WORKING OUT ONLINE VIDEO OPPS

Networks Explore New Revenue Streams

Saturday, May 1st, 2010

By Jon Lafayette

Cable is loaded with popular, award-winning shows, but few of them have made the leap to online availability of full episodes.

The situation is challenging to ad buyers, who want the TV sponsors of shows such as "The Closer," "Burn Notice" and "Sons of Anarchy" to be able to run spots when viewers watch those shows legally over the Internet.

"It's a little bit frustrating because we know from all of the research that's been done with the broadcast networks' online video content that it's really not cannibalizing the television consumption," says Chris Allen, VP-director of video innovation at media buyer Starcom USA. "It's catch-up viewing, and I fully suspect we'll see the exact same thing with the cable content."

Mr. Allen says he was told by Comcast that while about 56 percent of all broadcast content is available online, that is true of only about 8 percent of cable TV content.

"So if they can figure out 'TV Everywhere' and how to start monetizing it, there's a huge opportunity for the cable content providers to start to take advantage of," Mr. Allen says.

Now being tested by Comcast, Turner and Time Warner Cable, TV Everywhere is an initiative designed to protect cable operators from cord-cutters, those consumers who drop their cable television service because they can watch the most popular shows online for free. The idea is that with TV Everywhere, cable shows will be available online only to users who have been electronically authenticated as cable customers.

Cable networks have been reluctant to make their original shows available on the Web—and many of those that do appear are available only after a weeklong delay—because networks don't want to upset the operators, which pay handsomely to distribute shows to subscribers.

With TV Everywhere in place, networks will be willing to put more shows online and participate in the online video ad market, which while much smaller than the cable ad market, is one of the fastest-growing media segments.

"It could be real money down the road," says Michael Brochstein, senior VP-ad sales at FX Networks. "Is it real money now? No. We're doing $7 billion in cable [during the upfront selling season]. But it's new money, and it's a new source of money."

The market for advertising in online video has been pegged at $750 million for 2009 by eMarketer. For big marketers, advertising on the TV networks' full-episode video players represents a majority of their online video spending, according to Mr. Allen.

Prices have slipped lately but are still hovering at about $40 per 1,000 impressions, he says, more than double the typical TV CPM.

The prices are attractive to cable programmers, but they voice a difference of opinion about how much video to put on the Web and how many ads can run per episode.

"We are prepared to deploy our content online in partnership with cable operators," says Jack Wakshlag, chief research officer at Turner Broadcasting.

But, Mr. Wakshlag says, Turner looks at plans to offer on-line video very differently than the broadcast networks do. One big change is the number of ads Turner plans to run in programming available online with the rollout of TV Everywhere. In most cases it will be the same amount as on a TV broadcast, rather than the commercial or two per break now prevalent online.

"People have told us that viewers won't watch full-length shows with full loads of commercials online. We think they're wrong," Mr. Wakshlag says.

Turner has been running some of its shows on Cox Communication's video-on-demand system. The shows have all of the same advertisers as when they appear on cable, which means Nielsen can count the viewers in the show's overall ratings. And the Cox system doesn't allow viewers to fast-forward through spots.

Mr. Wakshlag says that in those Cox markets, Turner is seeing ratings that are 9 percent higher than without video on demand. "That's a material lift," he says.

When TV Everywhere is fully implemented, Turner envisions that for the first three days of availability, shows served online will carry a full broadcast-size load of commercials from the same advertisers that bought that episode on cable. Nielsen will be able to measure that viewership and add it to the show's C3 rating on cable.

After three days, Turner will dynamically insert new ads into that same show, giving its sales staff fresh inventory to work with. Turner plans to include a full load of spots then as well, even if it means filling them with promos.

"We think it's important not to train customers to wait to have a different viewing experience when it comes to fresh content," Mr. Wakshlag says.

Mr. Allen of Starcom disagrees.

"I fully understand that they want to take the exact same ad load and put it into online video, and just roll it up as part of the C3 rating. I just think that we're talking about a fundamental shift from true linear viewing to on-demand viewing, and consumers have a different expectation when they're watching video online," he says.

Within the context of a smaller ad load, commercials online have provided brand recall scores three to four times those on TV. That's one reason advertisers pay a premium. But for the networks, the premium isn't enough to offset the lower ad load.

