How Addressable Advertising Creates IPTV Revenue
by Patrick Christian, Founder & Managing Director
3/3/2006
IPTV is widely predicted to be the ‘next big thing’. IPTV also, however, promises a new lease of life and additional income for service providers from advertising. Indeed, the very nature of IPTV could prove the means by which to turn around viewers who are becoming increasingly jaundiced about current TV advertising and are opting to skip ads. According to a report in 2004 by Yankelovich Partners, some 65 per cent of consumers feel constantly bombarded by marketing messages and there is evidence that resistance is growing.
Unlike current terrestrial, cable and satellite television, IPTV enables ‘addressable advertising’ that can be closely tailored to the viewer: not just according to geography, but by a wide range of other factors. Whilst viewers are watching the same content, ads that are sent simultaneously during a single avail can be varied according to their individual demographics, psychographics, shopping habits and personal preferences. For example, people with children can see ads about toys and children’s clothes, while someone interested in fashion and beauty can see ads about clothes and cosmetics. Because IPTV is bi-directional, telcos and operators can be aware of consumers’ viewing habits in real-time, enabling advertisers to gather valuable marketing information and to respond instantly to viewers’ reactions. This relevancy is a step-change from traditional TV advertising which is very much ‘one size fits all’.
Even at its most innovative, with conventional TV ads the regions targeted are necessarily relatively large – comprising probably hundreds or even thousands of viewers at best – and the ads are governed by the preferences of advertisers and broadcasters rather than being driven by viewer demand.
Geographical Tailoring
Geographical tailoring available today over cable, such as with Comcast Spotlight’s Adcopy and Adtag, enables ads to be adapted so that, say, the model of vehicle shown changes by geographical region and the end of the ad is ‘tagged’ with the local dealer’s name and contact details. It cannot, however, distinguish between households with different needs within the same neighbourhood or show a vehicle likely to appeal to them personally. With addressable IPTV advertising, however, it is possible to show a car in a size to suit the household, in a color they prefer, with a soundtrack to suit their age-group. Even the frequency of ads can be weighted towards times they are most likely to want to change their vehicle and be shown at the times of day when the family members with most influence are likely to be watching.
Although, for viewers, television may continue to be largely a ‘lean back’ activity – with the only difference noticeable to many being that ads are a lot more relevant and engaging – it looks certain that there will be a revolution in the media industry. Everything from the production of creatives to pricing structures and accessibility of the ad avail will see a change. Achieving the technical feat of providing one-to-one TV advertisements – which is where this approach will ultimately lead – will also mean dramatic changes behind the scenes, in the network. Currently, cable implementations use large equipment racks filled with difficult-to-integrate devices from various suppliers and even then only support a few - maybe 20 or 30 - demographic groups. Of course, this isn’t a problem where only a limited number of regions are being targeted, but if the eventual aim is a different ad to each household - with the potential number of streams essentially the same size as the subscriber base – it soon starts to look unwieldy and expensive.
Increasing Granularity
An alternative approach to provide addressable advertising is to utilize viewers’ set-top boxes (STBs) to deliver the ads. There are two basic methods – both, again, come from the cable world. With the first, ads are downloaded – usually during off-peak times - and stored on the STB (which therefore needs to be a personal video recorder - PVR) ahead of them being shown. A signal is then sent to the STB to indicate when the ad has to be inserted, or it can be programmed in advance to insert the ad at a certain time. The second method is to send the different ad alternatives down separate channels from which each STB selects one in real time. Both techniques, however, have disadvantages that start to become apparent when increasingly granular advertising is wanted. Broadcasting many individual ads obviously takes up valuable bandwidth which could have been used for extra channels. But downloading the ads beforehand, on the other hand, is restricted to viewers with PVRs – and not all are willing to have them used for advertising. Both methods, therefore, become less viable when a large number of simultaneous ads are required.
Furthermore, the set-top box is now only one of many different ways of delivering television to the consumer. More and more TV and video is being accessed through devices such as mobile phones, PCs and video iPods: all of which have very different operational characteristics. So, as the variety of these devices grows, the problem of incorporating ad insertion software on all of them becomes more and more complex.
In order to address the limitations of current implementations, Packet Vision is designing a new addressable IPTV advertising system that includes an ad server, splicer, playout router and management system in a single ‘pizza box’ style rack mountable box. The device is designed to be sited within the IPTV network and is therefore not constrained by how the viewer consumes the TV content: whether it is via a set-top box, PC, mobile phone or any other IPTV device. One unit will support up to 200 simultaneous output streams comprising any mix of demographic groups or input channels. Being designed in a similar way to routers or switches – in essence an internet device – it provides the ease of use, cost-efficiency and scalability that is critical for new, highly personalized advertising to proliferate, and it makes full use of the underlying IP network’s bi-directionality to enable detailed monitoring of viewer responses, allowing ads to be changed to adapt to real-time situations if desired.
