Think of the broadcast networks during the upfront season as a ravenous shark, a great white swimming through the murk of an uncertain economy, gobbling up every advertising dollar it can fit inside its mouth. Now think of the cable guys, the ad execs that have to wait off to the side while the larger, toothier fish eats. These are pilot fish, seemingly insignificant creatures that trail in the shark's monstrous wake, darting at the stray bits of flesh remaining from its latest feeding frenzy.
For all its vast popularity ? more than 70% of American households subscribe to some form of pay-TV service ? the people in charge of selling ad time for cable television never have been quite able to shake off such unflattering comparisons to the folks on the rabbit ears side of the business. While the annual broadcast network upfronts are usually (in a healthy ad market, anyway) characterized by sizable paydays and frenetic order-taking, what's left over for cable's delectation is often little more than scraps.
There is hope for cable to close the dollar gap, however, and as has been the case in so many other instances, redemption may lie in the digital push. As customers methodically switch to digital services, cable operators find themselves in the unique position of being able to digitally insert advertisements directly into their programming streams. Thus, some of the missed opportunities that have plagued the industry ? an estimated $4 billion in local ad revenue went unclaimed in 2001-2002 ? stand a fair chance of being seized by MSOs in years to come.
Murray Anderson, a media analyst with Morgan Keenan, says digitally inserted ads could allow cable operators to maximize every nanosecond of the broadcast day while helping to make targeted, personalized advertising a reality. ?It's early in the game, but DPI [digital programming insertion] should in part take care of the local ad problem,? Anderson says. ?Anything that adds inventory is going to give you a greater share of the dollars. But overall, the addition of digital tier plus the interconnect will have to come together in order to help bridge the gap.?
Until only a year ago, the insertion of digital ads into digital programs required a messy conversion process for both. When the cue tone embedded in the analog programming signaled for an ad, the digital ad was plucked from the local server and converted to analog. After decoding, the ad was spliced into the program, and the combination of content was then re-encoded to digital. This digital-to-analog-and-back-again shuffle ate up a lot of time, cost a lot of money and generally degraded the picture quality.
But that was then. In 2001, a cooperative of leading vendors gathered at CableLabs to test bleeding-edge digital program insertion, each offering its own piece of the puzzle. (Motorola and Scientific-Atlanta contributed uplink equipment; BigBand Networks, Cisco Systems, Harmonic and Terayon Communication Systems provided the splicing equipment; and nCube and SeaChange International offered their digital advertising servers.) The group finalized the adoption of two Society of Cable Television Engineers insertion standards: DVS-253, a cue tone trigger that tells the local video server when to play an ad, and DVS-380, which standardizes communication between servers and splicers.
As a result of the CableLabs test, cue tone detection and ad splicing can now be done simultaneously into a receiver's multiple (eight to ten) channels, giving MSOs the ability to use all of their avails for local ad insertions.
Paul Woidke, SVP and CTO of AdLink Cable Advertising LLC, an advertising interconnect for the Los Angeles market, and chairman of Working Group 5, the committee that developed the DVS-253 and DVS-380 standards for SCTE, says the big push behind DPI was a reaction to an aggressive local digital rollout. ?When AT&T launched their digital service in L.A., they faced steadily growing satellite penetration and so had to move quickly,? Woidke says. (And they did: In less than two years the MSO has placed digital set-tops in nearly 40% of its subscribers' homes.) ?If we had been unable to execute digital ad insertion, we would have lost all of those eyeballs.?
Thus the impetus was to be able to deliver to every subscriber who was receiving basic cable networks all the advertising in the digital domain they would normally see in the analog domain, Woidke says. ?That's a significant revenue stream, and you don't want to go backward on that count.?
If it can be said to have one, this may be cable's dirty little secret. As the industry closes in on the 30 to 35% mark in terms of its global digital penetration, local cable ad sales reps at systems that do not utilize DPI may continue to lose revenue.
?It's always a problem when 30% of your audience starts to go away,? says John Boland, VP and GM of nCube's Advertising Systems Group. ?Unless the systems are re-encoding those analog networks, they're not getting to those people with their ad messages. To make matters worse, new digital subscribers typically tend to be more affluent consumers, so you're taking away the very people that my customers want to reach.?
Those operators who have begun integrating DPI into their systems have taken a giant leap forward toward targeted advertising, says Rich Peske VP-product marketing for BigBand. ?The ultimate use of our BMR [broadband multimedia-service router] will be the creation of a video-on-demand environment in which the ops can feed you ads tailor-made for your demographic,? Peske says. ?Broadcast ad insertion is the first step; the second step is do it on a narrowcast or an on-demand basis. But the technology is suited for both environments.?
On the server side of the DPI process, rival vendors nCube and SeaChange both offer their customers similar results by means of two radically different approaches. SeaChange has partnered with Cox Communications' CableRep Advertising, demonstrating its system at the MSO's Phoenix location, while nCube has been working with Time Warner Cable in L.A. and Milwaukee. Representatives for both vendors say the DPI ball is rolling and gaining serious momentum.
?We're in full motion with this,? says Joseph Ambeault, director of broadband systems, SeaChange International. ?We've developed best practices standards in conjunction with Cox, and they're out and going.? Some bugs need to be worked out, however. ?There are still some minor things you have to work around, like video source. And I can't believe it's been three years and I'm still having to say this, but you need I-frames in the video source. Otherwise, you're going to get a tiling effect, a progressive refresh.?
Ambeault also notes that there have been some delays in the full implementation of the DVS-253 standard, but otherwise, the vendor is locked and loaded ? and set to deliver targeted advertising. (In SeaChange argot, that's ?customized advertising.?) ?All our customers investments in both ad insertion and VOD are moved over to targeted advertising,? Ambeault says. ?So what you'll see from SeaChange customers' operations is the ability to deliver a household message in both broadcast and VOD as a unified business.?
Although DPI may sound like an enormous opportunity for cable to make strides in local markets, not everyone is prepared to drink the Kool-Aid just yet. Last March, Dennis FitzSimons, Tribune Company president and COO, told the gathered throng at a Bears Stearns media conference in Palm Beach that cable will be a perennial bridesmaid. ?To a national network advertiser, cable can be a reasonable substitute for network television because both cable and network television are selling basically the same thing: commercials that reach a national audience,? FitzSimons says. ?But, to a local advertiser cable isn't even a reasonable substitute for local broadcast television.?
Bah, says Boland: ?The technology is here. It's available, it's stable and when it's all in place the cable ad sales folks will truly be able to reach their market. So there are some very real benefits today, as there will be in years to come.?
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