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Addressable Internet advertising to drive revenue growth for broadcasters

Some television stations and networks are beginning to see a substantial revenue stream from Internet advertising, according to Gerry Kaufhold, In-Stat principal analyst and author of the new report, "Addressable Advertising: Broadcast TV Moves onto the Internet."

Currently, it can account for as much as 15 percent of total advertising revenue and is likely to grow further, he says. Perhaps more importantly, it will become a training ground for stations and TV networks as they put in place the infrastructure to capitalize on the next wave: mobile TV.

According to Kaufhold, broadcasters can leverage their experience in offering addressable advertising to agencies and marketers on the Internet and in the process reap significant revenue.

IPTV Update: What do you mean by "addressable advertising?"

Gerry Kaufhold: Briefly, there is a term "targeted advertising" that is actually not in favor with the advertising community. It implies that somehow they know something about the end user.

The advertising community is much happier using the term "addressable advertising." It feels the term "addressable advertising" means that the advertiser and the delivery system can address the ad out to an end user. The idea here is the control over who gets the ad is in the hands of the advertiser and does not necessarily mean there is anything known about the end user.

The second idea here is that the content itself is what does the targeting. If the content pulls in a particular audience of young females, the content has targeted the young female. But then the advertisers will address the advertising onto that program, so there's sort of that two-stage disconnection here so that the advertiser is addressing the ad to the content, but the content is what is targeting the audience.

The idea is that the audience can still be private and anonymous, but the advertiser can still address their advertising to get an audience that's most likely to be receptive to the ad.

Everything about addressable advertising is based on trying to help improve the return on investment that the advertiser makes.

IPTVU: How does the addressable advertising for broadcasters extend to the Internet?

GK: The traditional advertising that's already going from the national advertisers, the regional advertisers and the local advertisers is already working with the local broadcast stations when they are buying their ads. So, you have a relationship between the advertising community and the local broadcaster.

Because the local broadcaster services the entire Designated Market Area with its signal, you go through the local broadcaster to gain access to the multiple cable TV systems that are retransmitting that local broadcaster's signal.

Thus, the broadcaster is a natural good connecting point for the advertising community into your city. So when broadcasters start moving their content —primarily their local content and local news — onto their local Web site, it is pretty straightforward for advertisers to piggyback their advertising buy on the broadcast TV portion of the news and at the same time follow that content onto the Internet.

Because of this traditional relationship with the advertisers, broadcasters are in a great position to carry that same advertising content onto the Internet.

It turns out it should be a pretty big opportunity for local broadcasters now.

IPTVU: Is the optimum approach to an Internet ad the same as it is to a TV commercial?

GK: Not yet. There will be some new opportunities that arise, and one is when someone is watching a piece of news content on the Internet. Instead of presenting six or seven stories and then a three-minute block of ads, which is usually what happens on the air, you could actually do a single story and then do an eight- to 10- second ad during the transitions between the stories.

We'll also start seeing this, I think, with Internet presentation of high school football and high school basketball, something I know a lot of local broadcasters are considering.

Instead of having a three-minute block of ads that interrupts the programming, you could have shorter ads on the Internet and have them play during the natural breaks that occur or natural transitions that occur in the program.

The other beautiful thing about the Internet is there are some things you can do to figure out the demographic of who's watching the program on the Internet. For example, if people "opt in" through a registration process, they can tell you what their key interests are. With addressable ads on the Internet, your CPMs can be up to 10 times higher than they are for your broadcast television version. So, the cost per thousand of viewers goes up dramatically, but we also have to remember that the number of thousands is a lot smaller.

It could still be a premium revenue generator for TV stations.

IPTVU: How does preparing addressable advertising for the Internet impact the file-based workflow in place at stations used to put their content on the air?

GK: During the next 12 months, it's somewhat of a trick to do this. But I think as the companies making the automation equipment and especially the companies doing the system software figure out how to take a program and repurpose it using an automated system, it will become easier to do.

At this point in time during calendar 2007, the opportunity is on the table, and the broadcasters need to adapt their workflows to be able to take a piece of content from the broadcast chain and repurpose it for the Internet, and they also have to be able to do the same thing with the advertising. All of these things are technically doable, but they need to develop a "best-practices" approach.

It is absolutely vital that broadcasters learn how to move their content onto the Internet and have the advertising follow it because the same exact workflow then maps over onto putting your content out for mobile video services. So, if you don't follow your content onto the Internet, you'll completely miss the next wave, which is probably going to be even bigger with people putting their content out to mobile devices. The Internet provides a great learning platform and stepping stone, and also will create some pretty significant revenue streams.

There are some broadcasters who are telling me that by 2009, they may be bringing in as much money from their online and mobile services as they do from their over-the-air services.

IPTVU: Do you have any metrics on that?

GK: It's almost too new to really get any metrics on, so it will be sometime in late 2007 before some of the trial users can report back. But there are a couple of broadcasters that are getting up to 15 percent of their annual advertising dollars from what they do on the Internet.

IPTVU: Is there anything else you would like to add?

GK: In my executive summary, I wasn't specifically looking at the revenues that come into broadcasters, but I was looking at the amount of equipment and services that will be needed to make this transition happen.

Worldwide during calendar 2007, we figure it's already about a $100 million per year market for equipment, software and services. For example, Internet Broadcast Services operates as a service and shares revenue with the TV station.

We think that by the end of 2011, on a worldwide basis the value of this equipment, software and services business will be more than $650 million. So this is going to be a tremendous growth opportunity for the traditional broadcast suppliers who are also working to help broadcasters repurpose content onto the Internet, and that sets the stage for then repurposing the content for mobile services.

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