IQ Analysis: The New Frontier

Audio and video ads inserted into streaming content is fast becoming a reality. In the foreseeable future, streaming media on the Internet could look and sound a lot like its ancestral radio and TV brethren. Yes, audio and video commercials are coming soon to a streaming media player on a PC near you. While banner ads have become the de facto standard for advertising online, marketers have searched for a more effective vehicle to deliver their messages and offers, namely a scheme that could emulate the efficacy and generate the dollars of offline advertising. The concept of inserting ads into streaming audio and video content--much like advertising in traditional TV and radio--became reality late last fall when two companies, RadioWave and RealNetworks began touting the capability for their audio channels. Seattle-based RealNetworks launched its audio ad-insertion product Dec. '99, and two months later Chicago-based RadioWave delivered its offering. Earlier this month, HiWire came on board the ad-insertion bandwagon with its client-side audio ad-delivery service. Microcast, which is focused on enabling online video content, and Lightningcast, which provides ad insertion for audio channels, next month will launch similar capabilities. Despite the fact that banners are still overwhelmingly the Internet ad model of choice for many advertisers, the prospect of audio and video ads could soon displace banners as Internet media and advertising matures, especially as considerations such as bandwidth and access become less of a problem for end users. Streaming Revenue Source? According to a recent survey of advertising agency executives, radio research firm Arbitron found that 56 percent of media buyers haven't bought ad space on Webcasts, although the same group claims it would like to try audio ads in the coming year. Despite agency enthusiasm for the new ad vehicle, close to half of the respondents (49 percent) say they have never been approached by Webcasters selling ad time in streaming media. It's not for lack of content, especially when it comes to streaming audio on the Web. There are more than 3,500 audio or radio channels available on the Net. Nearly 300 of those sites are Internet-only audio stations and more than 1,700 are U.S. radio stations streaming their terrestrial signals online, according to radio consultancy BRS Media. TV stations are further behind the curve in terms of getting their programming online, and are only now beginning to stream local news and other local programming online. With a few exceptions, most terrestrial broadcasters aren't making a dime by streaming their content on the Web. So for them, ad-insertion technologies may open up a whole new revenue stream. For example, spots sold locally for on-air can be re-sold for online, and, depending on the service, several creative versions can be tailored for different demographic and lifestyle targets and then inserted to run at the same time. Because as much as 80 percent of traditional radio station ads are local, inserting an ad that has appeal beyond the station's local market makes a lot of sense. "It takes business models for local radio broadcasting on the Web to the next level and enables us to extend our very real business already built around Internet delivery of our programming, says Geoff Rich, executive vice president for ABC Radio Networks, which has been inserting ads for its news Netcasts as well as the Tom Joyner Morning Show through RealNetworks. "We're not getting rich, we're trying to remain on the cutting edge. We think the ad insertion is a nice twist and a good value-added initially for advertisers who want to try something different," says John Gubiotti, manager of new media development for Ackerley's WOKR-TV in Rochester, N.Y., which will start using RealNetwork's live video ad-insertion technology in June. Targeting the Consumer But traditional radio and TV stations are not the only ones that can benefit from ad insertion in streaming media content. For Internet-only broadcasters, ad-insertion technologies bring the business model of ad-supported TV and radio to a business that has been largely supported by banner ads, which have seen diminishing returns in the past year. The question remains, though, whether or not Internet consumers are willing to sit through re-purposed commercials from traditional media. Ad-insertion technology companies, however, insist that when ad-insertion services are fully deployed, these ads won't be random commercials landing on PC desktops. In fact, the promise of live ad insertion into streaming media means that commercials designed specifically for a specific consumer can be delivered, featuring the products and services they desire. It's that potential that promises the big bucks for online radio and TV programmers. According to New York-based research firm Jupiter Communications, advertising placed against streaming media content will reach $7.3 billion in 2003, more than 63 percent of all online advertising. "This revolution isn't a revolution because a local station can reach the world, but because advertising is being separated from content," says Warren