[opendtv] News: Cable firms make you easy target for TV ads

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 22 Feb 2005 09:00:58 -0500

http://www.usatoday.com/tech/news/2005-02-20-digital-ads-usat_x.htm

Posted 2/20/2005 11:05 PM     Updated 2/21/2005 2:03 AM

Cable firms make you easy target for TV ads
By David Lieberman,
USA TODAY

NEW YORK - Cable operators are good at many things. But selling ads 
hasn't been one of them.

Last year, operators collected just 8% of the estimated $67 billion 
that advertisers spent on television. Why? They're battling 
entrenched competition from local TV stations and get just two to 
three minutes an hour to sell on typically low-rated cable channels.

That's about to change, possibly in ways that will have a dramatic 
impact on all TV ad sales.

Comcast, Time Warner, Cox, Charter and other cable companies are 
rolling out technologies that enable them to target ads as precisely 
as direct mail, sending different messages to different neighborhoods 
and even different homes within a neighborhood.

They're quickly preparing the next step: engaging viewers with 
interactive ads, such as advertising on demand, in the growing number 
of homes with digital set-top receivers.

"The change coming to TV advertising is tremendous," says Eric 
Schmitt, senior analyst at Forrester Research. As technology makes it 
easier to single out households, "Cable will capture a greater and 
greater percentage of TV ad dollars."

Others agree, noting that advertisers will adore cable's emerging 
power to target as the growing ranks of viewers with digital video 
recorders and video on demand (VOD) use their remotes to zip past 
irrelevant messages.

"If I can deliver dog food ads just to people who have dogs, it's 
less likely to be fast-forwarded through," says Bernstein Research 
analyst Craig Moffett. "This represents a whole new line of business 
that's very high margin and has never been a significant part of the 
equation."

He says it's only a matter of time before cable channels recut their 
deals with local operators, perhaps giving them more minutes to sell, 
in order to tap their power to target.

"When ESPN's sales force sells all its inventory with targeting, 
advertisers will sit up and take notice," Moffett says.

Broadcasters aren't so sure. They say advertisers will be 
hard-pressed to develop creative ideas for those additional targeted 
spots. And just because an ad is directed to a particular home 
doesn't mean it'll reach the right person in the home. Those who want 
the biggest bang for the buck, broadcasters say, will continue to buy 
spots on particular shows - not by location.

"We know everything there is to know about the audience (for) every 
program on TV," says Chris Rohrs, president of the Television Bureau 
of Advertising, which represents local stations.

The way he sees it, cable operators are pushing ad targeting to 
compensate for their inability to sell lots of time on specific, 
high-rated shows. Systems usually make deals for ads to appear on 
several different cable channels.

Differentiating cable

Cable providers aren't just concerned about competing with TV 
stations. They also see targeting as a way to differentiate cable 
from satellite TV. DirecTV and Dish Network don't have the capacity 
to subdivide markets as finely as cable can, says Chet Kanojia, 
chairman of technology company Navic Networks.

Already, franchises owned by different cable companies cooperate with 
each other so advertisers can go to one salesperson and buy spots 
that can reach any or all subscribers in an entire market. Now, 172 
of the USA's 210 markets have coordinated cable sales operations, up 
from 10 in 2000.

But geographic targeting seems old hat to cable operators and 
advertisers working on technologies that enable them to develop a 
one-to-one relationship with viewers. Time Warner and Charter 
Communications, for example, are testing services that direct ads to 
homes based on a subscriber's spending habits or plans.

They've cleared the technological hurdles but still must craft a 
business plan, including how much targeted ads should cost and who 
will determine their effectiveness.

"In the next 12 to 24 months, a model will shake out," Charter Vice 
President Todd Stewart says. He predicts the ad sales market "will be 
dramatically affected" for the 2006-07 television season.

Geographically targeted ads could sell for at least three times the 
conventional rate for a 30-second spot on a cable channel, typically 
about $10 for every 1,000 prime-time viewers tuned in, analysts say. 
Most of the time, viewers won't notice any difference between these 
spots and the ones they're accustomed to seeing on TV.

Ads targeted to individual homes, especially ads requiring some 
interactivity, could cost hundreds of dollars per 1,000.

Advertisers are intrigued.

After years of being snubbed by some major ad buyers, "We're talking 
to Fortune 500 companies who are delighted to see us," says Time 
Warner Cable Media Sales President Larry Fischer. "There isn't anyone 
who doesn't want to talk about this and what we're thinking."

