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Next-generation set-tops and TVs

Sat, 01/31/2009 - 7:45pm
Hugh Carter Donahue, analyst and consultant on communications applications and policies

Think of them as cash registers and marketing agents.

Digital set-top boxes and television receivers with robust memory and processing power will take on greater roles as cash registers and marketing agents in interactive and broadband video and advertising markets.

Next-generation digital set-tops and TV receivers will comprise the customer premises equipment that will determine how well or poorly network operators, programmers, advertisers and application developers will thrive or falter in the interactive video, broadband video and digital TV markets.

Their deployments inescapably indicate that Internet economics will define business models for broadband video programming, video games and interactive advertising.

The video programming and video game markets will be more like the Web. Unlike analog broadcasting, with 30 percent or greater annual return on investment for broadcast licensees and networks, oligopoly profits will become harder to achieve. Fragmented content markets will continue to diffuse.

Advertising markets will demand greater specificity and granularity, as well as real-time or near-real-time metrics upon which to base and place insertion advertising.

Market participants are now addressing, and will be developing, business models for more perfectly competitive markets characterized by greater price sensitivity and more highly constrained profits.

All place holders – cable and telco system operators, programming networks, application developers, advertisers and advertising buyers – will rely upon and develop applications and audience metrics – based on HTML, XML and Java formats – to tap into the $70.8 billion broadcast, $25.7 billion cable and $23.8 billion Internet advertising markets, and to migrate these markets toward greater efficiencies, higher yields and greater revenues.

First-mover advantage, long a hallmark of personal computing and Web commerce, will yield high-market valuations, share prices and revenues for entrants with superior hyperlinking, storage and targeted advertising based on capabilities to evaluate and quickly act upon voluminous user and advertising data. Such enterprises could emerge as being more profitable than the 30 percent annual ROI characteristic of broadcast television licensees. These enterprises could more nearly emulate Microsoft, Amazon, Google and other enterprises early to move on desktop publishing, Internet purchasing and searching communications technologies.

Broadcasting, cable and Internet advertising revenues
Table 1: Broadcasting, cable and Internet advertising revenues, 2002-2008.
Sources: Television Advertising Bureau, NCTA, SNL Kagan, eMarketer.

CONTEXT
Several factors animate the emergence of more powerful digital set-tops and televisions as the new cash registers of video programming and video games.

First, the transition to digital broadcasting impels greater granularity due to the sixfold increase in broadcast channels. With so many outlets, advertisers need more precise measurements. These new channels, in turn, create niches for specialty programming, which was often below the radar for standard audience measurement. With granular metrics, new programming entrants on these digital channels will have an easier time attracting sponsors with specific data on their audiences, and advertisers will achieve greater efficiencies.

Second, the cable industry addressed a congressional mandate to enable consumers to purchase, rather than rent, set-tops by designing a new generation of set-tops more capable of supporting interactive applications, generating user data and permitting targeted, insertion advertising across local, regional and national markets. Cable’s initiative began in the late nineties and is yielding the OpenCable Application Platform (OCAP), a Java format, for industry participants, and tru2way, a designation of branding for customer premises equipment such as receivers and set-tops, with interactive and targeted advertising capabilities.

Third, Internet advertising is growing at much higher rates than broadcast or cable advertising, so broadcast, cable and telco video programmers require greater specificity to attract advertisers. Furthermore, Internet advertisements harvest user data within the boundaries of privacy constraints. Advertisers are insisting on comparable granularity for broadband video and interactive programming.

Tables 1 and 2 highlight advertising revenues. For 2007, broadcast advertising revenues at $70 billion are approximately two-and-a-half times larger than cable’s and three-and-a-half times more than Internet advertising. Please note that cable’s revenues tally network, local spot and regional sports ad income. Cable spot advertising is $5 billion, according to news sources.

