Global Trend

The Balance of Advertising Power Shifts

The advent of pay TV, on-demand TV, IPTV, TiVo, and all the other technologies that are changing the entertainment and informational landscape has led to many dire predictions about the impending demise of television advertising. However, the reality so far is much less traumatic:

First, the penetration of digital video recording devices simply isn’t that deep, just yet. There were less than 9 million U.S. households with DVRs at the end of the second quarter of 2005, according to estimates by Hudson Square Research.

Second, TV advertising is currently about a $67 billion-dollar business and growing, according to the latest numbers from Universal McCann, which cover the year 2004. According to a recent report from the Soleil Media Team, TV advertising grew at 10.9 percent annually and accounted for 26 percent of all ad spending in the most recent year. So rumors of its demise are exaggerated, at least at the moment.

Obviously, changes in the way content is distributed, and in the way viewers pay for it, are creating new challenges for the ad industry, but they’re also creating unprecedented opportunities. The same technology that threatens traditional television advertising is being used to improve its effectiveness.

Looking ahead, the Trends editors expect all content, from entertainment to voice telephone traffic to converge into a single network. Technology vendors are moving to create tools and applications that will ultimately enable a synergistic new wave of advertising that combines the strengths of the Internet with those of television to make delivering the sales message more effective than ever.

This vision can be put another way: It’s not the demise of TV advertising that we should anticipate. It’s the demise of TV as we now know it, that’s coming. And that, naturally, is going to change the advertising landscape. In that changing landscape, the Trends editors argue the winners will be those who control the networks that distribute content; Comcast, for example.

Today, 75 million households in the U.S. access the Internet, with users spending an average of 23 hours a week on-line and an average of 25 hours a week watching television. The Internet is rapidly becoming the channel of choice. Likewise, Internet ad spending is on the rise, growing at nearly 20 percent during the last five years to $6.8 billion. Paid search on Google and Yahoo! brings that figure to almost $10 billion. Even so, Internet advertising still amounts to just under 3 percent of the advertising market.

But the fact remains that neither TV nor Internet ads are very efficient today at reaching the customers that vendors want to reach. At the main home page of Yahoo!, for example, visitors are apt to see a big, expensive, animated ad for mortgages ? whether they are in the market for a mortgage or not. Likewise, when viewers turn on the TV, they’ll probably see an ad for a new car ? even if they just bought one yesterday. That’s a grossly inefficient use of marketing dollars. And it’s the norm. According to an article in Inc. magazine,2 some 90 percent of automobile ads on the Internet reach people who don’t want cars.

But because television in the future will become more interactive and non-linear, there’s an opportunity to create more targeted and much more customized ad offerings that are far more likely to achieve the desired result.

In fact, this transformation of television advertising is already underway. Visible World is just one company that has created a highly sophisticated system for targeting ads on television. Its IntelliSpot software system is capable of targeting more than 30 million households already.

With IntelliSpot, an advertiser can create modular spots that include different openings, different content, and different taglines, depending on everything from the time of day and the weather outside to the demographics of a particular area. These swappable components are automatically assembled into customized ads ? on the fly ? once the rules for selecting the elements are established by the advertiser. The files are automatically sent to Comcast’s cable servers, where they are instantly assembled into thousands of customized ads aimed at particular groups of viewers.

For example, by automatically tracking weather conditions, an airline can change its pitch instantly to let someone in the middle of a Boston blizzard know that it’s currently 75 degrees in Miami.

Visible World is already targeting ads for United Airlines, Ford Motor Company, and Bank of America. And, through its deals with Comcast, its influence is growing fast. Comcast can now pinpoint groups as small as 1,000 homes in major metropolitan areas that include Boston, Chicago, Dallas, and Miami. Within two years, the company plans to target individual households on dimensions such as age, marital status, and favorite leisure pursuits.

There are already software systems that can track what people are interested in while surfing the net. They can follow individual users to an ad site, and then watch what they click on, how long they stay connected, and what, if anything, they buy. Using this information, the software can then track back and present a targeted ad to them.

This is just a much more sophisticated version of the system used by Amazon, for example, that recommends books based on what the individual and other “similar customers” have bought in the past. If a consumer bought a new car yesterday, such a system could make sure not to try to sell another one to the same person today. However, it could keep in touch with the new car owner regarding options and upgrades or services, and then try to sell the customer another new car in a year or two.

