Targeted Television Advertising
Mr. Doug Ross
Vice President, Business Development
Scientific Atlanta, Inc.
One Technology Parkway South
Norcross GA 30092 - 2967
This paper is about the
tremendous potential for Targeted Television Advertising
and how to make it become a reality.
In this paper we first examine
the economic case for targeted television advertising for those who may
remain skeptical. And secondly, we describe an actionable scenario for
how targeted television advertising might actually be implemented by
broadcasters, advertisers and cable television operators.
The paper has six sections
which can be summarized as follows:
Market - Television Advertising Is A Small Piece Of A Big Pie
Total marketing and advertising
spending is a very large pie of which television advertising is only a
small piece. Even a very small shift in promotional spending in this
large pie could make targeted television advertising a tremendous growth
and profit opportunity for those in a position to exploit it.
The Forces - Driving Targeted Television
Three forces are driving
targeted television advertising and will eventually make it pervasive;
the general shifting of advertising dollars to targeted media, the
win-win scenario that the efficiency of targeted media makes possible,
and the digital technology currently being deployed by cable operators
which makes it possible to individually address and target every
household passed by cable.
The Scenario - For Targeted Television
We believe there is a scenario
(with six key ingredients) which would quickly make targeted television
advertising work. We summarize the scenario in this section.
The Six Key Ingredients - To Make Targeted TV
Next, we take the six key
ingredients necessary to make targeted television advertising work, and
look at each of them more closely.
Technology - How Targeted Advertising Can Be
We take a realistic look at
what technology is required for targeted television advertising, where
that technology stands and what we can expect. We examine both the
digital cable network aspects and the software systems.
The Action Plan - A Proposed Set of Next Steps
Finally, we outline a set of
actions proposed as a way to "get the ball rolling" on the
benefits of targeted television advertising.
Market - Television Advertising Is A Small Slice Of A Big Pie
It is helpful to put targeted
television advertising in the perspective of total marketing,
advertising and promotional spending of $300 billion in the United
States each year aimed at the 98 million television households.
Another useful perspective is
the current distribution of television advertising revenues between the
players who compete for current broadcast television advertising dollars
and those who will compete for future revenues from targeted television
Total Ad Rev $ Mil
TVH H's Reached Mil
$/T VHH Reached/Yr
CPM $ (24 Hour Average)
The key implications are that:
Total marketing and promotion spending in
the USA is a very big "pie"
Television advertising captures only a
small (~14%) share of that total spending pie
Television broadcasters of all kinds, in
cooperation with cable operators, can dramatically increase their
share of the total promotional spending pie by providing
advertisers with a more effective targeted television advertising
The chart below illustrates the
impact that targeted television advertising could have on the overall
television advertising industry longer-term. Historic television
advertising trends already clearly indicate a shift in advertising
dollars. Cable networks & local cable spots have captured the bulk
of the growth in television advertising spending over the past decade
and are projected to continue doing so.
We assume that when targeted
television advertising is added to the media mix, at least 5-10% of the
total $300 billion marketing spending pie will be shifted to targeted
television advertising. The result is a potential $15-$30 billion per
year in advertising revenues gradually shifting to cable networks from
other, mainly non-targeted, media.
Kagan’s widely quoted
projections as shown above are that combined cable network and local
spot cable advertising per household will triple from current
~$10/sub/month to ~$30/sub/month by the year 2007. Targeted television
advertising via cable has the potential to nearly double that again,
raising total potential cable advertising revenues to ~$55/sub/mo by
adding targeted advertising to the advertising mix and not significantly
cannibalizing existing broadcast advertising revenues.
Forces - Driving Targeted Television Advertising
Three fundamental forces are driving the
opportunity for Targeted Television Advertising.
1. Marketing Dollars
Shifting From Television Advertising To More Targeted Mediums
In the USA, it is estimated that more than $300 billion is spent
annually on marketing, promotion and advertising of consumer
products. Although the total pie is growing slowly, even small
shifts can cause dramatic changes in specific segments. For example,
the shift in recent years to more targeted advertising and promotion
media, such as specialty catalogues, direct mail and telemarketing,
has retarded the potential growth of the broadcast television
2. The Efficiency of
Targeted Advertising Is A "Win-Win" Scenario For Key
Players Advertisers are
concerned because as much as 80% of broadcast TV advertising is
routinely wasted on non-targeted audiences. At that rate, average
$10 CPMs for network television ads actually cost $50 per "true
However, with targeted
television advertising everyone benefits. Sellers increase CPM$
while buyers reduce their cost per true target reached and increase
the frequency and recency of impressions at no additional cost.