Among the targeting services that operators are considering:

* Zone-based.

"Our thought is that there are bigger differences between 
neighborhoods in a market than there are from market to market," 
Comcast Spotlight President Charlie Thurston says.

The No. 1 operator has put its muscle behind that belief. Since 2003, 
it has installed two services that facilitate geographic targeting in 
more than 30 markets, including the top 10.

The markets collectively serve 35 million subscribers, nearly half of 
the national total. The services will be in about 12 additional 
markets this year.

"This is the first critical-mass rollout of a targeted ad product," 
Thurston says.

Its Adtag service varies the information viewers see at the end of an 
ad - typically the last five seconds of a 30-second spot. For 
example, when United Airlines introduced its low-cost carrier, Ted, 
to the Chicago area, viewers saw different kickers depending on where 
they lived: "Chicago, say hello to Ted," "Arlington Heights, say 
hello to Ted" and "North Shore, say hello to Ted."

Auto companies including Ford Motor, BMW, Mercedes, Toyota and 
Hyundai used Adtag to direct potential buyers to different dealers. 
And cable channels including TBS, TNT, Discovery and the Game Show 
Network took the last few seconds of their promotions to direct 
viewers to the right channel number on their particular system.

Another service, Adcopy, delivers entirely different ads to different 
areas. That way an auto company might pitch budget-priced cars to a 
working-class neighborhood, SUVs to residents of a family-oriented 
enclave and luxury cars to well-to-do singles.

By targeting different neighborhoods, "We can give an advertiser a 
kind of paint-by-numbers" approach to each market, Thurston says.

* Household.

Cable firms can't wait to play matchmaker between advertisers and 
individual subscribers. Before they can do that on a mass scale, they 
have to tiptoe through a financial, public relations and 
technological minefield.

The first problem is that operators can effectively identify only 
homes that have interactive, digital set-top tuners. Just a third of 
all cable customers now have them as part of the digital services 
which, for an additional monthly fee, serve up dozens of extra 
channels and VOD.

That number is still too small to make advertisers' hearts flutter.

Yet cable executives say that in a few years, all of their customers 
will go digital, even if companies have to install the equipment free.

The next hurdle is figuring out how to collect information about 
viewers without violating their privacy - or even raising concerns.

Time Warner and Charter are working on systems that ask customers to 
answer questions about their buying plans. The information is never 
shared, they say. It is simply stored in the set-top tuner, which 
uses the data to choose among several ads that the operator has 
transmitted.

But cable operators are concerned that this process will use up too 
much transmission capacity.

"If you have 10 commercials for each conventional ad (slot), it's 
bandwidth intensive and the return isn't there," says Kanojia.

* Ads on demand.

This is widely regarded as the "killer" application. Ads in 
conventional TV shows would lead viewers who have digital tuners to 
advertiser-supplied VOD programs, such as movie trailers, travel 
videos or a program that provides an in-depth look at a new car.

"Ads are becoming mini-movies," says David Woodle, CEO of technology 
company C-Cor. "The whole on-demand space is high growth."

Every major operator is testing business models to take advantage of 
existing VOD technology.

Charter already offers ads on demand to 1 million subscribers and is 
eager to launch them in all its markets.

Comcast also is raring to go. In a Philadelphia test, car enthusiasts 
called up four-minute promotional videos that General Motors provided 
for 14 new models.

"It's a great way to combine the capabilities of TV and broadband," 
Thurston says.

With that in mind, Time Warner has used Honolulu and Albany, N.Y., as 
testing grounds for a more Internet-like service where subscribers 
interact with the ads.

For example, a spot for State Farm Insurance asked viewers if they 
wanted a price quote. Those who answered "yes" with their remotes 
were then asked if they wanted an agent to contact them. Another 
spot, with Pizza Hut, enabled viewers to order pizzas with their 
remotes.

Time Warner plans to have it in about a third of its markets this 
year. "It's going to be an unbelievable attraction to advertisers," 
Fischer says.

Cable operators could even let TV viewers click a button sending them 
to an advertiser's Web portal - although that would surely anger TV 
programmers.

"We're treading lightly," Fischer says. "These are big ideas. This is 
going to change the landscape. For the longest time, I wanted to be 
as good as broadcast. Now we're much better. This is neat stuff."
 
 
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