Ratios indicate that the Internet as a new entrant posts annual increases ranging from 19 percent to 31 percent. Cable consistently scores between a 10 to 13 percent increase in revenues. As a mature medium, broadcasting achieves, at most, a 5 percent increase in revenues and is currently experiencing declines in the rate of advertising investment.

eMarketer, an evaluator of Internet advertising, foresees Internet advertising spending growth at rates ranging from 48 percent in 2009 to 70 percent by 2013. eMarketer notes separately that Internet video advertising was a $500 million market in 2008 and that it will likely soon double in size.

New business models will emerge in these evolving, more perfectly competitive advertising markets. To secure revenues amid highly constrained profits, advertisers will employ more granular user data and interactive functionalities to enforce price sensitivity.

Technical standards will enable advertisers, application developers and others to respond to the dynamics by harnessing next-generation set-tops and TV receivers as cash registers and marketing agents.

Broadcasting, cable and Internet advertising ratio of change year-over-year
Table 2: Broadcasting, cable and Internet advertising ratio of change year-over-year, 2002-2008.
Sources: Television Advertising Bureau, NCTA, SNL Kagan, eMarketer.

BIRDS IN THE HAND – ETV EBIF AND SCTE 130
CableLabs has presciently developed standards, which enable market participants to develop applications and advertising suited to constrained profits and price sensitivity in more perfectly competitive broadband video and advertising markets.

CableLabs’ Enhanced Television (ETV) Enhanced Binary Interchange Format (EBIF) is an extensible markup language (XML) and hypertext markup language (HTML) platform.

Efficacy, efficiency and extensibility are primary EBIF utilities. EBIF achieves efficacy because the format interchanges, decodes and renders ETV applications across the incumbent base of 32 million set-top boxes – notably numerous, long-deployed Motorola DCT 2000 set-top boxes manufactured with fine memory and processing at the time of their deployments, but with inadequate memory and processing for the emerging markets.

Efficiency is an EBIF hallmark. Once the binary interchange format lodges in set-top boxes, the boxes are ready to accept and display interactive applications and content. No further downloading is required. These EBIF-formatted user agents then acknowledge ETV triggers and widgets, which stream in the programming from cable headends or content owners’ servers to EBIF-formatted set-tops in an MPEG-2 format. When set-tops interchange with the interactive triggers and widgets, displays render interactive content to engage users. As importantly, set-tops transmit user information upstream, which becomes data upon which advertising investments will be based.

Extensibility enables EBIF both to function on incumbent set-tops and on next-generation, Java-formatted OCAP set-tops and TVs. By design, EBIF is an upwardly compatible, less-robust format designed to serve evolving market conditions. As such, EBIF enables industry participants to begin to develop targeted advertising and interactive content and to migrate to more robust set-tops and TVs as consumers place them in their homes.

INDUSTRY ADOPTERS AND PARTICIPANTS
Navic’s Admira “is a media placement service that optimizes television advertising by utilizing set-top box measurement data to increase the value of inventory,” Navic states on its Web site. “One central Admira system provides a common platform and makes possible the collection of avails and the insertion of media across multichannel video operators, local broadcasters and national programmers. Admira aggregates avails based on policies defined by media owners in the Admira central server. The Admira decision engine optimally matches those avails with the ad placement criteria submitted by agencies and advertisers based on the ad’s defined target audience and aggregated real-time reach data,” Navic continues.

Navic’s capabilities to enable ad insertion based on near-real-time user metrics distinguishes Admira. Over the summer, Universal McCann, Magna and Emerging Media Lab, all units of Interpublic Group, began employing Navic’s EBIF-formatted Admira for advertising analysis and placement.

Ensequence, another early entrant, supported Verizon’s FiOS for the first commercial activation of EBIF-formatted iTV in Verizon’s Portland, Ore., market, with interactive programming for the summer Olympics transmitted over MSNBC. The Portland initiative is the initial step of broader EBIF deployment through Verizon FiOS markets nationally. By clicking on a banner along the bottom of the programming, Verizon FiOS subscribers could access Olympics news and information. The Ensequence EBIF-formatted functionality did not click-through to targeted advertising in the Portland activation. However, a Verizon spokeswoman indicates that banner advertising, telescoping advertisements and e-mail responses to consumer requests for information are feasible. No numbers were released, though Ensequence touted impressive click-throughs.