Targeted television advertising has the potential to double or even
triple broadcast and cable television advertising’s current share
of the marketing pie, with the loser being other less-targeted
3. Broadband Cable &
Digital Technology Make Targeted TV Advertising Possible With
the speed, capacity and intelligence to individually address cable
households, broadband digital cable networks will allow advertisers
for the first time to target their television advertising spending.
The question now is how to take advantage of this?
Scenario - For Targeted Television Advertising
Targeted television advertising
will not be optimum until it reaches the entire universe of households.
However, equipping every household with digital settops requires
significant funding. In other words, there is a chicken-and-egg problem.
What’s needed is a practical arrangement that gets the ball rolling.
This proposal is meant to be that catalyst. Scientific-Atlanta’s only
vested interest is in selling digital systems to cable television
operators. It is logical for us to be a catalyst because targeted
television advertising is an excellent application that is uniquely
enabled by our digital system. Therefore, we tackled two fundamental
questions; "who wants what" from targeted television
advertising, and, how can an arrangement be made to satisfy the various
We imagine a scenario that goes
Top advertisers would make
advanced, long-term, targeted advertising commitments to cable
operators in exchange for targeted advertising exclusivity in their
This funding would subsidize
the up-front cost of digital set top boxes enough to enable cable
operators to justify ubiquitous deployment
deployment & targeting will increase advertising effectiveness
and result in market share gains for exclusive advertisers that
justify the up-front investment.
Despite higher overall CPMs
for the sellers of targeted advertising, the cost per true target
reached for advertisers will actually be lower.
Broadcast networks &
affiliates as well as cable program networks will adopt targeted
advertising and will either pay for bandwidth on cable or provide
new advertising avails to cable operators.
Advertising agencies will
benefit from more effective advertising measurement schemes and will
profit from the results oriented incentive compensation made
possible by digital technology & targeting.
Graphically it looks like
this… Six key steps would make
such an arrangement work. The steps are circled below and described in
more detail on the pages that follow:
The Six Key Ingredients - To Make Targeted TV
Category Exclusivity – Exclusive access to addressable commercials will be a powerful tool
for advertisers who secure those rights for their brand in a specific
geographic area. Category exclusivity might play out as follows:
Category exclusivity would be acquired by
one advertiser per product category.
Category exclusivity means the exclusive right in a major product
category to use the "targeted advertising system" of the
cable operator on all television channels carried by that cable
The price of category exclusivity would be a matter of negotiation between buyer and seller and would
reflect, among other things, the advertiser’s margin per unit,
purchase cycle, share of market, number of brands and overall volume
of advertising dollars, i.e. the variables which the buyers and
sellers will each analyze in order to determine the business case from
their own point of view.
A five year exclusive rights
period is proposed to allow
advertisers enough time to cement the competitive advantages of
exclusivity and to defray their costs.
In practice, category exclusivity
also means geographic exclusivity because cable systems
typically cover large, contiguous geographic areas in which the
cable operator is virtually exclusive
Ubiquitous Digital Settop Deployment
- The amount advertisers would be asked to pay for category exclusivity
would be used to subsidize ubiquitous deployment of digital settops. The
proposed approach is as follows:
Advertisers would make
prepaid advertising commitments that would subsidize ubiquitous
digital settop box deployment.
These advance payments would be the price of exclusivity and would
be negotiated between the parties. If, for example, such advances
were worth $1.00 / subscriber / year / product category on
average, then a typical cable operator would receive digital
settop box subsidies (in the form of advertising advances) from
all advertisers of ~$150-$200 per subscriber, as follows:
$1.00/category/yr x 5 yrs
exclusivity x 30-40 categories = $150-$200/sub
would be to invest this advance commitment subsidy exclusively on
the deployment of digital settops and to achieve ubiquitous
digital deployment within a reasonable implementation period (e.g.
18 months). Ubiquitous deployment means a digital settop box
eventually in the hands of at least every paying cable subscriber,
and could potentially mean even more, perhaps even every home
passed by cable. The targeted advertising possibility, combined
with other new digital service offerings such as VOD or
"Internet-via-TV" could prove to be a reasonably
painless way for both cable operators and targeted advertisers to
reach the 35% of homes who do not presently subscribe to cable.
cable operator’s ubiquitous deployment obligation
would pay their advance commitments
in cash in amounts and at periods which would be proportional to
cable operators progress in deployment of digital settop boxes and
implementation of targeted advertising systems and infrastructure.
