May 16th, 2007
Cable TV, Advertisers Join In Fight to Preserve Power
By Shira Ovide
Wall Street Journal
During a recent television commercial for a California mattress retailer, some local viewers saw a fluffy special offer.
A message popped up on the screen offering a free Tempur-Pedic pillow to viewers of the ad, which aired on cable systems owned by Charter Communications Inc. TV watchers could push a button on their remote controls and have a coupon mailed to their homes.
Charter, which inserted the ad message, said about 1,000 people responded in just 10 days—so many that the mattress store ran out of pillows and had to halt the offer.
Advertisers are teaming up with cable operators to fight back as the Web erodes the power of the traditional TV ad and as viewers use digital-video recorders to zip through commercials. Cable operators, through which a majority of Americans watch TV, are developing a new generation of marketing platform, including video-on-demand and interactive ads that marry traditional TV viewing with the ability to order coupons, target messages to specific viewers or interact in other ways that are more common online.
The business model is nascent, but cable operators, which today generate less than 10% of their total revenue from advertising, have made such new advertising platforms among their highest future priorities.
“In the future, we could look back and say this was a truly gigantic opportunity,” Comcast Corp. Chief Operating Officer Stephen Burke told investors this month.
Comcast, the country’s largest pay-television provider, is by no means alone in seeing the upside. Advanced-advertising options were hot topics among cable operators, technology providers and marketers at the National Cable and Telecommunications Association convention last week in Las Vegas.
The buzz spiked when cable operator Cox Communications Inc. announced it will offer hit shows and football games from Walt Disney Co.’s ABC and ESPN networks on its video-on-demand platform, in which cable companies pool TV content and movies for their subscribers to watch whenever they want.
Cox and Disney will sell new ads for the rebroadcasted shows—something that is new to the platform—and Cox will disable ad-skipping. The companies also will test placing commercials targeted to viewers’ ZIP codes and other geographic areas.
The partnership is a trial run, but the deal could open the flood gates for new ad opportunities, including ads that mimic the targeting capabilities of Web advertising but on television, which is where Americans spend a majority of their entertainment time.
Every cable operator is at least in experimentation mode. Time Warner Cable Inc., which has more than 13 million cable customers, is testing a digital “catalog” of cars on its cable systems in New York City. Time Warner subscribers can watch videos that mimic a test drive or seeing a car on the showroom floor.
“Chief marketing officers and agencies are wrestling with the increasing challenges of getting consumer attention for their message,” said Joan Gillman, president of media sales for Time Warner Cable, majority owned by Time Warner Inc.
Comcast and others also are testing so-called addressable ads. During a commercial break for “Lost,” a young couple watching TV might see an ad for the latest cellphone, while at the same time their next-door neighbors with children may see a diaper commercial.
The ability to direct ads to viewers’ specific interests or demographic groups is driving the growth of Internet advertising, and could fuel the new ad opportunities on cable platforms.
“If an ad all of sudden becomes really relevant,” said Todd Stewart, of Charter’s advertising-sales division, “then at that point the advertiser is going to reach a better consumer and we’d maximize their results. It’s a double win for both of us.”
There is still another Web-like advantage for the new ad opportunities, said Ms. Gillman. “The No. 1 value [advertisers] say is they get Internet-like data.”
Interactive and VOD ads have the ability to provide the viewership data that has proved essential to advertisers who buy Internet ads. Advertisers on VOD or interactive ads get data reporting on who saw their ads, how long they stayed tuned, which ZIP code those TV viewers live in.
“Think about the power of the set-top box in people’s homes and what that box is able to collect,” said Billy Farina, senior vice president of Cox’s ad-sales division. “We would be able to gather richer data than Nielsen has just because of the infrastructure we have built.”
Hurdles remain before these new ad opportunities become real. A common model doesn’t exist yet on how to charge advertisers for interactive commercial or ads on video-on-demand. Cable operators also don’t have the capabilities to roll out advanced ads on mass scale.
On the advertising end, it remains unclear what kind of messages will work best, just as there is little consensus about the most effective advertising for online-video advertising and other new marketing forms.
Observers say cable companies and the companies that produce TV content are likely to work through the problem together. Cable operators have long-standing ties with the TV companies, unlike Internet companies, which are perceived as a threat to the traditional TV business model. TV companies could also see the new marketing models as a way to help stem the Internet’s erosion of television’s stranglehold on the $250 billion annual market for advertising.
In Las Vegas last week, Time Warner operating chief Jeff Bewkes said cable has the infrastructure, programming and data collection to rival the Web in new forms of interactive advertising. “So why wouldn’t that be the next great future of advertising?” he said.