As television and other entertainment and information systems merge and become more interactive, this same type of behavior tracking and forecasting system will be used to target every type of ad. It will rely on the pull related to a consumer’s history of buying various products and services, rather than the push generated by traditional ads that try to create new needs that don’t yet exist.

The new integrated media will allow a system in which the viewer might see an ad while watching an entertainment program, click a button on the remote, and be taken directly to the relevant Web site for more information or to complete the purchase while the entertainment is paused.

Another technological breakthrough, called “digital advertising,” is going to enhance an advertiser’s ability to deliver targeted messages to consumers even when they’re not watching advertising. Digital advertising uses computer technology to insert products or logos into scenes where they don’t actually exist. This is similar to manipulating a digital photo. It’s already common at sporting events.

For example, during a televised baseball game, Coca-Cola can insert its billboard logo behind the batter, even when there is another ad ? or nothing at all ? on the actual wall behind home plate. If the interactive TV system already knows the viewer’s buying and spending habits, it can more accurately target the individual’s needs in that space. As the technology of digital ads matures, blank space in every sort of entertainment will be sold and customized in this way.

More and more companies are now vying for the business of tracking consumer habits, including 24/7 Real Media, Dotomi, Claria, and Blue Lithium. For example, Blue Lithium can now reach about 60 percent of all Internet users through 1,000 affinity-based Web sites. It serves more than 4 billion impressions a month to provide targeted solutions by channel, by demographic, or by geographic genre.

Dotomi uses a slightly different type of tracking that relies on customers opting in. It then uses instant messaging to open a channel of communication between the customer and the seller. This ensures that the customer wants to receive the message, and allows the seller to do most of its advertising only to its top prospects. This type of one-to-one communication is, of course, the holy grail of advertising.

In light of this compelling trend, we offer the following five forecasts for your consideration:

First, in the next five years, the targeted television commercials will gain share, but only gradually at first. The rate at which set-top boxes and digital video recorders penetrate the market will be a key in this gradual change. By 2009, DVRs will be in 40 percent of U.S. homes, according to predictions from Forrester Research and Accenture. By 2010, advertising through those technologies is expected to reach the $15 billion range. Assuming the technical challenges are met by the various software, hardware, network, and content players, this build-out will enable the tools and applications that will begin to push the benefits of Internet advertising into the broad format of television.

Second, in 2015, television will remain the largest advertising medium, with revenues above $70 billion. Despite its inefficiencies, it will remain the first choice for reaching consumers. But as targeting and new measurements come on-line, expect those dollars to shift as return on investment becomes the watchword for advertising and marketing efforts. Anyone who can provide more efficiency and measurably higher ROI through technological leverage will reap the benefits.

Third, as this shift takes place, advertising revenues will move away from some traditional beneficiaries and toward network operators, such as Comcast or SBC. New entrants that do not operate networks, such as Gemstar, are also poised to benefit from this development by guiding viewers through the maze of offerings, even as they collect the kind of information that will make targeted ads more efficient. Gemstar, despite recent SEC troubles, owns TV Guide, a recognizable brand that could be turned into the interactive entertainment and information guide of choice. Such “middleman” services may reap huge rewards for investors.

Fourth, by 2020, TV viewers will no longer be seeing ads that are completely irrelevant to their interests. Random spots pitching cholesterol drugs or laundry detergent will be a thing of the past. In fact, television as we’ve known it will be a thing of the past. Its content will have become a seamless part of a broad offering of entertainment and informational services over a unified network based on new Internet-based technologies. Most of the advertising that individuals will see, as well as all of the programming, will be there because, by one means or another, consumers will have communicated to someone that they wanted to see it.

Fifth, by 2025, we will see the realization of the dream of receiving any content, anywhere, anytime, on any device. Because it will all be interactive, advertising as we know it will have changed beyond recognition. It will be more like receiving messages from a trusted associate who will keep the recipient up to date on new offerings that are certain to be of keen interest. The days of consumers being constantly bombarded with messages that are of no interest to them will have effectively ended ? largely because those messages won’t be profitable. And, amazingly, advertising will have become a valued service to consumers, rather than an irritant.

References List :
1. To access the report “Advertising in an On-Demand World,” visit: www.lifegroup.com/Future_of_TV_Advertising.pdf 2. Inc. Magazine, August 2005, “The Future of Advertising Is Here,” by David H. Freedman. ⓒ Copyright 2005 by Mansueto Ventures LLC. All rights reserved.