This transition is important and will significantly change the revenue sources for IPTV services. In Phase 1 and Phase 2, 100 percent of all IPTV revenue will come from the subscribers. As the IPTV service providers move into Phase 3, they will start to move toward a situation where 50 percent of their revenue will be generated from subscriber revenue and 50 percent from advertising. This will clearly improve the business case for IPTV services.

The opportunity for IPTV Advanced Advertising strategies is being helped by the challenges that the advertising industry is facing today that have been created by the introduction of new technologies. The DVR is the most obvious challenge that has arisen in the last few years since TiVo introduced the first DVR device in 1999.

There has been rising mistrust and dislike of advertising by TV users. The DVR just gave viewers a way of acting upon that mistrust and dislike by providing a convenient way to skip ads as a by-product of time shifting TV programs in order to watch them at a more convenient time.

Table 1-1: Shifting Advertiser Strategies Company New Strategy

Procter & Gamble - Cut broadcast TV ad budget by 5 percent and cable TV by 25 percent in 2004.
American Express - Cut TV advertising spending from 80 percent of total budget in 1994 o 35 percent in 2006.
Verizon - Increased Internet Ad spending from 3 percent in 2001 to 11 percent in 2005; scaled down broadcast TV spending from 33 percent to 20 percent during the same period.
Ford - Commits 15 percent of budget to Internet advertising.
McDonald's - Used to spend two thirds of budget on network TV, now only one thrid.

The advertising industry is trying to fight the DVR by disallowing its ability to skip ads. This is not a strategy that will be effective for very long. There is an inevitability to technology that should be embraced rather than attempting to suppress it.

The opportunity for IPTV service providers is to help the advertising industry to develop new techniques and new business models that take advantage of new technologies to provide more interesting and more effective advertising to TV viewers. This report examines technologies and strategies that IPTV service providers can implement to accomplish this.

In fact, the telephone companies are well positioned to to offer Advanced Advertising services. The telephone companies already have strong relationships with the large enterprises that fund the advertising industry to create TV ads. The telephone companies are also major buyers of TV advertising, so they have considerable experience and expertise in TV advertising that they can bring to bear on these services.

Another advantage that the telephone companies have is that they tend to be national organizations. This is true in most countries in Europe and Asia, where both the incumbent carriers and the competitive carriers have national networks.

This means that an advertiser can go to the IPTV company or companies in these countries and create a comprehensive national campaign. The cable companies in or out of North America nearly always serve only smaller regions of each country. Often, there are multiple cable companies in each country that create a patchwork of coverage. It is difficult to create a national campaign across this patchwork.

This report is part of the IPTV Tracking Service published by the Multimedia Research Group, Inc.