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TV Eyeballs Close-Up


Ever since the advent of commercial television, advertisers have wondered exactly what they get for the megabucks they spend on 30-second spots. After all, the networks and cable companies offer only a crude approximation of who is watching what. With such thin information, advertisers can't target specific neighborhoods or consumer tastes. As for converting ads directly to sales, well, that's virtually impossible. Yet the Web, with its sophisticated per-click metrics, does all of that billions of times a day. "The problem," says Yankee Group analyst Aditya Kishore, "is that there's not enough math in [the TV] business."

But aQuantive Inc. (AQNT) aims to change that. A marketing firm that also owns the Avenue A/Razorfish Web ad agency, aQuantive helps clients measure online audiences and tailor ads to specific surfers. Having locked up a sizable chunk of that business, the Seattle outfit is eager to bring its smarts to television, promising advertisers their first real fix on the viewing and spending habits of Americans. Why get into TV? Despite the hoopla about advertisers moving online, the $70 billion television ad market dwarfs the Web business 5 to 1. Says aQuantive CEO Brian P. McAndrews, once an ABC executive: "TV is the largest medium out there."

It's only one of several companies figuring out new ways to measure TV viewers and their habits. Ratings giant Nielsen Media Research plans to have its own system in place by the end of '06. Rentrak Corp (RENT)., an entertainment industry information service, provides viewer data to programmers. TiVo Inc. (TIVO) already tracks its subscribers. This flurry of activity won't transform TV overnight, though. The measuring technology remains immature, interactive TV is in its infancy, and the cable companies are loath to annoy customers by sharing their viewing habits with advertisers.

That's why aQuantive is taking baby steps. Starting in June, the company's Atlas on Demand unit will begin testing technology that measures video-on-demand (VOD) viewers for Charter Communications Inc. (CHTR) VOD's Web-like interactivity is what sold aQuantive. Besides, the medium is taking off, with digital cable now in 25 million homes, far ahead of TiVo's 4.4 million.

By gathering data from the same set-top boxes viewers use to order shows and movies, Atlas on Demand plans to figure out how many people watched a show and when, as well as how many watched the ads vs. skipped them. From there, company executives hope to help advertisers determine precisely how much attention their money buys. "You know people watch Lost," says John Chandler, Atlas on Demand senior analyst. "[Now] you'll know if they watch the ad."

Assuming the technology works, by late 2007, Atlas will be able to tell advertisers which ad to put in which show and how to target the spot to each viewer. When someone orders a Law & Order rerun, say, Atlas on Demand will take into account what time of day he watched it, other shows he views, and the demographics of his neighborhood. Then it will tell the cable company which ads to splice in. The system "lets advertisers find people when they're receptive," says Scott Ferris, who runs Atlas on Demand.

TECHNICAL GLITCH

Proponents of VOD hope the medium will become as interactive as the Web itself, allowing viewers to get discount offers, enter contests, and even buy stuff. Burger King is considering running ads offering drive-through deals to late-night VOD viewers. Such ads could be priced based on the number of leads or sales they generate rather than the number of viewers they attract. "The intersection of video on demand and interactive TV is the next frontier," says Time Warner Cable (TWX) Executive Vice-President Peter C. Stern. "I look for it to emerge in 2007."

Will all the pieces be in place? Converting its Web technology gives it a head start, says aQuantive. But Atlas on Demand remains a work in progress. Ferris acknowledges that his technicians managed the first test exchange of data with a cable company only weeks ago. When his team tried to demonstrate Atlas on Demand for BusinessWeek, it wouldn't run on two separate occasions.

Technical bugs are one thing. Creating ads tailored to smaller slices of the audience will also require a major strategy overhaul on the part of advertising agencies. They're already trying everything from 15-second spots designed to be over before viewers reach for the zapper to 18-minute videos on bathroom design sponsored by Kohler Co.

And while the national appetite for on-demand programming is growing fast, many advertisers remain unwilling to commit big dollars to the emerging medium. Forrester Research Inc. (FORR) says VOD commanded a minuscule $15 million in ad revenues in 2004, the only year for which numbers are available.

A catch-22 is at work. Advertisers won't get deep into VOD until Big Cable provides more metrics. And the cable companies are loath to divulge information about individual viewers for fear of violating privacy regulations that predate the Internet. "We want to generate additional revenue," says David Porter, director of new media business development at Cox Media, "but not at the cost of annoying our customers."

To get around the privacy issue, Ferris says, Atlas on Demand's first iterations will not try to harvest individuals' information. But a version due out at the end of '07 will be looking for more specific data. That will mean persuading viewers -- with incentives -- that it's worth coughing up personal data. TiVo is a pioneer in this area. It offers subscribers a way to click from a regular spot to a long-form ad and then order a brochure or enter a contest. As many as 15% of viewers who watched an extended ad volunteered their information, says TiVo's national ad sales VP, Davina Kent: "Consumers will click when they're in control."

Despite myriad challenges, the cable guys have little choice but to become more Web-like. Every other day, it seems, marks the launch of yet another ad-supported online channel. Karl Siebrecht, Atlas' general manager, bets Web video will become a major ad market sooner than VOD, but he says on-demand TV eventually will be bigger. He and the other Atlas folks don't care whether the next great video market is TV or the Web. They plan to make money either way.

By Timothy J. Mullaney


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