TV Ads Worth Watching?

Cable operators and advertisers believe their long-sought Holy Grail of interactive ads is in reach. But will viewers play along?

Interactive and targeted television advertising is poised to reach a TV near you. After years of discussion and development, cable operators, ad agencies and advertisers are moving ahead on regional and national efforts to create and distribute ads that they anticipate will be more interesting -- and useful -- to TV viewers, blunting tendencies to fast-forward through ads by using DVRs.

“What’s driving this is the need for television to become more competitive again,” says George Shababb, the president of TNS Media Research. “There’s a lot of money being shifted from television to online because of the ability to deliver targeted advertising” and give advertisers a solid way to measure the effect their ads are having on potential customers.

Interactive and addressable -- or targeted -- ads fall under the umbrella of “advanced advertising,” an emerging category that includes ads attached to video-on-demand, among other types. Interactive ads let TV viewers click their remotes to select options on a TV ad, while addressable ads are directed at a specific region or even household. National advertisers are leading the way in testing these promising new advertising methods, but the field will open up for small and medium-sized businesses within five years, as costs come down.

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Though advanced ads are pricier than regular TV ads, early adopters of interactive and other advanced advertising techniques are banking on much higher returns. “The traditional advertising game is a scattergun approach,” says Martin Olausson, a director of digital media strategies at Strategy Analytics, a technology and consumer consulting firm.

“But there is a certain price associated with reaching just the 10,000 people that should be interested” out of millions of viewers, Olausson says. “You pay a premium for actually reaching those people.”

Revenues for advanced advertising will grow about 15% this year to around $155 million, which is just a sliver of the $50 billion TV advertising market. But advanced advertising’s growth outpaces the 5.5% growth rate expected for all TV advertising in 2010, and the advanced ad growth rate will likely pick up into the next decade.

A major hurdle to the broad adoption of advanced ad techniques has been the absence of a national platform for businesses to use. Currently, advertisers have to seek out individual regional cable operators and tailor ads and distribution to the cable companies’ individual advanced ad programs.

But a new venture is poised to change the status quo.

A consortium of the nation’s six biggest cable operators -- Bright House Networks, Cablevision, Charter Communications, Comcast, Cox Communications and Time Warner Cable -- aims to roll out a national interactive advertising solution by April or so. The move would make it easier to format and distribute interactive ads across a national platform and to many cable operators at once. The group -- called Canoe Ventures -- formed in 2008 with the goal of pooling the cable operators’ resources to develop business systems for advanced ad campaigns. Meanwhile, cable operators will continue to build their own ad programs. Time Warner Cable has had forms of interactivity available for about four years, while Comcast and Cablevision started rolling out their interactive programs last year.

Cable operators see addressable advertising as the Holy Grail. Comcast has launched several trial forays into addressable advertising and plans to expand its efforts over the next few years. Most notably, Cablevision already has its household-level addressable advertising program running and reaching some customers and plans to expand it to all its viewers this year.

And the cable operators are not alone: TV advertising’s other stakeholders are moving ahead on a variety of solutions as well. Media buyer GroupM, which along with parent company WPP controls about a third of the money in TV advertising, has been heavily involved on the new TV ad frontier and is completing its vision of how addressability should work.

“The future of TV is less about networks and programs and more about commercial delivery to the audience that’s watching,” says Michael Bologna, director of emerging communications for GroupM. “That’s what we’re all working toward.”

Media technology firms stand to benefit from the industry’s efforts. Visible World, an advanced ad technology provider, already reaches individual households through its deal with Cablevision and has agreements with the rest of the large cable operators to target viewer segments by neighborhood.

Meanwhile, other ad technology companies such as Motorola, Arris, Invidi Technologies and OpenTV will benefit, too, as cable operators expand their addressable programs. Satellite providers, which reach about 30% of all U.S. TV households, will expand ad addressability this year as well.

Associate Editor, The Kiplinger Letter