By Laura Blum And Steve McClellan

Video-on-demand programming has been around for years, but marketers, citing a lack of flexibility and metrics, have yet to fully embrace the medium. Now cable operators are experimenting with a number of models to make VOD more ad friendly.

A wide swath of cable companies are now conducting trials to test the viability of so-called “dynamic insertion” technology, which gives advertisers the ability to change commercials in VOD programming a day or so in advance—an ability they don’t currently enjoy.

Typically, cable systems need a six- to eight-week lead time to put an ad into a VOD program. The ad is then “stitched” into the program for the duration of its run. Bottom line: There’s then no way to update an ad as needed.

“The development of ad platforms is the magic key” to the VOD industry, said Russ Booth, director of developing connections for Grey Advertising’s MediaCom. “To make it work, you have to have some flexibility to deliver copy to the on-demand viewing audience, combined with the measurement component.”

The long lead time, added Vance Overbey, executive director, advertising, Cingular Wireless, runs “counter to our need to be quick to market. … It’s one of the biggest frustrations we have.”

It also prevents greater participation in VOD by marketers offering special deals to get customers in the door, such as fast-food chains, said Mike Bologna, senior partner, director of emerging communications, Mediaedge:cia. In fact, Pizza Hut confirmed that it would be interested in VOD programming if dynamic ad insertion were possible.

For cable, the stakes are high. So far, VOD advertising has not grown into a huge business. Only $50 million was spent on VOD cable advertising in 2005, per Leichtman Research Group. By comparison, estimates Josh Bernoff, media analyst at Forrester Research, advertising in the competing Internet video space will surpass $1 billion this year.

The latest dynamic ad insertion trial got under way two weeks ago for the premiere of Jackass: Number Two, which hit movie theaters last Friday. Participants include cable operator Sunflower Broadband, Comedy Central on Demand, and WPP’s Mediaedge:cia and its client, Jackass distributor Paramount Pictures. Also participating are technology vendors SeaChange International and Atlas on Demand.

Two other cable system operators, Comcast and Cablevision, have dynamic ad insertion trials in the works. One Cablevision test, with Visible World, will cover 100,000 homes and is said to be the largest trial of dynamic insertion technolgy to date.

So far in the Sunflower trial, three different Jackass ads have played. The first was a sneak preview heralding the movie’s Sept. 22 premiere; the second, which aired on the 22nd, said, “In theaters today”; and the third, now being used, reflects that the title is now in theaters.

Comcast is exploring technology with digital tech firm Tanberg Television to make ads interspliceable. “Being able to insert advertising in real time is very significant to the financial success of the VOD space,” said Paul Woidke, vp of technology for ad sales arm Comcast Spotlight.

Cablevision plans to experiment with dynamic insertion before the end of the year with subsidiary on-demand services Mag Rack and sportskool. Currently, ads on Cablevision’s suite of branded channels, including those for Walt Disney World and Jet Blue, can be swapped every two weeks, according to Barry Frey, svp, advanced platforms sales, Cablevision Systems Corp.

The inability to change ads on the fly isn’t the only obstacle. Reliable metrics are critical too, said MediaCom’s Booth, but they can take a prohibitive amount of time to gather. For instance, some service operators offer data 30-65 days after the fact.

Both dynamic insertion and real-time accountability are critical points in the on-demand guidelines presented by the 4A’s Digital Video Innovation Committee in March 2005. Booth, who chairs the committee, in part attributed the lag in meeting the guidelines to a lack of industry standardization.

“Consistency among VOD networks and cable operators is critical to the survival of VOD,” said Bologna. “It can go either way,” he added, arguing that the industry must develop functionality or continue to lose out to on-line interactive programming.

“It’s not an either/or,” counters Bruce Leitchman, president, Leitchman Research Group. Content providers “are dabbling in all the media forms. They’re all trying to see what will work, and how they can make the most of their content.”

Another speed bump in the way of VODs taking off has less to do with technical issues than with the programming itself, which some in the industry feel is often subpar. What is needed, they said, are more deals like the Comcast-CBS agreement two weeks ago that enables Comcast to display a significant portion of the CBS prime-time schedule on ad-suported VOD. That’s a big change from a deal struck between the parties last year when CBS shows aired on Comcast VOD for a fee and without ads.

“The right order here is first more deals like that have to happen,” said Bernoff. “Then significant viewing and revenues have to come from it. At that point you can start talking about how targeting [ads] can enhance the value of VOD even further.”