Cozying up to consumers
"Fifty percent of advertising is effective. We just don't know which 50 percent." –Prominent British advertising executive
Targeting specific groups of consumers with customized TV commercials that can be altered on the fly and generate quantitative numbers and leads is an advertiser's dream. The cable industry is having the same dream, but is often awakened by a pesky dose of reality.
The technology that enables cable operators and the advertising community to target key audiences with laser-like precision is here, but the business model isn't. Trials are underway to explore the potential of highly targeted advertising via addressable systems, but most experts agree that both the advertising and cable industries have much to learn.
Advertising agencies are cautiously looking at addressable/targeted advertising and the impact technology is having on the traditional advertising process, while operators are searching for a sensible business model with palatable returns on investment.
Meanwhile, a veritable bumper crop of companies is emerging with the software and delivery systems that will allow cable operators a shot at the $100 billion TV ad and direct mail markets. But first, the value of targeted and addressable TV advertising must be established, experts insist, and historically, selling commercials over cable networks hasn't exactly been a slam dunk proposition.
"If a cable operator sells advertising, it's not easy or cheap. It's an industry in itself and requires a sales force, strategy and the sophisticated technology and software for targeted and addressable advertising. The technology won't solve the problem, but it gives a better argument for advertisers to reach the homes they want to reach. Most operators are bullish on targeted advertising, and it's an opportunity (to add revenue). They also admit there are problems," says Adi Kashore, analyst for The Yankee Group.
Problems or not, with the staggering revenues at stake, most in the cable and advertising industries see truly targeted, addressable and long format advertising as a significant boost to their businesses. "Cable has lots of local inventory–$5 billion locally and $10 billion nationally–but we have to change our model in advertising and determine the true value of targeted advertising. It's not about the technology; it's about worth. We don't know that yet," says Mitch Oscar, senior vice president-director of Universal McCann Futures, an $18 billion media services firm which recently teamed with Cox Communications to establish FreeZone, an advertising supported video-on-demand channel in San Diego.
What most advertisers and advertising agencies do know is that the cable industry is in a unique position to capture a much bigger piece of the national advertising revenue pie through the deployment of truly targeted and addressable advertising technology. That could include a combination of delivery systems, set-top boxes, software, creative content, product licensing and more.
"There's $60 billion in TV ad revenue, and cable gets just 15 percent of it, even though it equals the number of gross rating points of broadcast. Why? Because buying all the cable TV networks is too cumbersome. Addressable technology can budge that delta," maintains Dave Downey, CEO and president of Invidi Technology Corp., a provider of addressable advertising applications.
It can also nudge advertisers toward existing technology that pinpoints key consumers with personalized messages, a Holy Grail of sorts for advertisers and their agencies who balk at paying premium prices to reach a vast majority of consumers who have no intention of buying their products.
"Why run a commercial to 97 percent of people who won't buy a product? Clients, agencies and cable operators will ultimately demand a change, and many companies don't buy TV because it's so inefficient. With targeted and addressable advertising, they're likely to include cable TV as part of their ad mix. And, investment companies like 'disruptive technology' that has the ability to change the way the business process is conducted. This is it," Downey argues.
Most experts agree, however, that for the cable industry to truly embrace, and benefit from the myriad technologies now driving targeted and addressable advertising, the business process must change. "It's a technology looking for a business model. Agencies aren't lining up to pay for addressable advertising capabilities. But, we're starting to find the value and appetite in the advertising industry. No value has been determined yet, but cable is a great product for targeted ads, and the next frontier is addressable advertising," says Kevin Barry, vice president of local sales and marketing for the Cable Television Advertising Bureau.
While searching for that frontier, serious challenges confront the cable and advertising industries. Solving such issues as traffic and billing, privacy, commercial skipping, licensing and maybe the most pressing of all–the deep-rooted tradition of how and why advertising agencies buy TV ad time–is paramount.
"Advertising is a hideously complex exercise for cable. They must convince the advertisers of the value of targeted advertising," insists Kashore.
That won't be easy. With a soft ad market, the absence of a business model and few trials in progress, the push to addressable and targeted advertising in the cable industry more closely resembles a friendly nudge. "When ad budgets are cut, cable is affected. In addition, there's not enough real VOD to make a business, and there aren't enough digital set-tops lit up to make it (addressable advertising) happen. But new technology will allow advertisers the chance to change messages and prices every hour via TV, which it has never been able to do, and create advantages by geography and zones. Broadcast can't do that," says Seth Haberman, founder, president and CTO of Visible World Inc., a content provider of addressable advertising.
