Where The Ads Are
Viewers of cable & satellite TV stations TMC and Boomerang might have noticed something a bit different about them: they don’t advertise anyone else’s products. You won’t be seeing ads for electronics, pharmaceuticals, toys, or restaurants. In fact, the only ads you’ll see are those for programs, shorts, and movies produced by the company that owns the station. Unlike HBO and Showtime, however, these are not subscription stations. Time Warner (NYSE: TWX), for example, owner of TV station Boomerang, displays only ads for Boomerang and its parent Cartoon Network.
For years, these stations depended on sponsors. American Movie Classics' (for example) sole source of revenue was corporate sponsorship for their programs. They never displayed ads for their sponsors at any point in their programming, but would slyly embed their sponsor’s logo into their programming. The intro to All My Children, for example, which Wikipedia notes at one point held #1 ranking in the daytime Nielsen ratings, included an animation of photos of the actors sliding into a photo album. As the intro wrapped up, the cover of the book closed to reveal the embossed All My Children logo on top. In many AMC showings of the sitcom, the title of the show would then fade away, yielding to the sponsor’s logo, and a quick blurb from the announcer about the sponsor. But that was all – that’s where the advertising ended. The idea was that the station could keep unusually high viewer ratings by showing fewer commercials, and would then be able to draw higher sponsorship rates.
This format worked well for AMC and others - but not well enough. The broadcasters knew they were still missing out on a large revenue stream, even if they kept their ratings up by omitting commercials. AMC broke from their original format in October 2001, including standard commercial breaks. AMC explains, “by adding advertising to our schedule, AMC generates additional revenue that enables us to provide a broader range of movies and original programming to our viewers.” I don’t’ believe that the aim was to provide a broader range of products – they just (understandably) wanted the added revenue stream – I mean, they are a business. AMC makes a point of noting, however, that their channel “carries among the fewest commercials per hour of any basic cable channel.”
The message is quite clear: advertising is absolutely key to the success of television. This movie is playing itself out yet again, though, with Video On Demand. A vast amount of the VOD programming out there today is advertisement-free. Comcast (Nasdaq: CMCSA), the largest cable company in the US according to Wikipedia, is also one of the largest providers of VOD programming. Providing everything from kids shows, to classic movies, to music and current programming, most of Comcast’s VOD offerings are entirely free from commercials and subscription fees. The only source of revenue is – you guessed it – sponsorship! Although the company doesn’t give a specific breakdown of the ad revenue it gets from VOD, they make no secret of the fact that the number is small.
Very few people believe that the sponsorship business model will work for VOD where it failed for standard broadcast stations. Rainbow Media, parent company of AMC, boasted a 20% year-over-year revenue increase from its networks the year it switched to standard commercial advertising. Josh Bernoff, an analyst at Forrester Research said, “VOD can’t be a revenue-free zone. If it is, then it’s not going much further from where it is today.”
Now Comcast’s VOD services aren’t revenue free, just revenue deficient. In fact, Comcast has done quite well in their quest for sponsorship of their VOD stations. Kimberley-Clark’s (NYSE: KMB) Huggies is a major sponsor of their PBS Kids Sprout station, and Sneaker maker New Balance is the sole sponsor of VOD exercise channel ExerciseTV (not only is their logo displayed at points in the program, but all of the exercisers wear New Balance shoes). But while Comcast is not sitting back and accepting the puny revenue stream they are currently realizing from their VOD stations, they don’t want to be too aggressive in their advertising either. “I don’t envision VOD advertising evolving the same way [broadcast] TV did, with 30-second and 60-second spots, because people could just fast-forward through them. Our industry will be creative. It’s going to be much more subtle than traditional TV”, said Page Thompson, VP of the Comcast On Demand unit.
One solution is to have viewers pay on a per-show basis, a la Apple. While this system has been shown to garner a lot of viewer support, the margins are paper-thin for the content providers. Verizon (NYSE: VZ) recently struck a deal with CBS (NYSE: CBS) for the rights to broadcast all of CBS’ programming, including VOD. Though the terms of the deal were not disclosed, it was certainly not cheap for Verizon, and they have to pay yet again when they actually broadcast the stuff. Reinhardt Kruase of Investors Business Daily estimates that Comcast pays for 95% of its VOD content. Comcast, in fact, already has a deal in place with CBS, charging 99 cents per episode to view shows like “Survivor.”
So what advertising format is going to work in the VOD world? Comcast announced last month it was going to start testing a system called AdPoint from Tandberg Television to place ads at the beginning of its VOD offerings, initially available on three of it’s less-popular VOD networks. Companies like C-COR (Nasdaq: CCBL) and SeaChange International (Nasdaq: SEAC) are developing similar products. Eventually Comcast wants these ads on all of its VOD stations, and targeted directly to the viewer – tailored to their viewing and product preferences. And it’s all about targeting. Comcast CEO Brian Roberts compared targeted VOD advertising to Google’s ad model, saying “Why is Google so valuable? Because it gives you, after a very targeted search, access to those of us who did the search. It's an advertiser's dream.”
