Cable Advertising's Plan for the Future
by Graeme Newell
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I spent last week attending the CTAM cable advertising summit in Denver. The people at this conference are working their big brains to the bone figuring out ways to increase advertising revenue for MSOs and cable programmers. In my next three articles, I will be sharing some of my takeaways from the conference and the developing trends that I see motivating the cable TV ad business.
Dynamic Ad Targeting is the future of the cable business
Just as Google delivers custom ads designed to the user’s personal tastes and desires, the cable industry is building a new generation of hardware and software solutions to deliver the perfect ad to the perfect prospect at the perfect time. The ultimate goal is elimination of ad waste. For example, smart cable boxes will know that a viewer only buys pick-up trucks and will eliminate sedan ads from their TV viewing.
The New Technology is being Defined Right Now
The MSOs are pouring millions into ad targeting technology in projects such as Canoe, and EBIF. The hardware development is well underway. The technology can be implemented from either the cable head end, or directly from the set-top box. Today, 65-70% of American homes have smart cable boxes capable of at least some sophisticated ad targeting. That number will continue to increase as old boxes are retired.
The Long-Term Vision for Smart Cable Boxes
The boxes will be able to monitor every nuance of TV viewing. They could integrate demographic information using zip code, public records, even things like credit scores. They will watch how long a viewer lingers on specific program guide listings, or the specific segments he watches on Sportscenter. By watching each person's individual programming choices, it will silently identify every member of the family and understand everything about each person's tastes and buying preferences. It will gather data every minute, making constant conclusions based on what the person seeks or avoids.
For example, the box could notice that the TV is usually off during the day. Then suddenly, the TV is in use for long periods during the day. The box also notices that the DVR no longer skips ads for local trade schools, job fairs and loan companies. An analysis concludes that someone in that household probably lost a job. Because most of the daytime programming consists of Sportscenter, Spike, and Clint Eastwood movies, the box could figure out it is probably dad. So the ad mix during the day will now be customized to a 40 something male who is out of work.
Privacy is Still a Big Worry
In 2007, Facebook's Beacon ad targeting system created a huge privacy backlash against the social media giant. The cable industry does not want to make the same mistakes and is moving forward cautiously. That means figuring out how much each subscriber is willing to share, then giving that customer more control over their own disclosure preferences. The more private information the consumer reveals, the more customized the ad. Customized ads create a better viewing experience, and generate higher profits for the cable companies.
Cable companies will have access to enormous amounts of data from multiple sources, but should they use it? They could pull detailed information from credit bureaus, tax records, zip code profiling and of course, each person's viewing habits. But let's say that a viewer has a secret dalliance of late-night racy movies after the kids have gone to bed. Do they want that information used in serving up ads?
Permission Marketing is the Way Forward
Currently, 49% of ads targeted at the 18-49 demo are wasted on people who don’t want to buy the product. - women watching Viagra ads, men watching make-up ads. The smart boxes will allow the customer to pick the ads she wants to see. When she sets up her box, she will be presented with a list of interests, hobbies, and other preferences. She can permanently zap the categories that bore her.
The cable industry predicts it will increase CPM yields from 300 to 500%. That means it can jump its rates into the ozone and advertisers will gladly pay. Proctor & Gamble will have the tools to better target people in the household who do laundry, and not waste ad dollars on the couch potatoes. Better ad targeting will deliver one rifle shot straight to the laundry room, not a grenade that blows up the whole house.
Major Advertisers are Angry
The precision of internet metrics has changed the game. Major companies such as Walmart, P&G and Ford have diverted major portions of their ad budgets to online because of its efficiency and message targeting precision. In speech after speech, CEOs from huge companies have given the ad business a tongue lashing. They have put the broadcast and cable business on notice – get more efficient or the blood letting will continue. They will not tolerate cable’s ever-increasing CPMs and clumsy, outdated, wasteful ad targeting.
Lack of Reach is Keeping the Current TV Ad Model Alive
As much as they hate the current TV ad model, advertisers know that TV is the only game in town if they want convenient and effective national penetration. These advertisers love the detailed metrics and focus of the internet, but a efficient national online buy is still impractical. They will begrudgingly continue to pay the ever-increasing fees as TV audiences dwindle because they have few other choices.
