Cable MSOs in the US are being confronted by new challenges this year that relate to maintaining and increasing revenue streams and profitability. Because of the increased pressure from Satellite, the telcos (IPTV) and even Internet service companies like Google and Yahoo, this study sets out to understand the technical and strategic priorities of the top U.S. MSOs (Multi-Systems Cable Operators), as a means to understand where Advanced Digital Advertising (DA in this report) is going. At the same time, we set out to understand how underlying infrastructure and underlying service development will (or will not) assist in promoting the digital advertising trials and deployments. Traditional U.S. “local spot” advertising, as stated earlier, is a $5.2 billion market in 2006. Growing on average at 12-13% per year. A sub-set of this is DID (Digital into Digital) which will grow as digital subscribers grow from under 50 percent to over 90% (estimated) in the next 5-8 years.

We have assumed that advanced targeting of digital 30-second ads, or Digital Into Digital, (see figure above) is a continuing development in 2005-2006, and will provide a platform for developing other digital advertising services. (1) Therefore, most or all of advanced digital ad services mentioned here will be “add-on” services to the targeted 30-second (DID) spot, which is still the main revenue source in the cable industry. In addition to DID, the Digital Advertising (DA) candidates were the top 6 taken from review of the literature and vendor surveys.

The candidates for Digital Advertising services beyond advanced DID are:

-Long Form on VOD, often simply called FOD (Free on Demand) including ad insertion in VOD sessions
-Interactive Ads as permitted by the STB (iAD)
-DVR-based Advertising
-Integrated Advertising (sold through the same Cable sales force)
-Buzz or Viral Advertising, based on measurement of key words and phrases used in community and buddy groups
-Product Placement (which yields revenue to the MSO, not just the content producer)

2.2 Methodology

Structured interviews were conducted with senior managers of the top MSOs in the US plus Satellite (DTH) operators and eight vendor types including:

-Senior management of MSO advertising, strategy, and technical support
-Set-top Box manufacturers
-DVR manufacturers
-Advertising support technologies
-Content providers and broadcasters
-VOD vendors
-Interactive TV providers

MSOs and suppliers were asked to rate (on a scale of 1-5, with 5 as highest) which of these DA (Digital Advertising) candidates is most likely to appear in deployment within 18-24 months. Based on the participant's highest ratings, the participants then identified the reasons for their high answers for the top DA candidates. From there, MSOs were asked to provide technical details about their top single DA candidate (the most promising one for generating revenue and for receiving widespread deployment by 2007).

These technical support details were used as verification (or non verification) of what vendors have told us (about cost, ease of installation, level of complexity for installation at the headend or customer premises, etc.).

The main purpose for interviewing the support vendors was

-To identify which products or services for Digital Advertising are actually available.
-To identify locations in the cable community where these new services are being tested and how widely tested or deployed these services are.

2.3 Findings - DA Priorities for Top MSOs

Long Form/ Free on Demand (LF/FOD) is the unchallenged favorite (totaling 24 and averaging 4.8) of the six types of Digital Advertising (DA). Interactive Ads (iAD) scores second (with a total of 19 and average of 3.8); Integrated Ads ranked third (with a total of 15 and an average of 3); and DVR Ads ranked fourth (with a total of 12 and an average of 2.4). Buzz Advertising and Product Placement ranked last (averaging 1 or under), although some MSOs place Product Placement as part of iAD, as is explained later.

1) Advanced digital-into-digital (DID) ad insertion relies heavily upon the digital sub base being 100% digital. MSOs are quick to point out that this universal goal of DID will not be to replace analog service in the near term, but will allow better targeting of 30-second ads into digital linear streams to accommodate more effective ad services than is ever possible with analog viewers. Meantime, the other (digital) DA candidates, such as Long Form on VOD, can proceed along using only the digital tier required for VOD services.