Inside The Box - agencies find new ways to make ads reach viewers - Statistical Data Included

As new devices like Tivo and Replay TV change the way viewers interact with programs, agencies need to find new ways to make the ads reach them

Television advertising as we know it is slowly changing. Like some massive Jurassic beast naturally selected to cycle out of existence in the future, the all-pervasive 30-second spot impression based model is destined to face competition from faster media creatures with bigger brains.

Though those new competing creatures are still in the embryonic stages of life--delivered via digital video recorders, Internet to the television and, further down the road, video streaming to PCs--the addressability will be so targeted that buyers for Crest will know how many cavities your kids have.

"Thirty-second spots, as we know them, will disappear," said David verklin, president of Carat USA during a recent Cabletelevision Advertising Bureau panel that examined the effect of both digital video recorders such as ReplayTV and Tivo and Internet-over-TV companies such as Woridgate on traditional media. While Verklin and fellow media heavies on the panel were stalemated on the future face of messaging, it was clear the growth of these video-records-on-steroids and next-generation Internet/television interfaces has media executives considering the future.

As it comes into clearer focus, the cable pipeline will offer the most comfortable home for a lot of these technologies. Industry observers predict that cable and its direct-broadcast satellite rivals could partner with or subsume many of services and bundle them with other services such as high-speed Internet access and telephony, which the industry is already rolling out.

"Replay and Tivo will ultimately end up as features that will be delivered along with cable and DBS services rather than stand-alone business," says David Card, director, content and programming for Jupiter Communications.

That bundling will also add marketing synergies. "It means the more services a company offers a customer, the more they learn about a customers habits. The more they know about those habits, the more data mining can be sold to advertisers," said Mitch Oscar, senior vp, director of media futures at Universal McCann, who said those bundles combined with burgeoning addressabilty technology will create a powerful marketing cocktail.

Of course, there are plenty of pitfalls to negotiate. The fact that all these devices have set-top devices means subscribers, unless they enjoy juggling multiple remotes and installing extra cabinet space, could balk at the hassles that come with the setup. After all, how many VCRs are still blinking 12:00?

How and when that future begins remains a huge question mark, which gives the majority of pundits the opportunity to classify interactive media as a non-factor in today's world.

"When the advertising industry--marketers, media and agencies--finally sees that there is an economy of scale to create communications, they'll start jumping on the bandwagon. And they haven't found that yet with interactive TV," says Ed Erhardt, president of ESPN/ABC Sports customer marketing and sales.

"What I'm hearing from clients is that they don't believe this is going to have an enormous impact on commercial recall," echoes Joe Ostrow, president and CEO of the Cabletelevision Advertising Bureau.

Tivo and Replay, both personal recorders, allow viewers to record, live-pause and fast-forward programming. They even allow for super-fast-forwarding over advertising.

Worldgate, along with Microsoft's WebTV and AOLTV, allows viewers to surf the Internet via their remote controls and televisions. These services multitask eyeballs during both television programming and Internet usage. Others, like Wink and Watchpoint, layer both programming and advertising with interactive elements, which can also distract the ordinary TV viewer who before had just passively watched television.

While all these options are largely antithetical to television's present marketing model, they do create an opportunity to experiment with new forms of advertising well beyond the tried-and-true 30-second spot. "What it may do is create a need to build a commercial in a different way," said Ostrow.

More frequent and engaging spots might be the new order of the day. So might embedded messages in program guides, pushed information that is stored on "smart" set-top-boxes and increasingly sophisticated targeting.

The interactive companies realize they can't alienate the advertising industry. The spin: their services will enhance advertising rather than kill it. And they have taken pan-media investments--including infusions from agencies.

"We keep our friends close and our enemies closer," quips one agency executive who is carefully following the moves of Tivo and Replay.

While consumers might not have caught wind of these personal recorders in a big way, traditional media players have. Big multi-media companies ranging from America Online to Matsushita Electric Industrial have taken hedge-like investments in the companies. NBC, Paul Allen's Vulcan Ventures, John Malone's Liberty Media and Disney, for example, own stakes of both Tivo and Replay.

None of this is happening overnight. The current universe for digital video recorders is practically infinitesimal (between 40,000-50,000 homes tops). The Worldgate and WebTV universes are not anywhere close to critical mass--25 to 30 percent penetration of the television universe. But projections have them growing steadily over the next decade.

"It's something to worry about, but audience fragmentation across any number of different things you can do with your television is a much bigger problem for advertisers than the 30-second skip button," says Jupiter's Card, who said it's too early to tell if people's viewing habits change dramatically when they use these new devices.

Other media executives point out that the VOR has a lot of the basic functionality of these new recorders, and it hardly stopped advertising in its tracks. As far as ramping up the quality of spots to keep viewers' attention, buyers point to the underwhelming response to the highly produced spots during the Super Bowl earlier this year.

"If they start the ad with nudity maybe, but people will either watch or not, regardless of technology. The pleasure of being a coach potato should not be underestimated," said one media buyer who spoke on the condition of anonymity.

"People have to have them and use them before they make any difference, and no one has them yet," said Card.