Verizon contemplates developing and deploying EBIF functionality as fully and widely as possible throughout its FiOS markets. A company executive indicates no plans at this time for Java rollouts. All FiOS subscribers will view identical advertisements upon clicking-through to interactive offerings, not targeted advertisements, inserted automatically based on user data transmitted upstream from EBIF-formatted set-tops, according to a Verizon executive.

Navic’s Admira media placement service
Figure 1: Navic’s Admira media placement service.

SCTE 130
The SCTE 130 standard employs an XML format to support targeted advertising across the incumbent base of set-tops and to transition to Java format set-tops and receivers. Extensibility is its major virtue. The standard enables insertion advertising across linear cable, VOD, DVRs and next-generation Java format set-tops. Advertising management and decision services gird its content, placement and subscriber information services with comprehensively typified message, element and notification programming utilities. This enables national reach for addressable or targeted advertising by enabling clarity of inventory, placement, content and subscriber information. News reports indicate that Canoe Ventures will rely on SCTE 130 to transition from XML to Java functionalities, and that firms like Everstream are vending SCTE 130-complaint products. The SCTE identified the standard’s earlier iteration as DVS 629. SCTE engineers are perfecting other functionalities of the standard. Its development is ongoing and its momentum significant.

AUDIENCE MEASUREMENT
Rentrak Corp. is an early mover specializing in audience measurement. Its TV Essentials service aggregates and reports STB clickstream data based on user behavior like fast-forwarding and rewinding on-demand programming. Rentrak then integrates channel lineup, programming, ad placement and demographic data with user data to evaluate user behavior. Rentrak employs HTML, PDF and Microsoft Excel formats for its audience measurement analyses.

Google TV and Nielsen can yield advertising metrics by tracking remote control clicks. The analysis evaluates whether users skip through commercials. The Google-Nielsen initiative produces audience demographics. Search and Web analyses produce findings on sales generated by the ads, news sources indicate. Google capabilities to automate insertion advertising remain outstanding, largely due to cable’s hold on data. Google seems well positioned to build on Internet advertising to achieve cross-platform success, combining targeted broadband video and Internet advertising.

Analytics by interactive video provider Klickable enable analysts to determine more specifically when and what elicits audience interest and engagement. With its “hotspotting” technology, Klickable is able to segment video into multiple areas. Klickable then tracks the interactivity of segmented video over time.

Through this robust functionality, Klickable delivers a whole new metric of perceived viewing, rather than actual viewing, the staple of so much audience research. The Klickable metric enables advertisers to discern exactly what engages users, providing more precision in targeting likely buyers with greater economy. Such a significant, new value-added service enables Klickable to generate and create greater tracking and ROI by advertisers.

CANOE VENTURES
Canoe Ventures will promote EBIF- and OpenCable-formatted interactive advertising.

Canoe Ventures’ value-add will turn on how effectively the initiative will extend local success by its current CEO, prior to Canoe’s launch with targeted advertising to substantial local, regional and national sales for wider varieties of advertisers, vendors and products throughout the nation’s cable plant.

In that earlier, local campaign, David Verklin, then with Carat, employed Rentrak data to achieve greater efficacy for ReMax for real estate leads with targeted advertising.

BIRDS IN THE BUSH – OCAP AND JAVA READY FOR PRIMETIME
CableLabs’ OpenCable and tru2way are ready for deployment. Earlier this year, the largest MSOs reached understandings with consumer electronics firms for receivers and STBs. The MSOs agreed to ready their headends and provide support beginning next July, and they committed to purchasing 10 million set-tops for deployment over several years.

BUSINESS MODELS
As new cash registers, next-generation set-tops and TV receivers, cultivating first EBIF and then Java format advertising and applications, will generate new business models designed for competitive markets defined by price sensitivity and constrained profits.

Aggregated advertising data across the large multiple system operators is a precondition and market opportunity for cable to vend national, local and regional spots and interactive advertising credibly. A service industry aggregating data and automating insertion advertising to targeted buyers is timely and emerging.

E-Mail: hcd@dca.net

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