Ads On-Demand

There is no denying the growth of free VOD. In recent weeks, Turner has laid out plans for TNT and TBS to begin offering free video-on-demand, and the Speed Channel says it will soon add all-original NASCAR content each Monday.

But as any operator knows, “free” content is anything but. Capacity needs to be added to VOD servers for storage, and additional streams need to be added to the system to meet increased subscriber demand. The networks also face costs: first, in getting the content ready for VOD; then, in negotiating the rights to distribute the program on VOD. TNT, for example, will roll out its VOD service without offering The Closer, its biggest hit of the season, because it was unable to reach an agreement with program producers.

As those networks join CNN, Comedy Central and multiple Scripps networks in allowing subscribers to access free programming with a few clicks of the remote, everyone is wondering how to make money on free VOD. The answer, for many, is advertising—particularly new ad models featuring highly personal and, cable operators hope, highly effective ways of reaching viewers.

“All MSOs understand that free VOD has to be paid for by someone,” says Paul Woidke, VP, technology, for Comcast’s Spotlight advertising division. “And part of the way to do that is with advertising that is relevant to the viewer.”

Several major operators are working with the simplest form of VOD advertising: placing long-form advertisements (think, high-end infomercials) on the VOD servers. But that only hints at the potential. Comcast, for one, is working on taking a program that aired on regular TV, pulling out old commercials, and adding in new ones for the VOD version. By 2006, the company expects to use the digital cable network to swap spots into and out of VOD programs based on who’s watching.

“If you’re watching a fishing program, you could get an ad for a new rod and reel,” says Joe Ambeault, director of broadband services for VOD-technology provider SeaChange. “The VOD system has software that manages a dynamic play list with business rules attached to each piece of advertising and content.” That list figures out which ad is most appropriate to pull off the VOD server, he adds, and “splice” into the VOD stream sent to the viewer.

Yet there is still work to be done. Some of the issues that remain involve setting standards for splicing so that all the vendors use the same method to signal the VOD system to insert a spot.

Until then, some operators are using digital-cable pipes to do the next-best thing with live local-cable inserts. Comcast is dividing several major markets into 40 different advertising zones and using C-Cor’s server and SkyVision software to send out different local spots to each one. The system in Philadelphia has 1,600 regular and 75 HD TV streams available, making it possible to send out zoned versions of networks like CNN and ESPN to as many as 40 markets at a time.

Until the next-generation VOD ad system is perfected, many operators will take a wait-and-see approach regarding splicing VOD advertisements. Ambeault faults an advertising community stuck on outdated models. “Advertising is always about crawl, walk, run,” he says. “The reality is that the technology can sometimes exist for as much as a decade before it gets used.”

That change in attitude could begin to dramatically in January, when Nielsen adds VOD and DVR viewership to its numbers. It will offer three forms of audience measurement: live, live plus 24 hours (for DVR time- shifters) and live plus one week (which will include both DVR and VOD viewing). Given that the last number will be larger than the first two, odds are that almost every content producer and network will want its program on VOD as soon as possible—and advertisers will finally have hard data on viewership.

Coleman Breland, Turner Networks executive executive VP, sales and marketing, sees that sparking the advertising community into action: “[Viewer measurement] will definitely impact the model.”

He and others believe that the impact of VOD advertising will be significant. “When we see trials of VOD ad insertion in 2006,” says Woidke, “it could signal the most massive change you could imagine in the TV-ad business.”