VOD Incubates Long-Form Ads

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Up to now, long-format ads on TV have been confined to the infamous infomercial —half-hour slots set in the wee small hours of the night, hawking everything from diet pills to the Suzanne Somers-approved Thighmaster.

Most mainstream advertisers have stayed in their 15-to 60-second boxes, which limit the message they can aim at target audiences.

But video-on-demand has the potential to break down that ad box, offering mainstream television advertisers a platform for expanded product information and branding that may prove more effective and more lucrative. The hitch? Although the technology can deliver it, the business case — even factoring out subscribers' reactions — isn't a slam dunk.

The first example of this new advertising format will come in August, when Cox Communications Inc. unveils its "Free Zone" free VOD channel in San Diego.

Among the content items will be about 15 long-format ads from local businesses, according to Cox vice president of new-media advertising development Debby Mullin.

Some of the ads are promotional messages that advertisers already have developed.

"Then there are other advertisers, both national and local, that really need to explain their product — they need more than 30 or 60 seconds to explain it, and they don't necessarily want to buy program time in 30-minute or 60-minute blocks," Mullin said.

Indeed, with no 60-second time limit, the greatest advantage for an ad sitting on a VOD server is its flexibility, and several ad species could arise.

One early form bandied about by VOD server provider SeaChange International Inc. is the "advertainment," a short, entertaining film with a definite brand message.

Recent examples of these are BMW's Web site films (at www.bmwfilms.com), featuring British actor Clive Owen and pop diva Madonna.

"That's advertising — that informed me about the performance nature of the BMW car and it entertained me," said SeaChange director of broadband systems Joseph Ambeault.

HOW-TO SPOTS

Long-format ads could also be informational, such as home improvement "how-to" segments or tips on infant care for new parents.

"It's less the direct-marketing infomercial and more the opportunity for the consumer to have an extended experience with the brand," Ambeault said.

Others also see long-format ads as more directly linked to traditional TV spots.

"I think the bigger play is having broadcast spots or other interactive areas that are linked to long-format info ads," said Stephen McHale, president of Everstream, a company that offers ITV ad-campaign management tools.

"You might be watching a Nike branding commercial and it says, 'Click here for the different products,' " he said. "And then it would move you into a VOD session that would let you look at very specific Nike products."

VOD ads can also add an interactive element, allowing the subscriber to respond directly. The Free Zone ads will use this feature, giving the customer the option to click for an offer or more information.

"That, to us, is going to be a big differentiator, and we are already seeing some real excitement in the local market on that," Mullin said. "We will be able to turn this into really a highly qualified lead generator."

WHERE TO ADD ADS

Ads on the VOD platform might help content providers offer service to subscribers at lower rates, but that doesn't mean they will appear on a universal basis.

Discovery Communications Inc.'s early VOD plans, for example, funnel long-format ads toward a free service dubbed Choice 10 Discovery.

"There will be advertising included in those shows, much in the same way as there is advertising included on our channels right now," said vice president of national ad sales Ken Ripley.

Providing ads along with the free VOD service, "is a fair proposition, because again it is free — nobody is paying for that, and I think consumers are savvy enough to know that commercials pay for the programs," he said.

Ads paired with a subscription VOD offering may be possible, but not quite so plentiful.

"The theory right now — and it is still a work in process — is that we have very limited, extremely limited commercial breaks on the SVOD side, and we have a limit of one to two sponsors presenting a given program," Ripley said. "We tell the consumer 'Client X is a sponsor of the program and it comes to you with limited interruptions because of their patronage,' or whatever you want to call it."

Probably the biggest question mark for long-format VOD ads is the business model. Up for discussion: How they'll be priced, which advertisers will be courted and how they'll interact with bread-and-butter traditional ad sales.

STILL UP IN THE AIR

Cox, for example, hasn't set the final rules even as it debuts the format.

"It is a little early," said Mullin. "When we talk to local advertisers, one thing we know is that even if they are a sophisticated advertiser, this is a complex product."

National Cable Communications Inc. president Tom Olson said one early model he has discussed with MSO executives and several major ad-buying organizations would employ VOD ads as a to traditional advertising. NCC is a national organization that coordinates spot ad sales among several of the top cable MSOs.

"At this stage it would be an augmentation to a spot schedule, where if an advertiser were to buy a spot schedule with us and either there could be an additional charge added, or it might be in exchange for a schedule of significant size," Olson said.

Another option is selling spots to run alongside VOD content and offering the subscriber a discount on the title if they agree to see it with ads. Yet another strategy would set aside virtual shelf space on VOD servers for à la carte ad spots.

But all of these plans would require moving away from the mass cost-per-point pricing mechanism that governs linear TV.

"As we think about each of those capabilities, what hasn't really been sorted out yet is, what would the pricing mechanisms be?" Olson said. "Would the advertiser be willing to pay a little bit more if they got this access to Channel 950? Would they be willing to pay an additional fee or transactional fee if in fact there was an interactive inquiry, or perhaps even a sale? Those are some of the questions that yet need to be worked out."

The biggest potential red flag could be consumer backlash. Subscribers who are already paying extra for a VOD or SVOD service may become frustrated if it is inundated with ad spots.

"It's the concern that the operators have to be most interested in," Olson said. "The primary revenue stream is going to be the subscription fees paid, and they want to protect that. And the operators want to reduce churn.

"So advertising, while it has a place, I think we have to be careful that we don't create as cluttered an environment, because it will diminish the value of the product."

LEARNING CURVE

Because long-form ads on VOD are still in the experimental stage, advertisers "will still look to standard broadcast and cable advertising as a base, and the rest of this will be somewhat experimental," Olson said. "So I think for probably several more years at a minimum, this will begin to grow in importance, but it will be a long way from replacing the current media plan."

Despite all of the uncertainty, those involved in long-format VOD ads say the format's sales pitch is a strong one.

"We're pretty confident based on our negotiations that we are going to see some pretty interesting trials in the next seven or eight months," McHale said. "I think you are not going to see real scale, though, for two to three years. It's a bit of a haul, but that's like any major change."

Discovery has advertisers lined up "once our distribution people complete their deals with the various cable MSOs that are in the VOD world," Ripley said. "We are prepared to get something on the air and start to test these theories out and learn what we can learn."

Cox's Mullin said the timing seems right for this latest evolution in advertising.

"When I started talking about this two years ago to local advertisers, there was not really an understanding of the potential of this, even though a lot of advertisers were starting to put interesting things on their Web sites," she said.

But in the past year, that's changed dramatically, she noted. "It's great timing that advertisers are getting content available now, just in time for launch," said Ripley.

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