Comcast is just one example of a broadcasting company struggling with the challenge of pulling revenue from VOD and keeping the consumer happy. Every company in the space is wrestling with the same issues. More broad based moves to IPTV and to VOD will only hasten these fundamental changes in advertising, and many different business models are sure to be tested. For now, the real is you – the consumer. And then there is also the issue of revenue sharing. Who gets what piece of the pie? An intriguing topic, but we’ll have to leave that for another article.
For years, these stations depended on sponsors. American Movie Classics' (for example) sole source of revenue was corporate sponsorship for their programs. They never displayed ads for their sponsors at any point in their programming, but would slyly embed their sponsor’s logo into their programming. The intro to All My Children, for example, which Wikipedia notes at one point held #1 ranking in the daytime Nielsen ratings, included an animation of photos of the actors sliding into a photo album. As the intro wrapped up, the cover of the book closed to reveal the embossed All My Children logo on top. In many AMC showings of the sitcom, the title of the show would then fade away, yielding to the sponsor’s logo, and a quick blurb from the announcer about the sponsor. But that was all – that’s where the advertising ended. The idea was that the station could keep unusually high viewer ratings by showing fewer commercials, and would then be able to draw higher sponsorship rates.
This format worked well for AMC and others - but not well enough. The broadcasters knew they were still missing out on a large revenue stream, even if they kept their ratings up by omitting commercials. AMC broke from their original format in October 2001, including standard commercial breaks. AMC explains, “by adding advertising to our schedule, AMC generates additional revenue that enables us to provide a broader range of movies and original programming to our viewers.” I don’t’ believe that the aim was to provide a broader range of products – they just (understandably) wanted the added revenue stream – I mean, they are a business. AMC makes a point of noting, however, that their channel “carries among the fewest commercials per hour of any basic cable channel.”
The message is quite clear: advertising is absolutely key to the success of television. This movie is playing itself out yet again, though, with Video On Demand. A vast amount of the VOD programming out there today is advertisement-free. Comcast (Nasdaq: CMCSA), the largest cable company in the US according to Wikipedia, is also one of the largest providers of VOD programming. Providing everything from kids shows, to classic movies, to music and current programming, most of Comcast’s VOD offerings are entirely free from commercials and subscription fees. The only source of revenue is – you guessed it – sponsorship! Although the company doesn’t give a specific breakdown of the ad revenue it gets from VOD, they make no secret of the fact that the number is small.
Very few people believe that the sponsorship business model will work for VOD where it failed for standard broadcast stations. Rainbow Media, parent company of AMC, boasted a 20% year-over-year revenue increase from its networks the year it switched to standard commercial advertising. Josh Bernoff, an analyst at Forrester Research said, “VOD can’t be a revenue-free zone. If it is, then it’s not going much further from where it is today.”
Now Comcast’s VOD services aren’t revenue free, just revenue deficient. In fact, Comcast has done quite well in their quest for sponsorship of their VOD stations. Kimberley-Clark’s (NYSE: KMB) Huggies is a major sponsor of their PBS Kids Sprout station, and Sneaker maker New Balance is the sole sponsor of VOD exercise channel ExerciseTV (not only is their logo displayed at points in the program, but all of the exercisers wear New Balance shoes). But while Comcast is not sitting back and accepting the puny revenue stream they are currently realizing from their VOD stations, they don’t want to be too aggressive in their advertising either. “I don’t envision VOD advertising evolving the same way [broadcast] TV did, with 30-second and 60-second spots, because people could just fast-forward through them. Our industry will be creative. It’s going to be much more subtle than traditional TV”, said Page Thompson, VP of the Comcast On Demand unit.
One solution is to have viewers pay on a per-show basis, a la Apple. While this system has been shown to garner a lot of viewer support, the margins are paper-thin for the content providers. Verizon (NYSE: VZ) recently struck a deal with CBS (NYSE: CBS) for the rights to broadcast all of CBS’ programming, including VOD. Though the terms of the deal were not disclosed, it was certainly not cheap for Verizon, and they have to pay yet again when they actually broadcast the stuff. Reinhardt Kruase of Investors Business Daily estimates that Comcast pays for 95% of its VOD content. Comcast, in fact, already has a deal in place with CBS, charging 99 cents per episode to view shows like “Survivor.”
So what advertising format is going to work in the VOD world? Comcast announced last month it was going to start testing a system called AdPoint from Tandberg Television to place ads at the beginning of its VOD offerings, initially available on three of it’s less-popular VOD networks. Companies like C-COR (Nasdaq: CCBL) and SeaChange International (Nasdaq: SEAC) are developing similar products. Eventually Comcast wants these ads on all of its VOD stations, and targeted directly to the viewer – tailored to their viewing and product preferences. And it’s all about targeting. Comcast CEO Brian Roberts compared targeted VOD advertising to Google’s ad model, saying “Why is Google so valuable? Because it gives you, after a very targeted search, access to those of us who did the search. It's an advertiser's dream.”
Comcast is just one example of a broadcasting company struggling with the challenge of pulling revenue from VOD and keeping the consumer happy. Every company in the space is wrestling with the same issues. More broad based moves to IPTV and to VOD will only hasten these fundamental changes in advertising, and many different business models are sure to be tested. For now, the real is you – the consumer. And then there is also the issue of revenue sharing. Who gets what piece of the pie? An intriguing topic, but we’ll have to leave that for another article.
posted by Kelly at 5:46 PM
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