Will Targeted TV Ads Justify Higher Fees?

Corporate marketers will be watching closely when the first "addressable" ads are aired in June

For years, advertisers have hankered to tailor TV ads to specific groups of people, much as they can on the Internet or via direct mail. The cable, phone, and satellite TV companies are eager to do the same, since such an approach could potentially generate more revenue.

Finally it's starting to happen. By the end of the year, a consortium of major cable operators, Dish Network (DISH), and others will roll out technology that allows companies to run two or more commercials during the same 30-second time slot aimed at different slices of viewers. In the industry this is called "addressable" advertising. "It's been the marketer's dream for a long time," says Tracey Scheppach, whose team tests new advertising technology at Starcom MediaVest, which buys and places ads for big companies. "Now the stars and the moon are starting to align."

The first major initiative begins in late May. Canoe Ventures, a collaboration among Cablevision (CVC), Charter Communications, Comcast (CMCSA), Cox Communications, Bright House Networks, and Time Warner Cable (TWC), will give cable networks like USA or MTV the ability to offer national advertisers the opportunity to squeeze into the same 30 seconds one ad for the 19 million people living in America's 358 most affluent neighborhoods and one for everybody else. That's a fairly simple thing to do, since it involves using preexisting "cable zones" to determine who gets what ad.

In Baltimore, Comcast is trying something slightly more ambitious: It is slicing viewers into four groups based on shared characteristics—such as whether they likely have a new baby or own a dog—dredged from a database operated by consumer data firm Experian (EXPN) and matched with the home addresses connected to each set-top box. (Comcast, like other TV providers, says it provides only general information to advertisers, not individual names and addresses.)

No Nationwide Technical Standard Yet

Right now advertisers are mostly taking a wait-and-see approach, though a handful are participating in small tests. Still, marketers are keen on addressable ads because companies begrudge paying to put commercials in front of people who'll never buy their product. Automakers, for example, know that only half of American TV viewers will ever buy a new car. A couple of years ago, General Motors (GM) conducted an experiment with Comcast in Huntsville, Tex., in which Cadillac commercials appeared in affluent households while ads for the more pedestrian Chevrolet Aveo were shown in less well-heeled precincts. The automaker's director for media and marketing, Betsy Lazar, says viewers of these highly targeted ads were 40% more likely to remember them than a general audience would have.

Burger King (BKC) plans to "dip a toe" and begin experimenting with the technology this year, says Tia Lang, the restaurant chain's media and interactive director. While Lang likes the idea of reaching customers more efficiently, she's also interested in the way addressable advertising could let her try out several ads at once and see which audiences tune out, helping her tweak advertising on the fly.

Like some other marketing executives, Lang says she isn't totally sold yet on addressable TV advertising. "Where it is today," she says, "is not the place that we as marketers can get the full benefit." One issue is the lack of a nationwide technical standard, necessary to deploy the technology in enough households to give advertisers the reach they are looking for. The U.S. cable system is a patchwork of set-top boxes, some of them decades old. That's changing as more and more subscribers upgrade to digital boxes that can track viewing habits.

How much to charge for addressable ads is another sticking point. For obvious reasons, the satellite, phone, and cable companies are keen to charge a premium for targeted commercials. But advertisers don't yet know how much more a smaller, interested audience is worth than a large, general one. Both sides will be scrutinizing the tests in Baltimore and elsewhere for clues.

How much advertisers pay will depend ultimately on how targeted and interactive the ads become. As the technology improves, the TV companies say, companies will be able to target much smaller groups based on far more granular data. Eventually, viewers will be able to use their remotes to request more information about a given product—or buy it directly, as they can online.

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