But make no mistake, they are angry, and will do everything possible to knock the cocky TV business down a few notches. As TV rates continue to go up, national advertisers will be more willing to go through the tedious process of placing numerous small internet buys. If the internet can ever build an efficient national platform, the exodus will be huge. The cable industry knows it must change and do it fast, or it will lose its best customers.
Lack of Standards is the Biggest Hurdle
Huge dollars and herculean effort are being put into developing this new lifestyle-targeted addressing technology, but each major cable company has its own flavor of hardware and software. One company may find a solution, but unless ALL the companies share a standard, efficient national buys will not be possible. A hardware solution will soon be found, but ego may delay implementation for years.
The cable companies know they must get along and work together, but it’s just not something that comes naturally. Technical standards committees have been formed, but there are still huge players who refuse to participate, preferring to go it alone. This has led some industry analysts to predict that this technology is still at least five years away.
This means that the limbo of ever-declining TV ad revenue will continue for the next few years. TV audiences will continue to leak away as gaming, DVRs, and online continue to chip away at the base. Until ad targeting shows up, there isn’t a better plan and TV advertisers must simply endure this walk through the desert, but there could be an oasis on the other side.
Everyone Hates Hulu
The cable programmers are jazzed to deliver their programming to everyone on any screen they choose – laptop, phone, or home theater. But in order to do that, they need to make at least a little bit of money. The internet and companies like Hulu and YouTube got out there early and set the pricing standard – unfortunately, that standard was free. Now the expectation is set and going back to a revenue model will be tough for consumers to swallow. The cable programmers feel that these early companies ruined it for everyone, and they are more than a little bit mad. Cable programmers have dabbled in online content delivery with projects such as TV Everywhere, but they refuse to get in the direct content delivery game without a solid model for building revenue. So for the foreseeable future, cable programming on multiple screens will be experimental at best.
Daily TV Viewing Time is Topping Out Despite the fact that ratings for individual channels are down, overall TV viewing is at an all-time high. The consensus is that there are not enough hours in the day for substantially more viewing in the home. This means that one of the best ways to increase revenue is to increase ad efficiency – get more dollars through better ad targeting. The other major hope is to increase viewing outside the home. This is also why mobile is such a coveted new platform. If mom can watch TV while she’s in the grocery store line or waiting to pick up the kids, big growth in actual viewing time is still possible.
Pre-roll and Interruption Advertising are Dead for Younger Demos
Total control is a huge factor in the viewing choices for younger viewers. An entire generation of people have grown up watching Youtube videos in their bedroom on a laptop, and they are accustomed to that delivery mode. They rarely go to the living room for the ten-foot experience of traditional TV. Older viewers are more amenable to being held hostage by ads in the middle of their programming, but a whole generation of younger viewers is already lost.
One of the major MSOs did a study asking younger viewers what they would do if they had 30 minutes to watch TV. 85% said they would go to YouTube or some other streaming video service. Only 15% said they would turn on a traditional TV.
In-Show, Permission Marketing is on the Horizon
The exodus of younger viewers is just one of many trends that is converging to destroy the interruption ad model. DVR penetration is moving up too. Coke saw the stats on ad viewing of DVR homes and moved their marketing out of the breaks and into the show where younger demos would actually see it. Powerful interactive cable boxes mean this trend will be supercharged.
As services like Hulu, YouTube, DVRs and Itunes all converge to give the audience more control over the viewing experience, advertisers who lack a personal connection with a targeted viewer will be eliminated by ever-more-sophisticated ad zapping techniques. If viewers don’t love you, they won’t listen to your message.
This means cable companies will use their new interactive tools to make advertisers a huge part of the program. Advertisers will no longer be content to live in the breaks. Who says ads have to be in the breaks? The same technology that works on placing content in ad breaks works equally well at placing content in the actual show. These new interactive cable boxes mean advertisers will join programmers in an ever-increasing creative role. Program producing will take on a whole new definition, requiring a wider skill set. Games, fan blogs, quizzes, Facebook sharing, and permission marketing will all be imbedded in the show. Traditional ads will be seen as less and less viable.
