A Push to Quickly Switch Video-On-Demand Ads

Updated May 27, 2013, 8:42 p.m. ET

A Push to Quickly Switch Video-On-Demand Ads

19%: The average percentage VOD viewing has increased annually since 2009.

By AMOL SHARMA and SUZANNE VRANICA

A few weeks ago, Travel Channel viewers using cable video-on-demand services started seeing Land Rover ads. Viewers wouldn’t know it, but the spots were the result of a significant advance in TV-advertising technology that media companies hope will help shore up their bottom lines.

Scripps Networks Interactive Inc.,SNI +0.54% the owner of Travel Channel, is among several media companies also including ComcastCorp.’s CMCSA +0.31% NBCUniversal, A+E Networks, News Corp NWSA +0.67% .’s Fox broadcast and cable networks, and AMC NetworksAMCX -1.18% rolling out “dynamic ad-insertion” or working toward doing so, according to people familiar with the matter. The new technology is being introduced by a cable operator-owned venture that lets TV networks switch out and replace ads on programs that air on video-on-demand in as little as 24 hours—instead of having to wait weeks as is currently the case.If it takes off, the new technology could make video-on-demand a much more appealing outlet for advertisers. In turn, it would give TV networks a better way of making money off the growing numbers of people who watch TV on a “time-shifted” basis—days or weeks after a show airs.

Consumers watching shows recorded on a digital video recorder—the alternative to VOD— are easily able to skip the ads. But cable operators frequently disable the fast-forwarding function on their on-demand services, making it potentially an appealing avenue for networks to offer time-shifted viewing.

So far, however, advertiser interest in VOD hasn’t taken off, despite steady growth in VOD viewing. Technological hurdles have been a big factor: until now, ads have been baked into TV programs slotted to VOD services and replacing the spots can take weeks. To swap in new ads, networks have to re-edit entire shows and send them to cable operators. Advertisers have been put off because their VOD campaigns get stale and outdated, especially those promoting time-sensitive events like retail sales or movie releases.

The new technology, provided by Canoe Ventures LLC, which is backed by Comcast,Time Warner Cable Inc., TWC -1.04% Cox Communications Inc. and Bright House Networks, lets networks quickly switch VOD ads. “The biggest benefit is speed and efficiency, and it makes the advertiser happier,” said Beth Lawrence, executive vice president of digital ad sales at Scripps. “We look at it as a huge opportunity.”

The average pay-TV consumer spent 4.8 hours per month last year watching free VOD TV, up from 3.8 hours in 2011, according to research firm Rentrak. Viewing has jumped an average of 19% annually since 2009. Still, that represents a small slice of the roughly 156 hours of TV per month the average U.S. consumer watched in the fourth quarter of 2012, according to Nielsen.

The ad market is also relatively small: total VOD ad revenue last year for TV content owners and pay-TV operators was about $388 million, according to SNL Kagan, compared to the $64.3 billion advertisers spent on TV ads, according to ZenithOptimedia. Since there has been relatively little advertising on VOD thus far, some spots get repeated over and over, annoying viewers.

A major roadblock in boosting advertising is that 70% of viewing of ad-supported TV entertainment on VOD occurs at least four days after the show has initially aired on television, according to Rentrak. But advertisers generally pay TV networks for viewing that happens only over the first three days following a show’s airing. Networks can get credit for viewing on VOD over that time frame, provided they run the same ads that run on live TV.

Dynamic ad-insertion makes it much easier for networks to make money on that later-day viewing and to remove ads that can become irrelevant, backers of the technology say. That, along with the general growth of VOD usage, has piqued the interest of some on Madison Avenue who have been waiting a decade for VOD to mature.

“VOD was a worthless advertising medium until now,” said Michael Bologna, director of emerging communications at WPP WPPGY -0.54% PLC’s GroupM. Mr. Bologna and other ad buyers say the technology also allows easier targeting of particular demographic groups—borrowing tactics from the online world.

Some ad buyers are overcoming previous bad experiences with VOD. “Most advertisers have gotten burned on VOD, but just because it’s been challenging doesn’t mean it can’t be fixed,” said Tracey Scheppach, executive vice president of innovations at VivaKi, an ad buying shop owned by Publicis Groupe PUB.FR +1.81% . “We have renewed enthusiasm.” GroupM and VivaKi have both bought dynamic ads.

Canoe’s new technology reflects a shift in strategy by the company, whose initial focus was on developing targeted ads for live TV. Canoe’s service covers 28 million households, including the footprints of Comcast and Time Warner Cable.

Matt Strauss, senior vice president of digital and emerging platforms at Comcast, said the cable operator has amassed a large audience since it started on-demand services 10 years ago—about three-quarters of its subscribers use VOD each month—and built a big content library.

“The stage has been set to monetize this audience,” he said. “The last piece in the puzzle was giving programmers the tools to dynamically insert advertising.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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