VOD Ads Still Trying To Get Personal

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For many years, vendors and cable operators have talked about developing a video-on-demand platform that would personalize the content viewers watched and the ads they received. Operators are now taking a significant step toward realizing one part of that dream with trials of two new addressable advertising systems that deliver ads targeted to the demographic characteristics of a home.

In Brooklyn, N.Y., Cablevision Systems has launched trials on 30 networks in 100,000 homes. Comcast will start a similar test this month in 70,000 homes with eight networks in Baltimore.

“If I am a dog food manufacturer, I want to advertise to dog-owning households,” Comcast Spotlight vice president of data development Bob Ivins said. “But if I buy a spot today, it goes to households with dogs, as well as household without pets and households with cats. The concept of addressability means we will be able to deliver that dog food commercial to dog-owning households.”

For longtime proponents of VOD advertising there is only one disappointing aspect to these tests: They are occurring on linear channels, not on-demand platforms.

“I’m a little skeptical of the concept of dynamic ad insertion on VOD happening soon,” Starcom USA vice president and video innovation director Tracey Scheppach said. “I’m personally much more interested in pushing forward [with addressable advertising] with the 90% [of viewers watching] linear television than the 1% watching VOD. Basically, I’d rather fish where the fish are.”

That argument raises some questions about the future of VOD advertising, which in some respects has progressed much slower than expected. Will targeted advertising first take hold on linear networks, not on the on-demand platform as many have long predicted? What role is VOD advertising likely to play as operators expand their advanced advertising platform over the next year? And why have some types of VOD advertising proved so successful, while other areas have struggled to gain traction?

Scheppach said that while VOD usage is rising, a 2007 Starcom study found that 90% of all TV viewing is done on linear networks, 7% is done via digital video recorders, and video on demand accounted for only 1%.

“VOD has a higher penetration than DVRs but has significantly less usage,” she said. “My hypothesis is that the DVR allows for significantly more control, it is an easier platform to navigate and it allows you to view all the content on demand,” unlike VOD, where only a limited number of broadcast shows are available on demand.

Ron Lamprecht, senior vice president of sales business development at NBC Universal Digital Distribution, also said operators have yet to widely deploy dynamic VOD ad insertion platforms and that on-demand usage isn’t part of the Nielsen Media Research’s ratings so important for advertising.

“The technology just isn’t there yet,” making it difficult for programmers to generate significant revenue from VOD advertising,” Lamprecht said.

In contrast, early results from the addressable ad trials on linear networks are encouraging. David Kline, president and chief operating officer of Rainbow Advertising Sales Corp. said that Cablevision’s Brooklyn trial “will expand in 2009 because it has gone very well. We will continue to roll that out until we get to the full footprint by the end of the year.”

Currently the system is delivering ads on “up to 30 networks” targeted to household demographics, Kline said. Data on the trial wasn’t yet available, but Kline said RASCO sees significant upside to the technology.

“The advertisers really want to be able to target different demographics and this allows them to do that,” he said.

Results from an earlier addressable ad trial in 7,000 homes in Comcast’s Huntsville, Ala., system reinforce that optimism.

Scheppach said data from the Huntsville trial showed that addressable ads were 56% more efficient and 38% more effective. “If deployed nationally that translates into billions and billions of dollars of value,” she said.

Based on that success, Comcast and Starcom will begin a larger trial this month in Baltimore that will test the technology and new business models for addressable advertising, Ivins said. By allowing advertisers to better target their buys, he believes the system will reduce the waste in its ad spending, making it possible for Comcast to charge the higher CPMs needed to “justify the work we are doing and the reduction of inventory that we are selling,” Ivins said. “Hopefully having a broader canvas and more data will demonstrate that.”

Scheppach agreed, “I think there is a significant amount of value to be shared through the value chain.”

She also believes the efficiency and effectiveness of advanced ad platforms will expand the advertising pie, bringing in new advertisers — such as those pitching high-end, luxury goods — that have not used mass media like TV in the past because there would be so much waste in reaching potential buyers.