"For an hourlong show, if I'm running six ads compared to 24 ads, I need to get four times my CPM online to get the same dollars per viewer. Do they get better recall online with reduced ad load? I'm certain they might. The question is, do they get four times the recall—and they don't."

Until TV Everywhere is implemented, different cable networks are taking different approaches to selling ads in online content.

"Today we sell pre-roll ads before full-length shows as well as high-impact advertising around the show and around the player," says Walker Jacobs, senior VP, Turner Sports & Entertainment Digital Ad Sales. "Going forward, we're deploying FreeWheel technology around those shows, which gives us the ability to have multiple pods and to be able to dynamically serve ads into those pods."

FreeWheel is a digital video ad management system created in 2007 by a group of former DoubleClick executives. ESPN will also be using FreeWheel to dynamically insert ads into its long-form video, particularly on its broadband channel ESPN3, which will carry live National Basketball Association, Major League Baseball and college football games, as well as soccer and tennis.

"The thing that's exciting for ESPN3 for us is it's in between a digital experience and a linear experience," says Eric Johnson, exec VP-multimedia sales, ESPN Customer Marketing & Sales.

Mr. Johnson says the commercial completion rate on ESPN3 is about 99 percent because of the live programming it presents.

Because it's digital, ESPN is able to "reimagine" how commercial pods work on the service.

Mr. Johnson says one example is the Absolute A spot being sold on ESPN3. With the Absolute A, the marketer's commercial is always the first commercial in the first commercial break after each online viewer tunes in, whether that means 11 minutes into the first quarter or with five minutes left in the fourth quarter.

"We're going to reimagine the commercial breaks to sometimes serve content," Mr. Johnson says. A group called ESPN Creative Works is working on a project that involves putting sponsored content within commercial breaks instead of spots.

As the upfront market approaches, FX Networks is urging marketers that take big positions in its original programs, such as "Justified," "Sons of Anarchy" and "It's Always Sunny in Philadelphia," to buy those shows online as well.

"When advertisers have a major involvement on air, and they extend it to the online portion, it completes an experience for a viewer," says Mr. Brochstein of FX. "You have highly engaged viewers who are seeking out content—and there's nothing more valuable in our business right now than engaged viewers, because with all the choices that they have, when they make a definitive decision to commit time, first they're going to locate it, then they're going to commit time to view it and be involved with it—that's the optimum experience for a brand marketer."

NBC Universal has slowly been increasing the number of commercials that appear when shows from its cable networks appear online.

"When we started four years ago streaming content online, it was very much one advertiser per break, 100 percent share of voice," says Peter Naylor, senior VP of Digital Media Sales for NBC Universal. "Today if you look on our site you'll see that we're up to where about 30 percent of the inventory is sold as two ads per break. That's been a slow, gradual introduction of that kind of weighting."

Beyond commercials, online advertisers can get creative with what runs next to the digital video.

"The adjacency doesn't have to be limited to conventional banners. You can do skins, you can do takeovers, wallpapers, data capture or multiple video windows," Mr. Naylor says.

NBC's Oxygen network also has had success with building Oxygen Live, a multiscreen experience for viewers of series such as "Bad Girls Club." While viewers are watching the show on cable, they can find a dashboard online stocked with a Twitter feed, a Facebook connect stream and chat environments.

Oxygen Live, billed as "the real-time viewing party," first was available only on the East Coast, and ratings for the network's shows were higher than on the West Coast. When Oxygen Live became available for West Coast viewers, ratings there increased as well. Between 15,000 and 20,000 people were online during shows.

"What's most interesting is that every time they tweet or update their status, they're reaching their 200 to 300 followers," Mr. Naylor says."All of a sudden our most engaged consumers in the dual-screen experience are becoming our marketers."

Mr. Allen of Starcom says that while broadcast networks have been pushing online video, cable networks have been going for VOD, which has drawbacks for advertisers and agencies.

"The challenge with VOD is that we don't have dynamic ad insertion, the lead times for copy are fairly long, the measurement is fairly lacking and the navigation has a lot of room for improvement," he says. "Online video has solved a lot of those problems, and that's why I think a lot of the money has shifted to online video as opposed to VOD."