Backchannelmedia

Financial Times, May 16, 2007

Technology that tailors the message

By Danny Bradbury

Male viewers of television programmes such as Desperate Housewives are used to being inundated by advertisements for female shampoo products. This reflects advertisers' and broadcasters' traditional reliance on broad brushstrokes when targeting viewers. But this month's launch of Joost, the free internet television service started by the founders of Skype, the internet telephony service, has stoked the debate about the impact on the broadcasting industry of video-on-demand technologies that allow viewers to watch what they want, when they want.

Thanks to the technology, advertisers may be able to target their commercials better to individual viewers. But with these possibilities come new challenges.

According to Jack Myers, president of Myers Publishing, New York-based broadcast advertising analysts, video-on-demand companies need to move away from measuring television advertising purely by the size of the audience.

Advertisers traditionally pay for audiences by the thousand and hope the commercials make an impact. "The spray and pray model, which has been in place for 60 years as the dominant form of TV advertising, is going to work less effectively in the future," he says.

The hope is that advertising can instead be targeted according to a viewer's behaviour, because the emerging generation of video-on-demand networks send data in both directions. When viewers choose what to watch, service providers can use that data to monitor their viewing patterns. They draw inferences about their interests and combine these with demographic information to create a profile of the viewer and use this to target commercials more closely. Viewers watching a programme with mass appeal may each be shown different advertisements based on this data.

"You might know this person is an AB1 white male between 25 and 35 who lives in London but suddenly you know where he shops and what clothes he likes," says Chris Walker, director of technology at Saatchi & Saatchi Interactive.

However, James McQuivey, an analyst at Forrester, warns of the hurdles media planners and buyers face. Targeted individual advertising presents technical and managerial difficulties. "They go to conferences and say 'we're going to target people at an individual level' but they have no idea how to do that, and how to price it," he says.

Measuring advertisement responses will be another challenge. "It's years away, not months," says Jeremy Tester, who is responsible for new technology ventures at British Sky Broadcasting's new media division. "Technology will let us serve different advertisements to different households but it will be difficult to chop a sample into lots of pieces and get an accurate measure of the audience."

Backchannelmedia, which provides technology that allows advertisers to target individual viewers, is betting on embedded merchandising - where special offers and purchase opportunities appear alongside specific products during programmes and ads.

Data about these purchases will be the ultimate measurement.

But for that to happen advertising agencies would have to integrate special offers and e-commerce links into TV shows and advertisements. "It will force agencies to adopt integration properly," Mr Walker says. "So far we've talked integration but we haven't walked integration."

Advertising buyers and planners will have to grapple with these issues, if analyst predictions are correct. Informa Telecoms & Media predicts video-on-demand TV revenue will rise from $4.2bn last year to $11.4bn in 2011.

The continuing emergence of new video-on-demand ventures is therefore unsurprising, with Joost making some of the biggest waves in the market. The company recently received $45m in funding for its free online TV service, which streams licensed content to PCs. Customers select a programme and watch at their convenience. They will also be able to use features such as interactive chat with other viewers.

"On our platform, the cost of distribution is zero," says David Clark, Joost's executive vice-president of advertising. "You can have a viable business by aggregating smaller audiences on TV. Even the major broadcasters can take the programming and packaging skills that they developed and apply that to niche audiences as a way to grow."