However, if the growing number of users changes the consumption of television, and program scheduling as we know it goes by the wayside, "there are huge implications to the entire concept of programming, let alone advertising on top of the programming," says Jupiter's Card, who added that VCRs made a impact once they reached about 10 to 15 percent penetration of U.S. households. However, like VCRs, penetration of the new recorders is expected to grow and when it does, advertising will have to morph.

According to a report authored by Forrester Research analyst Josh Bernoff, the new recorders--stand-alone boxes and those merged with cable and satellite service-- will reach 14 million users by 2004 and 80 percent (the present penetration of VCRs) of American households by 2009.

"With some very conservative estimates about how frequently people will watch recorded programming versus live programming, and how frequently they'll watch commercials versus skipping them, you see about an 8 percent decrease in the viewing of commercials by 2004 and a 50 percent decrease by 2009," says Bernoff.

Those figures beg the question: What will happen to that missing ad revenue? The news could be good. According to Bernoff, $23 billion dollars will be thrown off by interactive advertising in 2005. To put that into perspective, all television advertising this year will reach about $60 billion.

"With an interactive ad, when people respond to it, you have a name and an address and a lead that is 100 times more valuable than an impression to a marketer," says Bernoff, who predicts television will change to a lead-generation medium from one driven by impressions. He believes that the successful companies will be those producing marketing leads like Wink and Respond TV, as well as Tivo and Replay.

Further into the future, streaming from companies such as Microcast and Digital Connection will further merge the PC with the TV set while companies like ACTV will deal with addressability. In the meantime, the Tivos and Replays of the world, beyond scraping for distribution, will have to pick their way through thorny issues such as talent repay, content copyright issues and, ultimately, privacy. Media executives also point to the historic over-promising of interactive media, which, to date, has done little to excite anyone beyond the interactive players themselves.

But the little bit of interactivity out there now could go a long way with viewers. "The big money is to be made in what we call lazy interactivity. That's interactive you can do with a remote in one hand and a beer in the other," says Bernoff. "And that's not surfing the Web, that's 'Oh, wow, I am in the market for a sports utility vehicle, why don't you tell the people at Ford that I'm interested?"'

For example, Respond TV, a San Francisco-based company offering enhanced television services designed to aid television, cable and satellite providers deploying interactive set-top boxes, recently ran a real-time interactive Domino's Pizza commercial during a 12-hour Star Trek: The Next Generation marathon running on Bay Area UPN affiliate KBHK-TV. The programming was seen by about 1,000 homes with interactive devices such as WebTY and Liberate TV's Navigator. The commercial yielded 220 click-through inquiries and 140 ordered a pizza.

"That's unprecedented[ldots]no one has ever gotten a response rate like that," says Bernoff.

Respond TV senior vp Richard Fischer said the test turned heads because anyone with a Web TV Plus box bought at retail for $200 could have participated. "There was no new infrastructure at the cable system and there wasn't even a relationship with the cable system," says Fischer, who says Respond TV and KBHK continue to experiment with interactive tests.

Internet-to-the-TV also has some early data to share. At the end of last month, WorldGate released the findings of study conducted in Massillon, Ohio, with 1,000 Massillon Cable subscribers. Eight out of ten users involved in the study said having a link to the Internet via the television was an unintrusive, valuable service, with two-thirds of the subscribers who use their Worldgate's Channel HyperLinking button within the past week doing so one to four times and staying online an average of two minutes during their interactive experience with programming or advertising. The study offered participants interactive experiences with seven broadcast networks, 75 cable networks, along with 20 local and nine national advertisers.

"Advertisers putting up 60-, 30- and 15-second spots have no way of knowing how many people saw the ad and how many people are actually influenced by the ad," said Gerard Kunkel, senior vp for WorldGate. Kunkel said the click-through advertising model spawned by the Internet allows users to learn a lot more about advertising efficacy.

Advertising modes "are in question in the future," said Kunkel. "Is it a click-through model that wins? Are you only paying on performance on the number of interactive sessions that are delivered or are you still paying on a CPM model because you still value impressions put in front of consumers passively watching TV?"

Regardless, having viewers surf off-programming for long periods of time is worrisome for buyers. "Once they fall out of the program they won't watch the other advertising or the remainder of the show and audience is lost and we know were that goes," said one media planner.

While the data from Respond TV and Worldgate is not massive evidence suggesting interactivity is on the verge of breaking into the mainstream, it suggests the long-predicted interactive future might actually be out there.

In the near term, cable and DBS companies and even telcos will be the gatekeepers to these new services and since cable is largely a regionally clustered business, different parts of the U.S. will have different services. Many of the most advance interactive trials will be on the local and regional level and standards between those regions will likely be varied. "Everybody is trailing everything and nobody is rolling out anything with big numbers," says Jupiter's Card.

All that will make it even more difficult for national advertisers to reach viewers with interactive messaging, but now is the time to test and learn. Regardless of the complications and the daunting rollout hurdles these new services have to clear, they do seem to have more advanced media DNA than their descendants.

"What I'm finding is that ideas that were considered radical two years ago I'm now discussing with major broadcast networks and cable companies and all sorts of players in television's mainstream and they're just about ready to realize that something is happening here," says Bernoff.

Jim Cooper is Mediaweek's news editor. He's based in New York.

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