Dynamic Ads in VOD: Slouching Towards Emergence

It’s been almost a year since digital ad management firm Atlas commenced the second of two pilot programs to dynamically serve, optimize and measure ads in time-shifted TV content. The first, conducted with regional broadband provider Sunflower Broadband on behalf of Paramount Pictures, reached approximately 35,000 video on demand (VOD) subscribers. The second was much larger, reaching 340,000 people in the St. Louis Area and involving multiple advertisers and agencies.

The goal of those trial balloons was to show cable distributors, content owners and agency buyers that real-time delivery and optimization — Internet-style — is a powerful proposition that can work. Yet while they garnered positive results, the tests failed to generate the momentum that might’ve been hoped for. Despite what some call a perfect storm of circumstances, including a steady increase in non-linear TV consumption, the arrival of mature technology products to support dynamic ad delivery, and demand from advertisers, the cable business still clings to outdated methods for selling and delivering ads.

Even so, the beginning of a migration to dynamic delivery systems is underway in semi-secret. Cable industry heavies are advancing a covert project with the code name “Canoe” which aims to integrate ad sales across distributors and make the ads more addressable. Analysts and agency execs peg 2008 as the year the project will begin to bear fruit.

Instant TV, Stale Ads

Shockingly, the current approach to selling ads into programming for on-demand TV environments requires five to ten weeks of advance planning. It offers little to no measurement of who saw the ads or how they performed, and zero optimization of ads mid-campaign.

“I’m incredulous that the cable community still operates in this ridiculous fashion… with two and three month lead times to insert an ad into the stream,” said Tim Hanlon, EVP of Ventures at Publicis-owned strategic consultancy Denuo. “The ability to measure it on the back end is months after the fact.”

Those lead times in some cases are “worse than print,” noted Scott Ferris, Atlas Solutions’ SVP and general manager, publisher and emerging media.

A cable veteran, Ferris was among the first to tackle the inadequacies of cable advertising with aQuantive’s launch in 2005 of Atlas On Demand, an initiative to help advertisers plan campaigns for time-shifted TV. What Atlas overlooked at the time was the need for ad decision making technology at cable’s so-called “head end,” a facility at local cables office that delivers the programs to area homes. Atlas began pushing real-time ad planning for marketers before ComCast, Cox and Time Warner had embraced dynamic ad management — an approach akin to building an Air Traffic Control System before the Wright brothers.

“We were doing it on behalf of the agencies,” said Ferris. Meanwhile, he said, “on the sell side they were lacking a tool. That’s an important development that’s necessary to have a frictionless relationship between the buy side and the sell side.”

Headlong Race for the Head-End

New technology has stepped in to fill the gap. Ferris said Atlas On Demand has now developed head-end ad management capabilities using aQuantive-owned Accipiter’s publisher-facing tools as a foundation. Other firms, including broadband ad network YuMe and a new entry called Black Arrow, are making their own bids.

Black Arrow has emerged as one of the favorites in the race to provide scalable ad management for cable operators. The two-year-old firm recently scored a $12 million Series B funding round that notably includes Comcast Interactive Capital. It’s also recruited a couple heavy hitters to its executive ranks, including Knight Ridder Digital ex-CTO Dean Denhart as CEO and Adobe’s Group Manager of Flash, Chris Hock, as VP of product management.

“What Black Arrow provides could be used by all the venues that serve up advertising,” said Gerry Kaufhold, an analyst with In-Stat who was briefed on the technology. With its contextual, time of day and demographic targeting capabilities, he said Black Arrow’s system can “make a real time decision about which group of ads fits [and] which actual ad gets served,” which is of course the longstanding secret sauce of online ad serving.

Still, for any ad management vendor to succeed in supporting a dynamic ad marketplace, major cable distributors must embrace the development process. Analysts, advertisers and tech firms say the current delay has been caused by resistance from these firms, abetted somewhat by media buyers eager to preserve their traditional models.

“The only thing constraining the whole medium is legacy relationships and business models between a couple constituents,” said Atlas’s Ferris. “The content network needs to turn to the TV distributor and ask them to do something for them.”

“It’s less an issue of the advertiser and the programmer,” agreed Denuo’s Hanlon. “It’s almost squarely the fault of the intransigence and slowness of the cable operator, for whatever reason.”

Progress in Secret

Yet even as ComCast and Time Warner drag their feet in the marketplace, they have taken concrete steps in a semi-secret forum toward locking in a standard for cooperating on ad delivery, and the project reportedly includes dynamic ad management functions. The effort, codenamed “Canoe,” is under the wing of CableLabs, a non-profit research and development consortium founded by cable distributors. Its first order of business, according to reports and analysts, is to allow advertisers to buy media from all the major cable providers at once. A second priority is to support addressable ads and “telescoping” spots that let people request more information or share ads with friends.

“The idea is that a major advertiser could go to one point of entry to the cable space and be able to buy all the ads available on all the cable systems in the U.S.,” said In-Stat’s Kaufhold. “You go to one place, you select the type of audience you want and you buy across all those cable operators.”

He and others expect CableLabs to establish standards in the near future and then to accredit a vendor or combination of vendors in those standards. Once that happens, the work of implementing dynamic campaigns can begin. According to Kaufhold and Ferris, trials are likely to begin later this calendar year, and by mid-2008 several companies will have deployed campaigns.

Whether the change comes next year or the following, advertisers will be standing by with their checkbooks ready.

“The ability to do more real time ad insertion in non-linear video environments including those of television is an absolute inevitability,” said Hanlon. “The advertisers have gotten very comfortable with that process online.”

He said the tricky work for advertisers will come in deciding who gets to handle VOD media planning when the technology is put in place. A similar jockeying is still playing out in online video.

“Broadband video has been an interesting jump ball in the agency world in the last few years,” said Hanlon. “How VOD comes into play is similarly challenged. You’re going to see interactive people and classic television people grapple for the stewardship of that behavior… It’s going to be an interesting battle, and maybe an ugly one, because of these ridiculous little silos that exist in the agency world.”

A pleasant side effect of the change could be the further decay of those silos, he said. “Perhaps among other things it finally forces the melding of that which is digital and that which is classic media once and for all.”