& cable operators would individually negotiate terms for
amortizing these advanced commitment dollars
against future targeted advertising spending. These amortization
credits would reduce the cable operators future CPMs for targeted
advertising and would be made available to the advertiser in some
proportional way over the period of exclusivity. For example;
might pay $30 CPM or more for targeted ads when 100% of the
audience is true targets.
operators might credit advertisers with perhaps half ($15) of
these higher overall $30 CPMs, in effect amortizing pre-paid
advertising dollars by temporarily reducing targeted advertising
CPMs until all up-front subsidies are credited.
Improved Brand Share From
Targeting, Exclusivity & Increased Ad Exposures
Assuming that the key
objective of advertisers is brand share improvement, cable operators
are in a unique position to deliver it. They offer advertisers three
targeted advertising related benefits that help increase brand share,
- A typical brand
is purchased by only a small segment of total households. Current
television technology dictates that TV commercials be designed for
the general audience despite the fact that typical TV ads have
their effect on only 6% of that audience.
Targeting Specific Consumer
It has been shown in other
direct advertising mediums that targeting specific consumer segments
more frequently and with more specific advertising messages improves
effectiveness (as measured by loyalty, recall, retention, etc.),
increases cost effectiveness (by elimination of non-targeted waste),
and increases market share. As advertisers enlarge their direct
marketing experience base they are bringing that experience back to
the analysis of television. They are prepared to use a battery of
tools to slice and dice scanner sales data and other information
sources to find truly responsive segments for specific brand
advertising campaigns. And, with new digital television technology
combined with targeted advertising systems, it will now be possible
to reach those most responsive segments.
Elimination of non-targeted "advertising waste" allows
the same amount of advertising dollars to be allocated more
efficiently to a larger number of exposures for a targeted
audience. Increased exposures has two main benefits:
Waste and Increasing Adverting Exposures To True Targets
- There is a cumulative effect from repetition and reinforcement
of the advertising message. This known effect is enhanced by
targeted television advertising.
& Reinforcement of The Message
- The greatest chance of advertising having an effect on a sale
comes when the advertising is received most recently before the
shopping occasion. Increasing exposures, increases the probability
of recency as follows:
the 80% of TV advertising that is wasted were eliminated, five
times more true target exposures would be possible. With five
times more potential exposures, a frequency target approaching
one exposure per day would be feasible, leading to the best
addition, with digital cable networks it would be possible to
measure clickstreams to verify that the target was reached,
including verification by ISCI code that the right commercial
actually played at the right time in each home.
& Ubiquitous Coverage By Cable
- Since there is no real alternative to cable as a way to deliver
targeted television advertising, and since cable operators tend to
have virtually exclusive franchises in the areas they serve, it is
therefore possible for cable operators to provide targeted
advertising services to advertisers on an exclusive basis.
Being the only advertiser in a particular category to have access
to the efficiency of targeted television advertising, and to have
this position for a sustained period of years has a competitive
advantage that is intuitively clear although not easily
Exclusive Cable Environment
Ubiquitous deployment of digital settops is the chicken-and-egg
problem that cable operators and advertisers together can solve.
Digital Settop Deployment
- Ubiquitous deployment of digital settops is desirable both
for advertisers, and for cable operators in order to reach the
entire mass market and to compete effectively with other
targeted, but more expensive, advertising mediums such as
direct mail, telemarketing and specialty catalogues.
Sharing Between Cable Operators & Advertisers
Targeted advertising alone probably has enough value to
support and fund ubiquitous deployment of digital settops.
However, there are many other potential applications (e.g.
e-commerce, home-banking, etc.) that will benefit from the
presence of digital settops in every subscriber home. Key
players (such as banks) in some of these applications could
also be candidates to subsidize the digital settop box, in
which case the up-front cost to advertisers could be made even
Risk Sharing With Others
CPMs for Broadcast Networks, Network Affiliates, Cable Nets and MSOs
- The vehicle for content providers to participate in targeted
advertising is higher CPMs for the advertising time on their
channels carried on cable networks and enhanced with targeted
metric "CPM Households" increases, while at the same
time the metric "CPM Targets" decreases for every
advertiser using addressable commercials
The Buyers Point Of View
total revenue from advertising sales (combined across multiple
advertisers) increases for each advertising slot
The Sellers Point Of View
Of Targeted Advertising On All Broadcast Channels By The Cable
Operator - If we assume that…
broadcasters (including the Broadcast TV Networks, Local
Stations, Cable Networks, and MSOs) will eventually participate
in targeted advertising, and
operators will provide the network infrastructure and the
systems that act as the gateway to targeted television
no matter what the source
of program content, cable operators will direct the allocation
of channel capacity and other system resources needed for the
delivery of targeted advertising,
then……we should also assume
that Cable operators will be compensated by broadcasters and program
providers for facilitating targeted advertising. This compensation is
likely to be by means of either: negotiated revenue sharing
arrangements, or cable advertising avails from broadcast television
networks and from local television stations.
