Cable Holds the Line

“Who cares what happens in vegas! Party like you’ve never partied before!”intones John O’Hurley of Dancing With the Stars fame. People jump with joy; confetti streams down around them as jackpot after jackpot gets hit in a Southern California casino.

They’re not the only ones getting excited. The TV campaign is a point of pride for cable operator Charter Communications. It managed to convince the gambling establishment that not only should it widen its TV buy on the company’s Los Angeles system, but it should also allow viewers to press the “A”button on their remotes, and telescope down through a 30-second commercial to a three-minute video explaining that when one member of its players’ club wins, every member in the casino wins–all at the same time.

One campaign led to another; the casino doubled its ad buy on Charter for 2007, and then again in 2008.

Players’ clubs are something that the cable industry can really relate to these days. The top operators in America are all enticing advertisers with a wide variety of interactive opportunities, with the idea that every time one of them wins, they all get to chalk up a small victory in the struggle to prove that they’re finally making good on the interactive promise they’ve been talking about over the last decade.

It’s not hard to see the pressure points driving this trend. The cable companies’ video subscription revenue stream is under attack from satellite and telephone rivals. And though the percentage of U.S. homes with digital cable may be on the rise, the penetration of all cable (analog and digital) households is down, apparently at the expense of satellite growth.

Broadcast-only homes that choose to deal with the country’s transition to digital next year by subscribing to a multichannel provider have two strong alternatives to cable in many markets: satellite or telco services. That makes it all the more imperative that cable operators increase their share of advertising in the overall $25 billion local TV ad pie to more than the current $5.5 billion slice.

What’s more, “the cable companies are motivated by not allowing the same thing that happened with the Internet to happen with advanced addressable TV,”says one agency executive who declined to speak for attribution. He notes that as high-speed Internet subscribers increase their broadband usage, the cost of delivering streams go up for cable operators. But the online advertising opportunity has largely been exploited by Internet-centric companies like Google–a company now extending its advertising reach into TV, mobile and other media.

Providing a more Internet-like experience on TV–with more granular research, targeted campaigns and drill-down experiences–is something cable appears uniquely qualified to deliver. Sure, satellite companies like EchoStar are offering interactive TV ads, but cable’s two-way plant allows for much richer opportunities (mainly through a robust return path from the consumer). And while the telcos can pretty much deliver the same advanced opportunities as cable, they haven’t amassed enough subscribers–yet–to offer a national advertising solution.

Trickles of interactive advertising across the country are forming a river on which the industry hopes to float Project Canoe, a $140 million startup backed by a consortium of the country’s largest operators: Comcast Corp., Time Warner Cable, Cablevision Systems, Cox Communications, Charter and Bright House Networks. Through Canoe, they’re bent on providing advertisers with common technology standards and a one-stop-shopping approach that would allow for national ITV ad campaigns across the U.S. cable universe.

David Verklin, who just stepped down as CEO of Aegis Media, is widely anticipated to be named head of Canoe within a matter of weeks (at this month’s National Cable Show in New Orleans, per chance?). The entity is expected to get a jazzier brand name, and sources say the team Verklin builds is likely to include John Collins, a vp of advanced advertising at Time Warner Cable.

The importance of Canoe for cable’s business can’t be understated, and the execs shepherding clients’ ad dollars in this brave new space are watching very closely. “I think it is a `must succeed’ for the cable industry,”says Tracey Sheppach, senior vp, video innovations director at Starcom. “We know the technology works, but it’s in pockets. Maybe I can do something on Long Island or in Palm Beach, but what about the rest of the country? It makes it really hard to get advertisers excited because it’s a patchwork of opportunities.”

Ryan Jamboretz, director of corporate development at GroupM, likens the advanced advertising situation to a three-legged stool, noting there are three stakeholders in the process: TV networks, multichannel distributors and advertisers/agencies.

