Advertising chaos

TARGETING ADS

The good news for IPTV providers is that they appear to have a near-term opportunity to do something cable has been promising but has yet to fully deliver: targeted advertising.

“The service providers have good reason to be excited about targeted ads, especially on platforms like IPTV,” Taylor said. “It's a really wonderful thing. The overall promise from a user perspective is to get fewer ads and for them to be more effective. People say they don't want to watch any ads, but the thinking is that if you show people the right ad, it's not the same thing as seeing ads as an interruption.”

Verizon has showcased technology that targets ads based on its customers' behavior and found the advertising community is very interested, said Joanne Lacourse, director of user-centered design. Although the service isn't available yet, the technology exists to let viewers watching a show hit a button on their remote to see related content such as recipes being used in a cooking show, books on related topics or DVDs featuring the actors on screen; they can even buy items and have them added to a FiOS bill. Speaking at a Verizon demo day for media last fall, Lacourse said the only stumbling block is the business plan.

There is another “gotcha” with targeted advertising, however, and that is consumer privacy. As Facebook learned in late 2007, consumers aren't that crazy about having their habits watched and recorded. Industry analysts agree this is a problem, but they also think it will be solvable.

“There will be privacy experts who will develop privacy guidelines for advertisers,” said Peter Krasilovsky of Krasilovsky Consulting. “Consumers will need to have a good opt-out policy.”

What telecom service providers need to avoid, however, is the delay that has kept interactive and targeted advertising from being part of the cable play, said Derek Baine, analyst for SNL Kagan.

“The cable operators have been saying for years that this is a high-growth area — targeted ads — but if you look at what has actually happened, it has been very little; it has been very disappointing,” he said. The industry's Canoe initiative, which will be tested this year, will create a common interface and systems for advanced advertising services, including targeted and interactive ads, that should speed deployment at the national level but won't help with local ad insertion, Baine said.

“The ironic thing is that what AT&T and Verizon are now saying they are going to do — target local ads — is what cable operators said they were going to do five years ago,” Baine said. “The problem with delaying is that you can already buy targeted ads on the Internet, and that is growing phenomenally. If [cable] drags on, they could miss the boat entirely if all the national advertisers are so enthralled with their Internet campaigns.”

There are, no doubt, pitfalls ahead, Yankee Group's Taylor agreed, but he believes major telecom service providers are girding themselves for the task by hiring the necessary talent.

“None of this is easy,” Taylor said. “I think what the telcos are doing around IPTV is fascinating. Something is going to stick. The open question right now is which set of technologies — the Internet, IPTV, [multiple systems operators], portable devices, satellite — is going to take hold with consumers and with advertisers. I don't think we know that yet.”

U.S. Advertising Expenditures, 2000-2006
(in millions of dollars)

	2000	2001	2002	2003	2004	2005	2006
medium BROADCAST TV
Four TV networks	15,888	14,300	15,000	15,030	16,713	16,128	16,676
(3 TV Networks)	(14,256)	(12,795)	(13,256)	(13,105)	(14,691)	(13,898)	(14,298)
Syndication	3108	3102	3034	3434	3674	3865	3691
Spot (national)	12,264	9223	10,920	9948	11,370	10,040	11,626
Spot (local)	13,542	12,256	13,114	13,520	14,507	14,260	14,887
Total	44,802	38,881	42,068	41,932	46,264	44,293	46,880
CABLE TV
Cable networks	11,765	11,777	12,071	13,954	16,424	18,296	19,320
Spot (local)	3690	3959	4226	4860	5103	5358	5705
Total	15,455	15,736	16,297	18,814	21,527	23,654	25,025
YELLOW PAGES
National	2093	2087	2087	2114	2110	2163	2206
Local	11,135	11,505	11,689	11,782	11,892	12,066	12,187
Total	13,228	13,592	13,776	13,896	14,002	14,229	14,393
INTERNET	6507	5645	4883	5650	6853	7764	9100
Source: Universal McCann

Advanced Advertising Potential

	Estimated market (in millions of dollars)	Additional market (in millions of dollars)
BROADCAST (national)	22,500	2000
CABLE (national)	17,000	1500
LOCAL INSERTION	5500	1500
ON-DEMAND		1100
ADDITIONAL POTENTIAL	4500	6100
Source: Motorola

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