The chart below shows the
tremendous potential effect of a conservative scenario in which targeted
television advertising captures merely 5% of the total advertising and
promotional spending pie, and redistributes that to the various players.
Advertisers are demanding more accountability for results from ad
agencies and linking compensation to results instead of commissions on
ad dollar volume. Real-time, two-way interactive digital cable systems
from Scientific-Atlanta, which are in constant communication with
subscribers, provide highly accurate measurements of behavior and
results from advertising programs. Next Century Media extends this by
means of advanced measurements techniques in areas such as people
presence in the room, non-switch-away from commercial, and links to
Accountability & Measurement of Results
Technology - How Targeted Advertising Can Be
Initially A "Brute Force" Approach
Will Be Used -
Multiple digital ads will be broadcast
simultaneously on multiple digital channels (called feeder channels)
with these channels using ~1 MHz of bandwidth each.
There are two key
assumptions. First, that enough digital bandwidth is available.
And secondly, that MSOs will be willing to use significant amounts
of digital bandwidth for targeted advertising even though the
feeder channels for targeted advertising are used for only ~1/5th
of the time (~12 minutes/hour) at commercial breaks. This implies
that the value of targeted advertising will prove to be greater
than the value of incremental video programming that MSOs might
obtain for that same bandwidth.
"switched" to the optimum ad being broadcast on one of
the feeder channels during the standard ad time slot (and switched
back after the ad is completed). This ad switching is immediately
overridden by subscriber channel surfing and is essentially
transparent to the subscriber.
The optimum ad to switch
a given subscriber to at a given time on a given channel is
determined, in the case of the NCM system, by consideration of all
advertisers’ segmentation criteria, reach/frequency goals, media
environment factors, and other factors.
In this process, information about individual
cable subscribers is matched with targeting criteria from
advertiser optimization models. (The information on subscribers is
maintained in secure databases.)
Insurmountable Technical Problems
- The key technical problem is switching the viewer to a different
ad channel and back to the original program channel fast enough so
that the switching isn’t perceptible to the viewer. This appears
to be relatively straightforward in the same digital multiplex and
only slightly more problematic when switching between multiplexes.
- The control system for targeted advertising must be integrated
with other systems.
it must be integrated with S-A’s existing DNCS (Digital
Network Control System) or comparable systems of competitors.
could also be integrated with third party program traffic and
billing systems or other "back-end" transaction
management systems and linked to S-A’s DNCS via these systems.
has its own traffic & billing system as a self-contained
standalone function apart from the cable operator’s system.
The NCM system appears to be the preference of some MSOs and is
believed by NCM to be a simpler and more immediate solution.
this control system integration effort is not trivial,
Scientific-Atlanta has done other comparable system integration
efforts successfully, and this one is not anticipated to be a
Targeted Advertising In A Digital Interactive Cable Network
- In 1996, NCM
played a key role in early targeted advertising related analysis
efforts in the Bell South digital trial in Chamblee, GA. using
second generation Scientific-Atlanta technology.
- The first end-to-end test of such a targeted advertising system
is scheduled to be done by MediaOne in Detroit in the spring of
1999 using the targeted advertising system of Next Century Media.
Numerous advertisers have made advance commitments to this trial
and will benefit from the extensive consumer behavior data this
trial will provide beginning in the fall of 1999 and continuing
for ~12 months.
- It is possible
that a limited number of other similar trials, possibly one or
two, could be managed simultaneously and could expand the
knowledge base on targeted advertising.
- Next Century Media has not had the time nor the funding to do
large scale physical trials or computer simulations on the
scaleability of their approach, however, there is no reason to
believe that the system will not scale adequately.