But others dispute the notion that addressable advertising will gain a foothold much faster on linear than VOD.

Jonathan Bokor, Tandberg Television vice president of business development, argues that addressable systems on linear networks face technological and business problems.

“People talk about linear and want to do linear because that is where the dollars are, but personally I think VOD is a much more ripe area,” he said. “Linear is a tough nut to crack. There are bandwidth and scaling issues that make it hard to see how those solutions can really get to be widely distributed.”

Bokor also cited economic issues. “With linear addressability you have to change longstanding practices in the advertising industry,” he said. In contrast, “VOD is a more wide open space without a proven business model,” where it would be much easier to adopt new approaches.

Bokor and other vendors also note that operators are preparing to make significant investments in dynamic VOD ad systems, which will ultimately allow ads targeted to the household’s demographics to be inserted almost instantaneously as content is streamed to the home.

“In the last several months, the interest has picked up and they are putting money into their budgets for 2009,” Bokor said.

SeaChange chief marketing officer Simon McGrath agrees. In October, SeaChange began a test of its dynamic video-on-demand insertion systems in 100,000 London homes served by the U.K.’s largest cable operator, Virgin Media.

“We’ve seen a great deal more interest in the U.S. from cable and telcos in dynamic insertion technology and will be making a few announcements of commercial deployments over the next six months,” said McGrath.

This growing demand reflects the fact that some long-standing problems are being solved.

Still, a lot of broadcast’s most popular programming is not yet available on demand. Operators are trying to convince broadcasters and cable networks to move more of their highly rated fare onto VOD platforms.

Last fall, Cox Communications began making three popular ABC shows and five hit NBC series available on its MyPrimetime on-demand channel in Orange County, Calif., systems, according to Bob Nocera, Cox director of marketing for new video services.

This fall, the Orange County system added such Fox shows as Kitchen Nightmares, Prison Break and Bones, as well as some ABC shows in HD to the lineup.

Cox has disabled the fast forward button in the MyPrimetime content so viewers cannot skip ads and currently is making some adjustments to its network so the fast forwarding feature can be disabled in other markets. “We will probably add a couple more markets this year and our goal would be to have it fully rolled out sometime in 2009,” Nocera said.

The decision to prevent consumers from skipping ads has been a key factor in convincing major programmers to make their content available but consumers don’t seem particularly bothered by the feature, Nocera said.

“In any given week, the content from MyPrimetime consistently makes up the vast majority of the top 10 VOD titles,” he said.

Early data from the test should encourage programmers to make more high-profile content available on demand. In Orange County, for example, consumers said the main reason why they used the MyPrimetime platform was to catch-up on episodes they missed.

“Interestingly, we also found that one in five actually used MyPrimetime rather than using the DVR,” Nocera said. “Since you can’t fast forward through ads on MyPrimetime the way you can on the DVR that is obviously a benefit for programmers and advertisers.”

Cox also asked viewers what they would do if the show wasn’t available on demand. “Some said they would have set their DVR or watched it online. But one in four said they wouldn’t have watched the show at all if it hadn’t been in the MyPrimetime category on demand,” he said. “So clearly there are some benefits for the networks in terms of getting viewers to sample new shows and the ability to catch up on shows.”

Nocera also sees progress in the development of better measurements. Rentrak, which collects extensive VOD usage data, now works with the top 10 MSOs, making it much easier for programmers and advertisers to get that information.

Cox delayed the Orange County dynamic ad insertion trials, originally scheduled for earlier this year, but Nocera stressed that the technology works. “We have dynamic insertion working in the lab,” he said. “We know it works, it is just a matter of scaling it out and testing it in the market.”

While Cox has yet to set a date for a larger trial, U.K. operator Virgin Media recently began a major trial SeaChange’s on-demand advertising platform. This trial illustrates some of the key elements that need to come together for successful deployments.

