Hitting the target – how IPTV will transform the advertising experience

By John Reister, Chief IPTV Architect, BigBand Networks

The prospects look good for IPTV. Analyst firm Multimedia Research Group (MRG) projects that the number of subscribers worldwide will increase from 13.5 million in 2007 to 72.6 million in 2011, equivalent to a 40% compounded annual growth rate. Research company Infonetics estimates that IPTV will generate $38 billion in revenues for service providers by 2009.

However, if IPTV’s potential is to be fulfilled, there are significant challenges ahead. Many of the services offered by cable and satellite operators have already achieved broad market acceptance. IPTV providers will not be able to charge similar fees for similar services and still expect to capture significant market share. To succeed and grow, they will need to differentiate.

Addressability gives providers the opportunity to do this. IPTV networks can direct content to individual recipients, much like the Internet. In IPTV, the IP endpoint is the television set or the set-top-box attached to it, which allows programmes or advertisements to be tailored for and delivered to specific TVs.

This ‘addressable advertising’ capability is the key to enabling IPTV service providers to generate additional, incremental revenue streams as they gradually increase their subscriber numbers. In the future, it will enable service providers to transform the way television viewers experience advertising. And such a transformation is crucial if advertising over television is to continue to compete effectively with other ad delivery methods. 

Fighting Back in the Advertising War

Today’s consumers have access to a wider range of media outlets than ever before, which has served to fragment audiences for advertisers. Online advertising revenues have grown significantly in recent years largely because of the sophisticated targeting capabilities that the Internet offers.                                                                                                         

The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) recently predicted that Internet advertising revenues for 2007 would grow to $21.1 billion, a 25% increase over the previous revenue record of nearly $16.9 billion for full year 2006. In contrast, television ad revenues, while still greater overall, have remained relatively flat, with media analyst firm, Screen Digest predicting that spending will grow at just 1.9% in Europe and 1.5% in the US, making 2008 a difficult year for TV advertising.

A recent survey by Continental Research concluded that relevance is the ad ingredient most critical to creating brand recognition and driving consumers to action. Unfortunately, it is inherently difficult to deliver commercials to precisely targeted audiences over traditional television networks, and operators and advertisers are suffering as a result.

Today’s television viewers are losing patience with irrelevant advertising. An ongoing study by Comcast Spotlight, the ad sales division of Comcast Cable, and media agency Starcom MediaVest Group seeks to illustrate the effect of addressable advertising through increased ad relevance and advertiser accountability.

Comcast delivered ads across eight of its cable networks designed to target households based on characteristics specified by advertisers including General Motors, Discover Card, Hallmark, Kraft, Mars and Procter & Gamble.

The study found that households served targeted ads in commercial breaks were less likely to change channels, tuning away 38% less of the time than homes that received non-addressable advertising.

This result underlines just how powerful targeted advertising can be. In this context, it is perhaps not surprising that advertisers are increasingly looking for ways to improve their advertising efficiency and effectiveness and that many are willing to pay a premium to reach their target audiences with more engaging and relevant ad messages.

Targeting in Action

IPTV offers the means of turning the vision of televised targeted advertising into a reality.  By so doing, it could help television retain its traditional share of total ad revenues. With sophisticated video processing capabilities now available at the network edge, IPTV providers could deliver tailored campaigns to individuals spread across the breadth of their networks. Adverts broadcast over IPTV networks have the potential to target large or small groups or even individual television sets with many hundreds or even thousands of ads simultaneously sharing the same programme content.

Advertisers can provide operators with advertising rules and methods to send more specific information to different geographical and demographic groupings at different granularity, from national, regional, local or down to a particular set-top box (STB) or household. These decisions can be based on anonymised demographic information or user behaviour, such as channel change history or user ‘opt in’ type offerings.

Campaign management tools can be put in place which provide enhanced flexibility to advertisers and operators alike. Adverts no longer have to be booked weeks in advance for rigid time-slots and viewed by the broad audience of a single channel. They can now be scheduled to run in a particular region or shown to a specific demographic and, if required, can even be modified or replaced at the last minute.

Benefits for All

Addressable advertising delivered over IPTV networks has huge potential. Increased personalisation can improve revenue generated on a per-ad basis for both operators and content providers. It is important to note here that the model also allows the privacy of the individual to be respected. Addressable advertising should only be implemented in strict accordance with privacy regulations.

Operators can also benefit through the lucrative practice of inserting ads within content streams in order to target specific regions. Using this approach, they might conservatively expect to generate US $5-$6 a month of incremental revenue per user for regionally or demographically-targeted ad placement. They also gain by having greater control over the adverts that they run and more influence over when they run.

The advent of IPTV enables those advertisers that have never previously even thought about advertising on television to begin using the medium. Any small-to-medium sized business, from legal firm to sports centre, now has the ability to target advertising to a specific region or demographic.

With the growing simplicity of web technologies like HTML, the emergence of HD camcorder devices and the greater bandwidth and processing speeds now available on many office PCs, such businesses are also increasingly likely to have the appropriate tools, (often supplied by small entrepreneurial companies) and resources to create the advertisements themselves.

In a new wholesale ad delivery business model, the content provider opens up the opportunity for the IPTV delivery operator to carry out the ad insertion process. However, the content provider can still make the ad selection decision on which ads to use for which specific target markets and therefore continue to sell the ad inventory. And the operator can also send back information to the content provider relating to the number of people who viewed the ad and those who skipped it. As a result of this, the content provider’s ‘product’ is now much more refined, enabling it to attract the attention of more advertisers and halt defection to the Internet.

Bright Future Ahead

Addressable advertising services are feasible today, and the approach offers benefits to operators, content providers and consumers alike. Viewers benefit by seeing advertising for products and services that are relevant and tailored to their individual areas of interest. For content providers, the extra revenue generated can fuel additional content creation.

Addressable advertising offers operators the potential to extract much higher value per ad, but also the ability to sell a specific slot to multiple advertisers. Rather than selling an advertising slot to just one advertiser, addressable advertising allows the carrier to optimise revenues by targeting multiple advertisements to different viewers during the same programming break. With the ability to choose ads per subscriber based on specific geographic, demographic, contextual or behavioural information, operators could achieve much higher average revenue per user (ARPU) from the targeted IPTV ad revenue.

Just as IPTV could be a potential boon to service providers, the stakes for technology providers are also high. Infonetics expects that by 2009 service providers worldwide will spend US $26 billion on IPTV infrastructure. It is likely to be money well spent.

Technology providers today are actively developing network solutions that integrate seamlessly with operators’ platforms, giving those operators the opportunity to capture a significant share of future advanced advertising revenues. If they fail to take advantage of this opportunity and adopt a more passive approach, they risk becoming sidelined as ‘over-the-top’ content providers like Google and Yahoo, who take a set-top box approach to targeted advertising, reap all the rewards.  

So the time is right for operators to seize the initiative and to start integrating scalable targeting into their networks. The ad industry has eagerly anticipated the targeted television commercial for more than a decade. If IPTV technology can deliver on its promise, the wait may soon be over.