Interactive Ads: Cable’s Future May Already Have Passed

Two-way ads are finally coming to TV, years after they hit the Web

Television advertising that allows viewer participation via a remote control has been a dream of the cable industry for at least a quarter century. In 2008, six of the largest cable operators began creating technology that could, say, poll viewers’ brand preferences or offer customized discounts during a commercial. This year, Canoe Ventures, the $150 million effort launched by Comcast, Time Warner Cable, Cox Communications, Charter Communications, Cablevision Systems, and Bright House Networks, finished building a platform that allows advertisers to include interactive elements in commercials—with Canoe collecting a fee for each ad campaign sold. There’s just one problem: The Web got there first.

Targeted advertising with interactive features has been on the Web for a decade, and many companies may see Canoe’s platform as old technology, says Porter Bibb, managing partner at Mediatech Capital Partners. Canoe’s cable network reach, while growing, is only about 23 million households, a far cry from Facebook’s 800 million users. The Net is where advertisers are focusing their efforts, says Bibb, especially as companies such as Cisco Systems, Apple, Samsung Group, and even Comcast work on products and interfaces to integrate the Web with television–potentially eliminating the need for Canoe’s set-top box technology altogether. “When it was dreamed up, Canoe was ahead of the technology, and now newer technology has made it redundant,” says Bibb. “The Internet has made this unnecessary.”

The explosion of mobile devices is now pushing advertisers toward bypassing the set-top box, according to Tracey Scheppach, senior vice-president of innovation at Publicis Groupe unit VivaKi, the world’s No. 2 media buying group, which handles about $60 billion dollars of advertising annually.

If interactive ad campaigns take off, Canoe says networks will be able to charge a premium for the extra information they provide. The big draw: Advertisers will be able to collect targeted data on millions of potential customers while marketing their products. But widespread adoption of ITV has been delayed by pricing, says David Joyce, an analyst at Miller Tabak. Advertisers, ad agencies, cable operators, and networks are all unsure how to price ITV campaigns, and none of them “want to upset the apple cart by mispricing the ads out of the gate,” says Joyce.

Although Canoe wants advertisers to pay 20 percent to 25 percent more than they pay for regular spots to use its technology, “the value is not there,” says Scheppach. “Canoe is sitting on a gold mine with all of its data, but even with a 25 percent premium, advertising is a small portion of the cable business,” she says. “It doesn’t get cable companies that excited, and Canoe has moved much too slowly.”

Kathy Timko, Canoe chief executive officer since July, says technology difficulties slowed the project. “Building the platform so it works uniformly—when you peel back that onion, there are products of acquisition, different infrastructures—we’ve had to discover how to make it work,” she says. As a result, “We’ve really only been in business about six to nine months now.”

Timko says advertisers will use interactivity as long as there’s proof it works. Fidelity Investments, GlaxoSmithKline, Honda Motor, Kimberly-Clark, and State Farm Insurance are among the companies testing Canoe’s technology. During those trials, brand recall was 126 percent higher following exposure to an interactive offer, regardless of whether the viewer clicked on the promotion, and likelihood to buy was 29 percent higher, according to Canoe. By contrast, most Web ads are still just text, and TV spots are almost six times more effective than banner ads when testing consumer brand recall, according to researcher McPheters.

Timko says it now makes sense to add AT&T, Verizon Communications, DirecTV, and Dish Network to the Canoe platform to give advertisers a common technology to use across a wider range of pay-TV operators. Conversations with the four companies occur frequently, says Timko. “If you didn’t have Canoe in the middle, networks would have to work with individual cable systems on each advertising campaign,” says Timko. “It would be very piecemeal.”

Even if interactivity fails, Canoe has a back-up plan: video-on-demand. In the past 12 months, TV viewers have streamed 8 billion videos on demand in the U.S., says researcher SNL Kagan. Each of these streams can be embedded with so-called dynamic advertising, commercials that can be updated and refreshed over time. It’s untapped territory for advertisers that want to connect their products to popular shows, and Canoe hopes to roll it out soon. “A national programmer like NBCUniversal can sell a national ad campaign tied to 30 Rock, on-demand, and can do an order with Canoe to place 10 million impressions against the show,” says Arthur Orduña, Canoe’s chief product officer. (An impression is counted each time someone sees the ad.)

Timko, who acknowledges the cable companies that bankrolled Canoe want to see results, is hopeful the interactive spots now starting to run on cable networks AMC, E!, and Style Network will draw more advertisers to the technology. And her cable-system backers say they’re committed despite the delays. Says Sarah Fay, former CEO of Aegis Media North America and a member of Canoe’s advisory board: “You think they are going to pull the plug? You don’t think they believe in the future of this? That’s crazy.”


    The bottom line: Six cable operators have spent $150 million on technology for interactive ads. But the Internet has offered two-way spots for years.

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