Podcast Audio | Posted by Phil Leigh on August 6, 2010
Most film producers and other companies associated with conventional television fear the Internet. They don’t see how they can profit from it. Instead they worry it will erode revenues from conventional sources, replacing them with lower amounts. To date their concerns are well founded.
For example, few Internet users will pay a subscription fee for shows already on television. Moreover, the Internet provides no “carriage fees” like those paid by satellite and CATV operators to the networks — and indirectly the producers. While movie downloads admittedly provide revenues from sales and rentals, they are at least partly at the expense of DVD rentals and sales. Finally, online advertising revenues at video streaming sites like Hulu and YouTube are pathetically small by comparison to those available from conventional television. Much like the record labels, it’s likely that the Hollywood studios and television show producers wish that the Internet had never been invented. However, once advertising agencies accept responsibility for delivering video ads that really get watched the Internet will actually amplify revenue opportunities in two ways. First, agencies will be paid a premium when viewers click on ads. Second, they’ll collect bounties when those viewers complete calls-to-action, such as buying merchandise or setting appointments online.
The key to delivering effective video ads is behavioral targeting. Consider the typical experience at iTunes or Amazon.com. Prior customers are commonly greeted with merchandise “suggestions” that reflect earlier purchases. In reality the “suggestions” are targeted ads based upon past behavior. Both Amazon and iTunes discovered that the propensity of users to act upon such “suggestions” is much higher than other forms of advertising.
The key to mass market behavioral targeting is the Internet. Although the CATV industry is attempting to provide targeting and interactivity via Project Canoe, the progress is painfully slow. Only a few million homes are enabled and even those are have limited capabilities. Furthermore, the comparatively disorganized evolution of the CATV industry over the past forty years resulted in balkanized technical standards that will forever be seriously disadvantaged to the Worldwide acceptance of the Internet Protocol.
In contrast, the following video provided by The Wall Street Journal explains how an Internet browser can effectively target ads based upon the viewer’s’ web-surfing experience. Essentially the browser keeps track of where we go and what we look at by using “cookies”. Although the video questions whether the practice is an unwarranted invasion of privacy, advocates maintain such concerns are neutralized through anonymity.
The video explains that a vast number of websites can affiliate with one-another in an ad network. Consider a case in which the ad network has one merchant that is an online bookstore and a second that is a video rental site. A consumer visits the bookstore and examines the novel Snow Falling on Cedars but declines to buy it. If that consumer next visits the video rental website the ad network’s tracking cookie could prompt the second site to prominently exhibit the Hollywood production of Snow Falling on Cedars.
Significantly, most websites using tracking cookies enthusiastically endorse their effectiveness. The video compellingly demonstrates that cookie-enabled browsers are valuable tools for targeting ads that consumers have a greater propensity to notice and act upon. Although to date most such targeted ads have been text or banners, there is no reason why they couldn’t be video. It is unlikely that Project Canoe will ever match the elegant and effective targeting of cookie-enabled browsers. Accordingly, it is essential that producers put their TV shows and movies on the Internet where behaviorally targeted ads will be able to effectively monetize them.
Finally, advertising agencies should take note that Google AdWords has conditioned sponsors to only pay for ads that get “clicked on”. In time sponsors will demand that online video ads be treated no differently. In short, they will pay a premium when agencies develop ads that consumers watch and act upon, but they won’t pay anything if the consumer fails to click on the ad.