The New Wild West, Part 1: VOD

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We've seen the rise of the Internet as a marketing vehicle. Many of us helped define the industry's standards and practices. We remember when the rules were being written and anything was possible. A new digital landscape, especially television, is going through the same Wild West period. Buyers and sellers are trying to make sense of an entirely new platform.

Two areas represent the greatest short- and mid-term marketing opportunities in digital TV: VOD (define) and enhanced TV (a.k.a., interactive TV), including "t-commerce" (commerce transacted via the television set). Neither area has established standards, policies, or practices, let alone a clue how to charge for the value they bring to marketers.

It's 1996 all over again.

VOD

VOD breaks down into two easily digestible chunks. The first is basically sponsoring existing VOD content supplied by a typical programming partner (Discovery, Scripps, CNN, etc.). The advertiser usually has the opportunity to run an introductory billboard, or a :15 or :30 spot prior to selected VOD content; a commercial within the content; and a commercial or long-form asset after the content. It's hardly the most innovative use of the medium.

The pricing model for this scenario makes some sense because it's basically another vessel for traditional TV spots. The only challenge is quantifying the number of people who had the opportunity to see the ads. Nielsen is working on addressing this issue with its Active/Passive (A/P) Meter, first installed in a sample Nielsen home in March 2005. The meter will allow Nielsen to better establish exactly what people are watching at any given time, including VOD and DVR content and console gaming.

The second VOD scenario is sexier for marketers: an entirely advertiser-owned "network" that lives either on its own physical channel (e.g., channel 754 is the L'Oréal channel) as with Time Warner Cable, or a few clicks within the free VOD content area of a cable multisystem operator (MSO), as with Comcast, Charter Communications, Cox Communications, and Cablevision. Marketers populate this network with a variety of assets. These could include five-seven minute (or shorter) branded films, or 20-30 minute programs of their choosing.

Here's where the pricing model gets particularly wild. Nobody has the vaguest idea how to price it in a way that makes sense. Some cable operators have tried pricing based on the amount of server space the VOD content occupies. This isn't a widely used formula. Server space will increase, and storage at the MSO will become cheaper and more plentiful (there's very little infrastructure cost difference between running a 20-minute channel and running a two-hour one).

Another short-lived pricing model was a charge per subscriber, regardless of viewership. It didn't make much sense. Still another charged advertisers a standard CPM (define) for "tune-in" spots that ran throughout the cable system, then server time was "free." Depending which market you're interested in, you can still negotiate this model.

Data and reporting standards are also still being worked out. The industry (along with help from the AAAA) has developed some minimum standards most MSOs adhere to. However some operators increase the number of data points they report as a kind of value add for the advertiser. We're not really sure as an industry what to do with all the data, and what they mean to our business, but more data must be better than less... right?

If you think standards exist across operators in report regularity and format, think again. That's why companies such as Atlas DMT and DoubleClick will be getting actively engaged in this area.

In part two, we'll look at the other side of the emerging television landscape, enhanced television, and the emergence of true t-commerce.

Until next time, ride 'em, cowboy!