The Ad Agency Skill Set is Sorely Lacking
No question, ad agencies were the huge whipping boys at this conference. The general consensus was that their business model is firmly mired in the past, dedicated to maintaining the 30-second ad tradition. Advertisers, Cable Programmers and MSOs are all looking for creative and media placement leadership that makes full use of new tools being offered by ad targeting. The ad agency business has been caught flatfooted, awash in data, and unable to deliver the sophisticated new products required to mesh with this new hyper-measured ad world.
The Agency Model Still Places a Priority on Flashy Creative, Not Metrics or Customer Relationships.
The most experienced and highly-paid people in an ad agency are usually found in the creative and account management departments. Ad placement and PR are usually left for the fresh-out-of-college rookie who is paying his dues until a creative or account executive position opens up. The priority at most ad agencies is to produce award-winning creative campaigns, not to eliminate waste and get those campaigns in front of the right customers at the right time. The internet’s new generation of placement metrics has overwhelmed traditional agencies. They are firmly mired in the gross rating point, reach & frequency tradition. Today’s sophisticated ad metrics require SEO masters who graduated with statistics degrees, not an aspiring copywriter killing time in the media buying department.
Major Clients and Cable Companies Don’t Trust Ad Agencies to Effectively Sell the New Ad Targeted Inventory
In the past, most companies signed on with a single agency for all their advertising needs. But a lot of traditional agencies have failed so badly at new media that these advertisers are now forced to seek out boutique ad shops that specialize in the important skills required for this new medium.
Nike's television advertising is recognized as some of the most successful in history. Their agency, Weiden & Kennedy, is hailed as one of the most skilled agencies going. Despite this, in 2007 Nike dropped Wieden's contract for online advertising because it lost confidence in its new media skill set. The press quoted that Weiden "didn't know how Google worked." If the best and the brightest agency in the business can't pull it off, what chance do the average agencies have? As the line between TV and Internet is irreparably blurred, the cable industry is plenty worried that ad agency messaging and metrics won’t keep up with the sophistication of the new tools.
For the First Time, Mass Reach and Mass Customization can be Simultaneous
Broadcasting necessitated the creation of broad brands. One primary brand message for most everyone. If the MSOs can successfully roll out ad targeting on a national scale, it will fundamentally change the nature of branding. For the first time, advertisers will be able to combine the power of targeting with the punch of TV. The internet alone doesn’t have the reach. TV alone doesn’t have the targetability, but the new cable ad targeting system can combine the two.
Brands will be Defined by Mindset and Behavior, not Product Categories
A single unified brand image will no longer be effective. As a matter of fact, it will be perceived as naively simplistic and wasteful. Numerous customizable brands will be the norm. My experience of Tide will be completely different from my neighbor’s experience of Tide because we will see completely different ads.
Ad Campaigns will be Primarily Managed by Automated Servers, Not Human Beings
If you are a Netflix, Amazon or Pandora customer, you know the eerie accuracy of their recommendation systems. By watching the personal preferences of millions of movie watchers, Netflix can predict the next movie you’ll love. Often times, that movie is completely unrelated to genres you normally enjoy. But it still works because the choices are founded on a dispassionate statistical analysis, not a human judgment with its innate prejudices. Netflix sets the rules and lets the computer hone the specific movie list for each person. These companies work their advertising magic with algebra and calculus, not catchy artwork and clever prose.
Just like the automated systems behind the Itunes Music Genius, these same lurking hardware analyzers will watch every nuance of their customer's interaction with their cable boxes. They will automatically adjust the ad mix without the need for human intervention. Ad agencies will create 5, 10, 20 different brand campaigns for a single product – each targeted to the lifestyle, mood or crisis that happens to befall an individual buyer as his life situation changes.
We are no longer Broadcasters, we are all Direct Marketers.
If you want to find an industry to provide a little guidance during these times of transition, look to the junk mailers that clutter up your mailbox each week. Through years of trial and error, they have learned the finer points of targeting customized messages to each household. There is nothing broad about their thinking. This attention to individual needs must replace the general, compromising, overarching mindset of the current ad industry. In truth, it is a system that hasn’t changed a whole lot since it was invented 100 years ago. Goodbye mob, hello neighbor.
Graeme Newell is a broadcast and web marketing specialist. He guarantees that his teasing seminar will immediately increase your news ratings or his workshop is free. Find out more here... |
