Backchannelmedia

The Bridge, August 22, 2007

Shooting for The Moon

All it takes is a $1 billion to $2 billion investment, a clutch of new privacy laws, a new business model that appeals to programmers, advertisers, CTOs and CEOs plus the development of technology to rival the advent of VOD. We're not talking little here. But if it turns out as its backers believe it will, the endeavor will not only transform how people watch TV, it will “make the infrastructure of cable the primary (multiplatform) distribution method for some time to come.” So says Michael Kokernak, co-CEO of Backchannelmedia.

And before you dismiss Kokernak as the Don Quixote of modern media, you should know that his former credentials include not only 20 years of research on the future of television but also stints at Shop at Home, ViaTV Network, Video Catalog Channel and Future Mart. Not only that, but BCM, a self-declared 'Nerdery,' has already invested more than $10 million in the effort and has spent the past few years meeting with top dogs at cable and phone companies, advertising agencies, broadcasters and programmers. The technology is well into the development phase, the business models are being refined. If all goes as planned, the first iterations of BCMpropelled services could appear on your television screen in about nine months.

An Advertising Humpty Dumpty

This massive effort has come about in reaction to an equally massive problem: The fragmentation of media wherein the mass audiences of yore have splintered into thousands of interest groups receiving their information and entertainment from internet services, mobile connections, DVR/VOD offerings, multicast broadcasters, narrowly defined networks and even game consoles. It's a familiar conundrum for anyone who's watched the world of media over the past several years. And it's led to seismic shifts in how advertisers reach their audiences.

In short order, the longreign of the 30 second broadcast ad has morphed into 15, or even 10, seconds; it's fled to internet portals, moved into product placement financing and taken root on specialty services catering to narrowly defined audiences. “Discussions of DVRs and fragmentation have finally hit the boardrooms,” says BCM's second CEO, and (thus far) primary backer, Daniel Hassan. And with corporate top dogs increasingly concerned over how to communicate their messages, “Advertisers really need a solution. That's what we've presented and they love the product.”

Where TV Rules The Web

In a nutshell, the solution envisions a merger of TV and internet wherein the TV becomes king and the internet tags along as an enabler. Using cable's (or the telcos') two-way plant, BCM software relies on interactivity and consumers' own choices to propel advertising.

The basic scenario works like this: Your kids are lusting after the new, souped-up Widget A. Via BCM software installed on your set-top box, you see a small icon in the lower left corner offering you a 10 percent discount said Widget. Using your remote control, you select the icon.

That action streams a message your cable system's headend. It flashes a response to your computer. Next time you log in on the computer, a Widget A discount notice appears, along with information on where you can purchase the Widget. Click another button and – presto! – Widget A, with all the bells and whistles and a 10 percent discount, is packaged and sent to your address.

Thus you get the discounted widget; the widget maker gets the sale; the network carrying the ad gets proof of its efficacy; and platform providers and advertisers not only validate their own services, they learn more about their customers and their customers' interests.

It's a uniquely self-contained and self-validating concept. But, as noted earlier, it's not easy and not without its hurdles.

As new players gobble up increasing parts of advertising budgets, and as highly targeted audiences become ever more important to advertisers, the media continues to splinter.

This fragmentation is reflected in the changing advertising budgets forecast by TNS Media Intelligence. In 2007, the group sees internet services growing their ad take by 16 percent, while cable networks jump by near 6 percent and outdoor advertising (driven partly by new digital signage) hikes its take by near 5 percent. Meanwhile, the old advertising standbys of business-to-business magazines, newspapers and non-Hispanic spot TV are all projected to decline by more than 1 percent.•

A Solution for Every Set-Top BOX

First, of course, are the technical challenges. The execs at BCM want to insure that their software will work with virtually any set-top box and any headend configuration. Thus, says Kokernak, “Last year, representatives of BCM went to meet with all the CTOs of cable companies to see if the service is something that can be integrated with technology today. We got a great deal of interest from the technical community.”

Adds BCM's Gordon Bechtel, “We haven't put software on the boxes yet. We're trying to ascertain how we want to roll out the service and to what customers. Then we'll put some engineering estimates against that. So we're in the middle of planning.”

As a next step, BCM is looking to raise more money. The execs from BCM are returning to equity markets this fall in hopes of raising another $25 million to $50 million in order to finance their next phase. Simultaneously, the group will be bringing their business case to key industry executives.

“We wanted to understand the technical hurdles first; we didn't want vaporware,” says Kokernak. “This fall we'll go off on the business side.”

On the business side of the product, BCM stresses that it will provide only software and facilitation, leaving rates and negotiations in the hands of advertisers, programmers and platform providers.

A Looming Privacy Problem

Money and an industry-wide buy-in aren't the only hurdles faced by BCM. Looming large in corporate plans are questions of privacy. In many ways, Kokernak notes, the opt-in/opt-out nature of the service will help protect privacy.

“The control needs to be in the hands of the consumer,” Kokernak says. Thus, BCM is designing their system so that “the consumer can opt out of even seeing the ads.”

With control in the hands of consumers and a closed system involving only the viewer and the platform provider, the BCM software will allow for a uniquely spam- and phishingfree environment, Kokernak says.

Still, he adds, “We will need to have some of the most strict privacy laws that have ever happened in the U.S. For the first time ever we have the ability as a nation and an industry to create a new communications medium and from Day One we must under-stand privacy and the impact that spam would have on the system. Consumers need to be able to opt out within 10 minutes by telephone or set top box or internet or whatever. They should only receive messages they want from businesses they have a relationship with.”

As envisioned by the execs at Backchannelmedia, their software would create a kind of advertising cascade, exponentially multiplying the potential number of messages which advertisers could bring to smaller and smaller audiences.

Based on viewing figures for ESPN prime time ratings, BCM estimates that the national feed offers one outlet, reaching more than 1 million viewers with a total of 84 30-second spots. If the ad insertions moved to the headend, advertisers would have more than 700,000 prime time avails with which to reach audiences as small as 149 viewers. When the software goes down to the node level, an estimated 11+million spots could be used to reach audiences as small as 10 viewers allowing for the ultimate in targeting for advertisers and tremendously greater advertising revenues for programmers and platform providers.•

Telco Video in a Market Near You

One Very Big Payday

If all goes as planned, Hassan says, the first BCM powered advertising could appear in the second quarter of 2008. This first phase of execution will almost certainly focus on national ads as the development of technology to move the BCM capabilities to the local level will take some time. But one key, Hassan and Kokernak insist, is to get their software into the field, with some national recognition before the February 2009 broadcast digital conversion.

“The cable and broadcast industries have a once in a lifetime opportunity to create a new understand of what the digital platform will mean,” says Kokernak. “This is a great new resource and what better way to introduce it than to launch it” along with the nationwide digital conversion.

By communicating direct to consumers, BCM execs believe their technology will not only solve the problems posed by audience fragmentation and the need for advertising validation; it could also vastly increase ad revenues, even to the point of changing some traditional business models.

“If our system is fully dispersed,” Kokernak says, “its reach will be unparalleled by any other. We see the potential for half a billion to one billion clicks a day to the internet. This will reshape search on the internet and cable operators will be the destination.”

In fact, he continues, “We feel this will change retransmission consent” as advertisers, programmers and platform providers renegotiate agreements based on money and data received through click-through advertising.

“Ultimately,” Kokernak says, “this could mean lower cable bills for customers. And what the FCC set out to do in 1996, to get more competition to the multichannel environment, will actually start to kick in.”

In short, to use an old and hackneyed phrase, it's the quintessential win-win ... with a host of very, very big challenges along the way.•