Optical/IP Networks

Targeted Ads, 2; Speeds & Feeds, 0

BOSTON -- Telecom 2.0: The Collision of Content & Communications -- Video service providers, telco and cable alike, are always bragging about which has the better network. But it could come down to more advanced applications and content to decide who survives the battle for the living room.

One potential application that could both improve the user experience and increase service provider revenue is targeted advertising, according to panelists here at a Light Reading session at the JP Morgan Technology Conference.

"Relying entirely on the subscriber leaves about 50 percent of revenue on the table. You need to seek non-user-generated revenue sources," said Matthew Marnik, director of marketing for Juniper Networks Inc. (NYSE: JNPR). To do this, telcos entering the market need to exploit more advanced methods of advertising, sort of like what is happening on the Internet with companies like Google (Nasdaq: GOOG), says Marnik.

Interestingly, panelists at last week's Future of Broadband event in New York said similar things. Tim Hanlon, SVP of Ventures at Denuo Group, a strategic media and advertising consultancy, pointed out that targeted advertising would be a good way for telcos to differentiate themselves in television, because cable companies have long promised targeted advertising but never delivered it. "There's the promise to deliver more personalized services," said Hanlon. "The ability to more precisely serve an ad message based on time, demographic, or psychographic would be an amazing leap forward. Everybody thought cable would do that." (See How Will Telcos Avoid Me-Too TV?)

Indeed, advertisers are growing weary of the traditional 30-second advertising spot on broadcast television. Juniper's Marnik points out that 97 percent of them want better viewer metrics than Nielsen ratings, which are becoming more and more irrelevant with the emergence of time-shifting services like video on demand. The need for user-targeted advertising is becoming more apparent.

IPTV technology could facilitate user-targeted advertising in a manner similar to the way in which Google ads show up on the side of your Web browser based on the content you are viewing on the Internet. In Marnik's presentation, he pointed out that by using a customer's IP address, the advertisers could pinpoint exactly what content you are viewing and customize the ads specifically to each user. This could all be done without revealing the identity of the end user.

With targeted advertising like this, telcos could charge an enormous premium to advertisers -– up to 20 times more per user than traditional broadcast ad spots, claims Marnik. This type of advertising happens all over the Internet, and the general feeling of the panel was that it could be the key differentiator for telcos as they enter the TV market.

Panelists said that such innovation is needed because the network solution alone won't help. "I don't think [Verizon's] FiOS is the answer," said Diane Sutter, president and CEO of Shooting Star Broadcasting here in Boston. "I think the early success means that if you're not satisfying the customer, they'll throw you off the bridge to anyone."

Without doing this, most panelists agreed, Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) are merely "me-too" services with no way of differentiating themselves from cable, and most of their early success can be attributed to dissatisfaction with cable.

"I think in communities like mine, people are so fed up with their cable company that they'd switch to anyone," said Marnik.

— Raymond McConville, Reporter, Light Reading

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xius 12/5/2012 | 3:08:06 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 Everybody in the teleco community are awaiting for an innovation which can deliver targeted advertising based on the demograpics of the subscriber to their handsets, there is a product available in the market that can handle precisiely what is being discussed in the article, and the solution is called MyPeers and the company that offers these out of the box solutions is XIUS.
optodoofus 12/5/2012 | 3:08:06 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 I can see the appeal of targeted advertising to the people who buy advertising. If you can have a reasonable expectation that the viewer is in the correct demographic or has a known interest in the type of product being advertised, the ad buyer might well pay more for the ad time/space (but probably not 20 times more; that's a pipe dream).

But I am confused on two issues:

1) How exactly does targeted advertising make the telco TV solution more than a me-too product. From the consumer perspective, I don't really care whether the telco can command higher ad rates. All I care about is the service that I get. If the telco is offering me the same service model as cable, then they are - by definition - me-too. Now maybe targeted advertising allows the telco to offer the same service at a lower price while maintaining a higher margin (because of the increased ad revenue). But that is still just competing on price, not offering a new or unique service model. Competing on price is a double-edged sword. Just ask MCI how that worked out for them.

2) How much targeted ad revenue will the telcos be able to generate compared with network-based advertising. The networks sell advertising space to fund content development, and unless someone comes up with a new content funding model, this is the way things will continue to be. So, are subscribers going to tolerate traditional commercials inserted into the content stream to satisfy network advertising agreements AND targeted advertising as well? Personally, I'm looking for ways to view less advertising, not more.

jayja 12/5/2012 | 3:08:05 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 Great myths of our time:

Loch Ness Monster
Viewers want to watch targeted advertising

I've never seen anyone except advertisers and targeted advertising vendors say that people want to watch "targeted" commercials on TV. "Less" commercials, yes. "Targeted" commercials will be as annoying (and skipped over on TiVO) as current TV advertising.
DCITDave 12/5/2012 | 3:08:05 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 I just talked to some fake trial customers of XIUS the other day and they just HATED the product.

One of them said working with the solution gave the technical staff a horrible rash.

And one of the advertisers on the system was upset because the ads he wanted to send to 12-18 year olds were actually being sent to people who are 1,218 years old.

So don't try XIUS for all the reasons I made up above. It truly does sound awful.

tomcoseven 12/5/2012 | 3:08:05 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 The telcos are always trying to climb the value chain to make money rather than provide the most cost effective high-performance connectivity services. Light Reading had an excellent article in March "Cable in the Catbird Seat" that presented a different of the "dumb pipe."


Craig Moffett's two "Dumb Pipe Paradox" reports are a must read. Think of the comparison of the PC market in the 90's. IBM tried to differentiate through high-value proprietary features to improve margins. Dell differentiated by being the low-cost provider of high-performance. IBM never had positive cash-flow in the PC business.
mrmillergd 12/5/2012 | 3:08:04 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 From the consumer standpoint, everyone is right, less is obviously preferred. But wasn't there some study done recently that shows that people still watch some commericals even though they have DVR capabilities?

Probably for the advertisers, the real ability to cut out maybe 25% of the commericals every consumer completely shuts out due to wrong demographic would be pretty big.
optodoofus 12/5/2012 | 3:08:04 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 > But wasn't there some study done recently that
> shows that people still watch some commericals
> even though they have DVR capabilities?

As I recall, this study was commissioned by the TV networks. Hardly an impartial party since they have a vested interest in making sure advertisers still believe that their ads are being watched. I have a DVR and I never watch commercials, ever. How about the rest of you DVR-wielding public?

jayja 12/5/2012 | 3:08:03 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 Better question: If you were recording "targeted" ads would you stop skipping them to watch?
tomcoseven 12/5/2012 | 3:08:02 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 I think the model is that your Telco or Cable leased DVR would disable fast forward when you hit their targeted ads or play a short ad in the corner during fast forward. The question is whether you would accept being force fed targeted ads or would you switch to Tivo and CableCard at $600 for the box.
OldPOTS 12/5/2012 | 3:08:01 PM
re: Targeted Ads, 2; Speeds & Feeds, 0 "Video Rich Navigation" (VRN) will fix al of that as you can channel surf to a channel without that anoying targeted add while watching three sports events. I can only do two well now and a third with Previous Channel, kind of. Now I'll get a choice of more channels to switch to and avoid the ad.

But will they just make the 'targeted ad' an overlay (in another window) and really make me mad?
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