Initially it is likely that addressable IPTV ads will have a lot in common with the split-run advertising in cable networks described above, where the whole ad avail is bought for a single brand and then tailored to appeal to different audiences: although, of course, these will be constrained by geographical location. Multi-brand advertising, where one ad avail is shared by a number of different brands – and possibly suppliers – is another variant that is not too far from where we are currently. Another area with immediate parallels to today are ads that enable viewers to interact via their remotes with TV-oriented websites. Although to date this has been of limited success, with the increasingly accurate targeting allowed by IPTV more viewers will undoubtedly choose to press their ‘red buttons’ to buy products, see video clips or watch ‘long-form’ versions of the TV ad: a process that starts to merge TV with familiar internet-based activities.
A Feedback Loop for Advertisers
This characteristic of IPTV’s underlying network to provide instantaneous control from the viewer’s remote – channel change, red button presses, even adjusting the volume control! - creates considerable opportunities for advertisers over and above what is available from current satellite, terrestrial or cable broadcasting. Viewers’ reactions can be seen instantly so that campaigns can be audited precisely. It also opens up the possibility of payment models that are geared to actual viewers watching: a dramatic improvement over current, very imprecise, methods of audience measurement based on small sample sizes. This, again, brings television advertising closer to how it is on the internet, where pricing based on numbers ‘clicking through’ on the ads is routine.
IPTV’s addressability is useful to help maximize the effectiveness of ad campaigns. It enables ads to be shown to each viewer the optimal number of times and narrative advertisements – series that tell a story – can be paced to suit the individual watching. As addressable IPTV advertising becomes more granular – closer to the advertisers’ Holy Grail of one-to-one communications – viewers may even be able to define storyline preferences or choose different endings.
This high level of personalization of course needs appropriate tools to automate ad creation. Already companies such as Visible World are developing software that enables ads to be dissected into their key elements – such as scenes, voice-overs, background music etc – and then adjusted to give different options. These can then be reassembled to provide a multitude of automatically tailored messages for different groups of viewers. Packet Vision’s ad insertion system, mentioned above, would enable this type of content-synthesis software to create ads that can change according to real-time situations such as programme context and time of day.
Research shows that once TV ads are relevant to their audiences, it is highly likely that the current increase in viewers choosing to skip ads will abate. A recent survey on internet ads by the Ponemon Institute, for example, found that 45 per cent of respondents would agree to part with personal information – provided it were not misused – in exchange for ads targeted to their individual interests. And the UK’s HomeChoice network has piloted a scheme allowing viewers to see ads on-demand and vote whether they love or hate them. The results were fed into an ‘Ad Chart’ and up to a quarter of HomeChoice households viewed the channel each month, spending up to 13 minutes per visit.
The relevancy offered by IPTV has interesting implications outside of advertising. A recent experiment by Telekom Austria, in the village of Engerwitzdorf, has explored ultra-local TV. Villagers were given all the equipment needed to create and run their own TV channel, with full editorial control. The results found that the programming was of high quality and watched by a far larger audience than anticipated. This very localized and personalized television may well provide the stimulus needed for small or specialist businesses to start using TV as a promotional tool and, because many ads can be shown simultaneously, share the cost of an avail. So, for the first time, television advertising will be unconstrained by geographical reach or audience numbers and, like the internet, will become accessible and affordable to a whole range of new businesses, special interest groups or even individuals.
About the Author
Patrick Christian, founder and managing director of Packet Vision, has more than 25 years’ experience of hardware and software design in the data communications and telecoms industries.
In 1993 he founded the consultancy company, Blue C Technologies Limited, which worked with many leading technology businesses developing advanced telecommunications systems. In 1998 Patrick co-founded VegaStream Limited to develop high performance voice-over-IP gateways. VegaStream was sold in 2000 to Pace Micro Technology plc for £20m, returning an IRR of 149% to its institutional investors. In May 2004 Patrick founded Packet Vision which specializes in network-based addressable IPTV advertising delivery systems.
Patrick has an MA and First Class Honours degree in Electrical Sciences from Cambridge University.
About Packet Vision
Packet Vision, based in Reading, UK, specializes in the design of systems that enable fully personalized IPTV commercials: addressable advertisements that can be tailored to match the demographics of individual households and which can be altered – in real time – to reflect viewers’ reactions.
The company’s network-based approach combines all the functions of video server, splicer, IP router and management system in a single 19” rack-mountable box. No changes at all are needed to viewers’ equipment.
Incorporating Packet Vision’s Video Switching Engine (VSE) technology, the system gives network operators a low-cost, high performance entry point into addressable advertising. More products can easily be added as subscriber numbers grow or when increased granularity of advertising is required.
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