“The only thing holding this up is the distribution partners and their effort to coordinate among the big players and develop a technology that will allow addressability and interactive advertising to work universally,”Jamboretz says. “Until it’s universally deployed, the cable operators aren’t likely to make money on it.”

That isn’t lost on the operators. “There are real economic reasons for cable companies to do this, and Wall Street pressure to do this quickly,”says Andrew Ward, vp of strategic alliances at Comcast Spotlight, the ad sales arm of Comcast Corp., which has made the largest investment in Canoe–reportedly $70 million.

As individual fiefdoms, the operators are amassing some significant interactive ad activity. The casino ads are just the tip of the ITV bucket for Charter’s Los Angeles system. It averages about 40 interactive campaigns a month these days, available to 300,000 digital households, according to Jim Heneghan, senior vp of sales and advertising for the company. Next year, Charter plans to expand the advanced ad deployments to other major markets including St. Louis, Dallas and Atlanta.

Meanwhile, in the Greater New York City area, Cablevision Systems is featuring several channels that are each fully dedicated to one advertiser.

There’s also a 7-Eleven slurpee campaign going on in Hawaii, where interactive ads powered by Navic Networks software send coupons to cell phones when consumers opt in, according to John Hoctor, vp of marketing and product development at Navic.

Time Warner Cable is rolling out video-on-demand channels featuring a variety of clients at a rate of about two a year, including a movie trailer channel that routinely ranks among the most popular VOD channels on the operator’s systems, according to Joan Gillman, the company’s president of media sales.

And there’s Comcast Spotlight and Starcom Mediavest Group’s recently announced trials in Huntsville, Ala., and Baltimore–the first instance where TV commercials are delivered to specific households based on targeted demos, rather than geographic zones.
Those addressable tests are expected to lead to wide deployment across Comcast Corp.’s major markets in 2009, says Comcast Spotlight’s Ward.

Yet all of these individual efforts pale in comparison to what the cable industry could achieve collectively. Clearly they’ve got to sweat some big stuff.

“We need to achieve scale quickly,”says Tara Walpert Levy, president of Visible World, which provides the tools to create multiple, customized versions of ads. “But to get to scale, we need collaboration. And in an ideal world, we need collaboration among different media types.”

How the industry achieves that scale is another story. “When you talk about anything that Canoe might do, it’s kind of like saying, `Do you like ice cream?’ You could say, `Yes,’ and find out there’s only butterscotch ice cream, and you have to drive five miles to get it, and it costs $25 a scoop,”says Brian Wieser, senior vp, director of industry analysis at Magna Global.

Wieser notes that only 30 percent of the U.S. household base currently has access to
video-on-demand content. “One of the things Canoe is likely to offer is a consistent approach to buying long-form VOD inventory, so you could showcase a product on all participating cable systems. But at most, you could only reach 30 percent of the market.”

In addition to the issue of scale, developing common technology standards is considered a key challenge for Canoe. But there are a host of other brainteasers to deal with, like those $25 cones.

“If I do an interactive experiment in California, and it costs $100,000, that’s okay,” says Mitch Oscar, executive vp and director of Carat Digital, whose recurrent Carat Exchange events have been a showcase for cutting-edge ITV campaigns. But, he notes, if a similar campaign runs nationally on Canoe, and it’s $5 million, that causes sticker shock.

Then there’s the issue of pulling cable and broadcast networks into the interactive pool. “We feel strongly that we want to open it up to our network partners. It’s in our interest to support them,”says Time Warner Cable’s Gillman. That process is likely to add a new layer of debate to retransmission-consent negotiations between the operators and broadcasters, as well as to network carriage talks in general.

“We’ve had some early dialogue with several network partners,”says David Porter, vp of marketing and new media at Cox Communications. “There’s a little bit of conflict and tension as we start to talk about it. Certainly each of us wants to get as much of a premium as we can. But if we work together, we’ll all win.”

Porter notes that revenue splits on interactive campaigns are feasible, but tricky. In general, charging networks a straight service fee for the operators’ interactive capabilities seems to make better sense.

But network d