Cable can do it, but will it? And when? Cox's FreeZone, along with AT&T Broadband's addressable ad trial in Aurora, Colo., could eventually provide some much-needed answers. "For the next 12 months, we're focused on VOD advertising, but there are very important problems to solve. How does the targeted advertising model do in the digital world, and can we physically do it? We need a common platform, so it's not a primary focus for us short term, but we all want to learn more. It's less an issue of technology, but the business model," says Debby Mullin, vice president of new media advertising development for Cox Communications.
This month, Spot On, ACTV's addressable advertising subsidiary, will perform "serious research" at its Aurora trial, which began a year ago, and announce several advertising partnerships, the company says. The addressable ad trial is integrating software into decoders, traffic and billing and other applications in the addressable ad process. "It allows for accountability, true ROI and how it all translates to sales. We're in a really important phase with advertisers to see real measurements from the technology perspective to prove to the industry we can do it. That's what's been missing," says Kevin Liga, CEO of Spot On.
Doing it also means leaping into the interactive advertising space, which some maintain is the real path to true targeted advertising. "The average viewership of commercials is 41 percent. It's 90 percent for interactive ads because viewers are engaged. Interactive ads produce qualified leads and we don't need to change the ad, just the overlay. Consumers will watch ads they care about, and there's real value to local advertisers, while the cost is extremely low," says Scott Newnam, CEO of Goldpocket Interactive Inc., a provider of interactive advertising technology.
Other players such as nCUBE and SeaChange International are becoming more integral to the addressable and targeted advertising models as major providers of on-demand media services, yet admit there are a host of obstacles. "Traffic and billing and privacy issues are big. But now, we can do reports that say we did what we promised, and given the horsepower of VOD systems, there's a much more understandable billing approach. And the privacy issues must be played out. We're still in the dark ages regarding traffic and billing, however, and that's the weak link in cable's advertising model," admits John Boland, vice president and general manager of nCUBE's Advertising Systems Group.
And the model for addressable and targeted advertising must be simple, experts maintain. "When advertising is difficult to buy, agencies don't buy it. That's why cable gets only four percent of the national spot ad business even though it has 56 percent of the eyeballs. Cable is just too hard to buy for ad agencies," says James Kelso, vice president and general manager for broadband systems for SeaChange.
Making it easier to buy ad time in an addressable world is inspiring companies such as BigBand Networks, Concurrent, Everstream, Navic and others to join the targeted advertising parade. "The trend is to subdivide subscribers into smaller groups for targeted advertising, with the goal being one-to-one advertising. That's where cable's strategists see this going; an on-demand type of model," says Richard Peske, vice president of product marketing for BigBand, a supplier of devices that allow cable networks to splice ads into their program streams.
Programmers such as ESPN are tinkering with targeted and addressable advertising as well, albeit cautiously. "We're being asked to participate in tests (the Aurora test for one), and it's a real education process for us. Ideally, it will revolutionize the way people advertise. But at this point, we want to see what's under the hood," says Jeff Siegel, vice president of affiliate advertising sales and new business for ESPN.
Lurking under that hood is the pesky traffic and billing issue. Adds Siegel: "As we do addressable advertising, it's meaningless unless the back office supports it. That's a huge issue. Some affiliates have backed off until the back office is turnkey."
Yet even with a string of legitimate issues confronting targeted and addressable advertising, most experts agree the technology, software and delivery systems currently available offer a breathtaking glimpse of TV advertising's future. "The ability to send different messages to several groups of customers is very important. Cable is not a dumb pipe, and there's a new mentality both economically and strategically," Haberman says.
Along with that new mentality, however, must come a new business model, for both cable and the advertising community, experts say. Adds Oscar: "We must start thinking of ways of getting consumers closer to operators, and addressable is next on the list, but it will take the expertise of distributors, technology companies, agencies and consumers."
And some cajoling of advertising agencies. Laughs Siegel: "They'll probably fight this because they don't want to pay the premiums of targeted advertising."
Nonetheless, once that expertise is woven into a viable business model, which most say could be in five to 10 years, addressable advertising could be the revolutionary process some are promising.
In the meantime, targeted/addressable advertising is likely to be a work in progress. Concludes Kashore: "If commercials go to relevant homes, you can better target your advertising, and there's real value in premium advertising like that to advertisers. But there are certain costs of technology and pricing, and the business case must be made for addressable and targeted advertising."