program is viewed and the average time viewed.
Rentrak would like to provide more data, but Papagan said that won't happen until the industry agrees on a number of standards and definitions.
Several industry committees, including one at the Cabletelevision Advertising Bureau, are working to resolve those issues.
In the meantime, some initial research also suggests that consumers will accept certain types of sponsorship, noted Comcast On Demand's Thompson.
“If you keep it short, they won't fast-forward through it,” he said.
Chris Pizzurro, vice president of multimedia marketing at Turner Broadcasting System Inc., agreed. Several years of experimenting with VOD, as well as focus-group research, has led to the conclusion that viewers would not fast-forward a 30-second spot, he said.
As a result, Turner begins its VOD programming with a five-second banner ad that mentions who is sponsoring the programming, followed by a 30-second spot.
After the program, the advertiser has the opportunity place an ad of up to two minutes in length.
Demand from agencies and marketers that are willing to experiment also seems strong, through revenue remains tiny compared with traditional sales. Turner's Pizzurro said 30% to 40% of their advertisers at this year's upfront did deals that involved VOD or broadband internet ads this year — up from only 5 to 10% last year.
Some of the operators are also using the medium to build new revenue lines. Comcast has been experimenting with long-form sponsored ads from companies that include General Motors Corp., Reebok, Wachovia Bank and Publix supermarkets.
In February, Comcast's Nashville, Atlanta and Jacksonville systems began airing Publix's Apron's Simple Meals, a weekly program that features recipes using ingredients found in Publix stores, on Comcast On Demand.
Comcast Spotlight president Charlie Thurston said he hopes to develop additional local ad revenue via yellow pages-like services that offer short VODs of local restaurants and businesses.
That, Thurston said, would help Comcast Spotlight expand into the classified and yellow pages advertising sectors that have traditionally been dominated by newspapers and telcos.
As the business develops, it is also providing new networks with a new outlet for their programming. In July, for example, Cox announced a deal to carry the music-video service Fuse On Demand as a free service. And a number of other networks have launched on-demand programming, including shows from “Adult Swim,” Cartoon Network's late-night block for grown-ups.
“It gives us the potential of expanding our brand,” noted Coleman Breland, executive vice president, sales and marketing for Turner Network Sales.
That same hope may also be the key to attracting advertisers to a medium once thought to endanger their entire future.
“Figuring out how to make [a viable advertising model for free VOD] will be the key to our futures,” added Thurston.