With 100,000 homes from Virgin’s London footprint participating, it is perhaps the largest trial of dynamic VOD ad insertion ever undertaken.

Virgin Media serves a majority of U.K. cable homes. If Virgin were to deploy the technology across its entire footprint of 3.5 million customers, advertisers would be able to reach most of the cable market in one buy — the kind of reach that would make VOD advertising much more attractive.

Virgin has also been successful in adding highly rated broadcast fare to its VOD platform, with shows from such broadcasters as the BBC and Channel 4, and this high-profile content has helped drive VOD usage to impressive levels. If on-demand content on the Virgin platform were a separate network, it would be the U.K.’s 4th most popular network, McGrath said.

For the three-month trial, which started in October and will run through December, Virgin and SeaChange brought together the kind of top advertisers, ad agencies and broadcasters that will ultimately be needed to hammer out a new VOD advertising business model.

Ad sales arms from Channel 4 and Virgin Media’s cable networks are participating, as are such blue chip advertisers as Kellogg’s, O2, COI Army, General Motors and Bodyform.

The trial, which has proceeded without any technical hitches, allows advertisers to insert ads before or after programs, McGrath said. But they will not be testing targeting capabilities nor will they insert ads during commercial breaks, features that will play a key role in the VOD advertising’s future.

Even so, McGrath said, “the trial will be a catalyst by showing the technology works and that there are good returns on investments with this kind of platform.”

Operators who are testing linear addressable systems also stress their belief in the potential of the on-demand advertising platform, particularly when it is combined with interactive features.

“VOD is a fantastic idea if you can do [interactive] overlays and drive people to longer form assets,’ said Comcast’s Ivins. “Advertisers want three things — addressability, or targetability, interactivity and accountability. The cable industry is heading towards a place where they can deliver all three and VOD will be an important part of that mix.”

A successful example of that idea can be found at Cablevision. Advertisers can buy 30-second spots on linear networks that drive viewers to special VOD channels with long-form content. Using the MSO’s interactive TV platform, viewers of VOD fare can ask for more information, request a brochure or even a test drive of an auto, creating valuable leads for advertisers.

“What is unique to us is that we’ve taken the best of VOD and interactive television and put them together to deliver advertising that is very engaging,” said Barry Frey, senior vice president of Cablevision Advanced Platforms Sales.

Its work with Disney is a good illustration of that fusion. The entertainment giant purchases 30-second spots to promote Disney Vacations and has a VOD channel with long-form content about its vacations. Using the interactive buttons, consumers can request brochures or ask an agent to call them about a vacation package. About 23% of those who press the button and speak to a representative go on to book a vacation.

“In direct advertising a 1% response rate is considered good,” said Frey. “But 23% who press the button and ask to speak to a representative, go on to book a vacation.”

Such platforms will be particularly important in the slumping economy. While domestic car makers have been cutting spending, Cablevision has done a much better job than broadcasters of holding onto that ad money because of its advanced advertising platform.

“In a time of economic malaise, advertisers are looking for more accountable advertising and more effective advertising,” Frey said. “What is terrific about VOD and ITV is that they fit all those targets.”

Comcast is just beginning to test ITV, but it is also seeing a payoff by packaging VOD with the interactivity on the Internet. Over the last year, the MSO has aggressively expanded its online sales for such properties as Comcast.net and Vehix.com.

As a result, it is now able to take sponsored video shot for VOD and repurpose it for the Web, according to Mike Miller, executive director of advanced media at the NorthCentral Division of Comcast Spotlight.

“One of our key strategies going forward is to use video to build engagement on linear TV, VOD and the Internet,” he said.

This triple-play ad strategy has helped the MSO more than double revenue from its Internet products and build a large clientele of VOD advertisers. Comcast’s Chicago market, for example, has over 100 advertisers for long-form video that gets 300,000 to 400,000 views a month.

“Once they see the metrics, they’re very happy with the results,” Miller said.

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