Design & Development Efforts In Progress
database design is layered in order to get more and more specific
about a given subscriber. The technical problems are in designing
a database that is scaleable, fast and easy to use, and in
integrating and automating the data capture process.
in each layer is acquired in various ways and much of the work of
acquiring the higher level databases is done.
has relationships with sources for "zip + four" type
demographic databases which provide a layer of general
information useful if nothing else specific to a household is
available. This information can be inferentially converted to
product and brand usage estimates for each household by means
known to top advertisers and to NCM.
subscriber management & billing databases would provide very
specific subscriber information which would be captured in NCM’s
has proven the viability of Installation Questionnaires in the
BellSouth digital TV trial. This replaces the inferred product
and brand usage data described above with real data for those
households cooperating. NCM believes that it will be shown over
time that the cable operator will swiftly recoup the cost of
free installation when this is given as an incentive for filling
out the Installation Questionnaire.
the same BellSouth trial, NCM showed that direct mail databases
such as Donnelley, Polk, MetroMail, NDL, etc. can be matched to
cable subscriber lists to provide still more targeting
information (demographics, product and brand usage) per
household. In that trial, 87% of cable subscribers could be
matched to one or more of the latter lists.
channel tuning patterns would be the ultimate data obtained by
monitoring subscriber "click-streams" and making
measurements of what subscribers are actually doing. Although
these more sophisticated capabilities have been demonstrated by
NCM in previous trials (Bell South, Chamblee for example) they
are not likely to be deployed until the basic targeted
advertising systems are fully implemented and operational.
technical problem is developing a reliable (operations research-like)
optimization system that takes into account all of the data available
and produces an optimized advertising recommendation result. This is a
current advertising industry topic and NCM’s Bill Harvey is a well
known "expert" in the field. The NCM targeted advertising
system is such an optimizer but operating at the level of addressable
commercials not just at the daypart or program grouped-audience level
as with traditional optimizers.
Optimization Model -
The Action Plan - A
Proposed Set of Next Steps
Form Consensus Group To Champion
The Concept Of Targeted Cable Advertising Scientific-Atlanta,
a group of major advertising agencies, Next Century Media (the
addressable advertising system provider) and other interested parties
described below, have come together to champion the concept of targeted
cable television advertising and to prove its merit via scientific,
Different Points Of View
MSOs and advertisers have expressed interest in moving rapidly to
targeted advertising deployment and ubiquitous deployment of
digital set top boxes. This is attractive to some because it
maximizes the base for targeted advertising as well as revenue
streams from applications such as e-commerce, VOD, e-mail,
TV-based web access, IP telephony, etc.. Some advertisers have
indicated a willingness to make advance commitments even now and
the targeted advertising coalition will attempt to bring these
MSOs and advertisers together on an ad hoc basis to begin the
Wishing To Move Now
- Other MSOs and advertisers have chosen to join the targeted
advertising coalition in conducting trials, and then waiting for
the results of those trials over the next 12-18 months before
making full scale commitments.
Choosing To Wait For More Trials
Complete Technology, Testing
& Field Trials Of The Targeted Advertising Concept
NCM has focused interest on
addressable commercials, built the necessary optimization systems, and
created the first testing opportunities. With the adoption of this
proposed approach to targeted television advertising and ubiquitous
deployment of digital settops by advertisers and cable operators,
Scientific-Atlanta along with the major Ad Agencies and other Targeted
Advertising Coalition participants would be prepared to fund NCM for
the completion of the remaining steps in technology development,
testing, and field trials.
Development of Further Plans
To Share The Risk/Reward With Other Industries
We also propose a continuing
effort to focus on the interactive capabilities of the digital set top
box and to seek additional service providers who may benefit not only
from target-ability but also from ubiquitous deployment of digital
boxes. The objective would be to convince these additional service
providers to join this coalition and contribute to wide-spread
deployment by providing additional funding in a form similar to the
advance advertising commitments of the advertising industry. We
imagine that a number of additional service providers would be
interested in participating, in areas such as:
Financial Services (Banking,
E-commerce (books, music,
videos, computers, software, travel, etc.)
Legal Services (surprisingly
large category on the Net)
– Targeted advertising and addressable commercials represent a win/win
scenario and a huge opportunity for MSOs, broadcasters and cable
networks, advertisers, agencies, manufacturers, cable reps, system/data
suppliers and consumers. There are many potentially interested parties
who might work together to bring about the rapid deployment of this
new medium of targeted advertising. However, therein lies both the
opportunity and the challenge: how to facilitate cooperation among
a group of such diverse parties so that the opportunity does not
slip away when the benefits are clearly so great and technologically
within our grasp.