Schlichting, CEO of HiWire, Los Angeles. "No matter what you're listening to, you can get an ad that's applicable to you." Agencies aware of the new media advertising capabilities on the Internet are smitten. Grey Advertising's Mediacom was so taken with the thought of targeted ad insertion that in March, the New York-based shop invested in HiWire, which announced its client-side ad-insertion service this month. "We watched with fascination as companies took backroom processes such as traffic and turned them into something strategic called ad-serving," says Alex Gerster, chairman of Mediacom. "It's very compelling to serve a multitude of different spots right down to the demographic and psychographic level. Everyone might see the same national ad, but you'd get a local phone number," says Tim Hanlon, director of emerging contacts for Starcom IP, the interactive media buying and planning unit of Starcom Worldwide, located in Chicago. "The Holy Grail is a personalized ad based on profile data. This is the next evolution in Internet advertising." Proffering the Profile Privacy issues aside, getting the profile data for individual media users could be tough. Right now, the degree of targetability for each of the services varies. Some companies, such as New York-based Microcast, which is planning to launch its targeted video ad insertion service next month with beta-test partner WPIX-TV (WB11) in New York, require visitors to fill out a brief demographic profile. HiWire, which is currently focused on audio ad insertion and used to require users to download a proprietary player that captured user information, now has a simpler registration screen that asks listeners for gender, year of birth and ZIP code. "That puts a traffic cop on your PC, which allows us to serve the ad at the individual PC level. Later on, we may purchase more data but users will have to opt-in," says Schlichting. "Right now geographic targeting is probably the best that can be done," says Shelley Morrison, vice president of media and distribution sales for RealNetworks. RealNetworks utilizes a user's IP address to target ads based on geography. "Psychographic targeting has to be done with the user's permission," Morrison says. Alexandria, Va.-based Lightningcast, which will begin streaming audio spots for CyberRadio in the next week or so, also uses a combination of the information contained in the IP address and the format of the content, to target ads. "If the company we're partnered with wants to gather more information, we leave it up to them," explains Lightningcast CEO Tom des Jardins. Since the number of listeners to any one Net radio station has yet to approach broadcast levels, the best bet for advertisers is to aggregate ads over many stations and Net-only sites, much the same way advertisers buy across terrestrial radio networks today, explains Bill Pearson, CEO of RadioWave, which has signed radio groups such as Susquehanna and a number of independent stations such as WBEB-FM in Philadelphia. "We can target by the site and the station, which brings along with it its own demographic profile," Pearson claims. In the future, Pearson says RadioWave plans on asking consumers for more profile information in exchange for "something of value." A Work In Progress Unlike the other companies offering ad-insertion capabilities to terrestrial broadcasters streaming on the Internet, Lightningcast's des Jardins is focused on becoming a media ad rep for Internet-only radio Webcasters, similar to what DoubleClick does for banner ads. "[Internet-only Webcasters] have a better sense of what is going to be successful; they understand the Internet listener," he says, adding that the company has struck agreements with CyberRadio, DiscJockey and ERadio. Besides, des Jardins doesn't think the streaming of terrestrial broadcast signals will ultimately work, mainly because Internet listeners won't stand for 13 or more minutes per hour of commercials. One thing is for sure: Targeted ads, whether for broadcasts streamed on the Web or for Net-only Webcasters, won't come cheap. "The deeper the targeting, the more expensive the ad will be," notes Gary Montanus, executive vice president of sales for Microcast. While most of the companies tend to use a revenue-sharing model with their content partners, des Jardins says his company will use the same model as DoubleClick, buying the time from the streamers and then reselling it to advertisers at a higher rate. "Because the ads can be precisely targeted, they are of a higher value than traditional audio ads," des Jardins said. It's all so new that only one or two advertisers have tried it out. "The smart money is on doing tests right now. There are basic issues like trafficking that will take a while to work out," says Starcom IP's Hanlon, who believes that the personalized ad experience will someday be mainstream. "A lot of mindsets need to change first, at the advertiser, agency and broadcaster level. All three need to be aligned." n Katy Bachman is a senior editor for Mediaweek, covering TV and radio.

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IQ Analysis: The New Frontier

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