USA Today is reporting that Americans' growing impatience with commercials has forced cable companies to find new ways to target audiences. Several cable companies are beginning to experiment with ways to target consumers directly by sending different advertisements to each neighborhood, or even to different households within the neighborhood.
If given a choice, most will fast forward past advertisements, and as more Americans subscribe to video-on-demand services, TiVo, and Digital Video Recording, advertisers must find ways to tailor their messages to specific consumers:
“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.
But even direct advertising may not be enough to prevent an average viewer from reaching for the remote:
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.”
Another potential development may be the emergence of interactive marketing, commercials that allow you to query for more information or purchase directly from the screen:
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.
Transforming advertising from an annoyance into an actual service will be the challenge, but, at this point, it is one the industry has no choice but to accept.
You are directionally correct, but there are a number of little nuisances that still might get in the way of advertising people 'transforming' themselves.
First, before someone can skip commercials, they have to have a set top box that allows them to do that. Currently, there are only 3 to 4 million DVR's (projected to go to 10 million soon). There still are over 100 million television households. That is a lot of inertia.
Second, the local cable companies are not going to allow an advertiser to send a dog food commercial only to dog owners without also forcing that same advertiser to buy a commercial that will get sent to the non-dog owning houses. In other words, they will not divide a major market on a major network.
Third, the networks will not renegotiate their carrage agreements. I don't even see interest of this idea even inside Time Warner who owns significant players on both sides of the fence.
Fourth, (and I am still mystified by this one), not all TiVo owners skip commercials. Studies tend to show that 50% will skip all or almost all the ads. The other group will skip some ads, but still watch most of them.
In interests of full disclosure, I know just about everyone quoted in that USA Today article and the vendors selling the technology that give the cable companies their spin. While they are taking steps to test this stuff, we still will not see any wholesale changes in the ad environonment for at least 3 years.
I predict instead that we continue to see a steady erosion of the value of television advertising and a lot of articles bemoaning what the DVR and VOD are doing. There will be lots of words that 'things must change.' Then, everyone in the ad industry will go to their jobs, doing what they did yesterday (just renegotiating the rate).
Posted by: Martino Mingione | February 23, 2005 at 11:22 AM
Martino...Thanks for the comments. I suspect that you are correct that ad execs will resist new initiatives in the short run. In that way, the advertising industry is like most others. In the mid-term, however, I think we are likely to see a shift in methods and mediums. There are always innovators - even in the ad industry - and they have seen the writing on the wall. A host of technological advances have created a well-informed public, but also one with less patience and shorter attention spans.
Yes, there are still many homes without VOD and TiVo, but word has a way of spreading quickly and reaching a tipping point. How many homes had Caller ID five years ago? How many do now? How many homes had DVD players five years ago? And now? How much longer will people tolerate dial-up connections in their homes? My point is that new technology (either because of price or complexity or ignorance) spreads slowly at first and then climbs rapidly (though hold-outs will always exist...my grandparents will probably never get a DVD player).
As to your point about direct marketing based on individual preferences: I think the USA Today article alluded to the technology that would store a 'set' of commercials for certain neighborhoods. The cable company's system could then select the most appropriate commercial for the household based on individual preferences, demographics, and viewing times. That is what would allow the advertisers to target each household in a block, and also allow the cable company to make it's money. I suspect it would modify the way that blocks of advertising are sold. A cable company may sell a menu option, rather than a single commercial slot. Currently, bandwidth limitations prohibit this option. That's not likely to be a business blocker for much longer.
Finally, I'm shocked that a significant portion of TiVo and VOD users actually watch commercials. I've seen no surveys and so can only offer anecdotal evidence: everyone I know who uses these products hates commercials (ditto for satellite radio) and loves fast-forwarding past the breaks. I cannot imagine why people would actually watch the commercials.
But it sounds as if you're involved in the ad industry and are probably in a much better position than I to know how likely the ad transformation is likely to occur. As an outsider to the industry, however, I cannot see how a viable industry could sustain itself without one.
Posted by: Jason Turner | February 24, 2005 at 11:09 PM