Adding Advertising to the IPTV Business Model
The problems of justifying the ROI for an IPTV deployment have been widely documented by many analysts and media outlets. Most generally, cost concerns about the associated network infrastructure, software platform uplift, customer premise equipment and content acquisition for an IPTV deployment seem to be the biggest issues. However, Telcos must provide IPTV services as a defensive hedge against triple play offerings of voice, broadband and video from competitors such as cable companies. This issue can be addressed by revenue streams beyond monthly subscriptions which include interactive services and advertising. The breadth of interactive services and deployment into a lean forward/back environment with TV remote navigation is a subject upon itself, so I will focus on the potential and complexity of providing advertising to the IPTV platform.
The good news is that cable local advertising sales and insertion in North America is a fairly evolved model for which to copy. European based operators have additional regulatory considerations which creates some adjustment. Based on cable local ad sales in the US, the addressable market is approximately $19B* with Comcast taking a lead, partially due to their highly regarded AdTag and AdCopy platforms (this may change with the new Canoe Ventures pan-cable advertising proposition). IPTV offerings from Telcos could potentially expand the market by providing new interactive capabilities such telescoping (clicking through the ad to a landing page), better targeting and measurement which increases the ad avail value, and providing more channel sponsorship possibilities since IPTV does not have the current channel limitation concerns of cable.
The bad news is that establishing that advertising value chain from the Ad Agencies to the delivery at the set top box is still quite a task. Not only do advertising operations need to be established, but the supporting analytics, campaign management, ad insertion and measurement systems need to be deployed. Interestingly enough, the strength of IPTV, the ability to micro-segment customers and track distinct actions, creates issues with managing all the ad avail sales combinations and discrete ad serving. Tony Hart at Packet Vision, a good colleague of mine, whose company helps Telcos integrate into the advertising value chain feels that while the complexity of establishing this model is significant, goal alignment with the Telcos and Ad Agencies will help to solve this problem with the assistance of innovative technology vendors. While this is exciting activity, I feel the biggest value will be realized when a combined three screen offering is available across TV, mobile and web since the monetization potential of those ad avails would be significantly higher with unified campaign management and tracking. This is one of the reasons that owning the mobile channel will be so important. However both IPTV and the concept of three screen advertising are still evolving.While the total potential for local advertising sales may change due to factors such as economic conditions and DVR (ad skipping) technology, the there is still significant opportunity to increase average revenue per user with advertising. This is why at Infosys; we are focusing on new developments such as micro-targeting, customer value analysis and segmentation in addition to proactively building out advertising value chain solutions to help our customer take advantage of this opportunity. What are your thoughts on the advertising potential for IPTV providers?
(*2007 estimate from SNL Kagan)
Comments
I completely agree that the Telcos should definitely look at adding robust advertising revenue models to their IPTV business model. The potential ranges from simple ad banner serving to ad-inserts for on-demand content.
There is a sudden influx of non-traditional competition for IPTV business model (in addition to the traditional players like cable and satellite companies) giving the Telcos all the more reason to explore and enhance models like advertising to increase their IPTV revenues. Examples of non-traditional competition include some of the consumer electronics manufacturers, digital media companies and the exploding Web 2.0-powered Internet.
Digital media companies like Movielink, Netflix and Starz have begun to offer digital content directly to customers over the Internet using on-demand, pay-per-view or rental models. The emergence of Web 2.0 and a thriving ad-based revenue model in the online space have resulted in the emergence of Internet TV players and User-generated video services. Moreover, user-generated video sites like You Tube have driven internet video adoption to a peak because of their ability to connect the creative talents to a globally distributed internet-savvy consumer base. Equipments like AppleTV (which enables you to access iTunes media store content on the TV) are also out there in the market delivering content directly from the Internet to the customer’s TV.
It’s quite paradoxical that the Telco-owned broadband networks are the primary business enablers for the success of all the above mentioned competition that is threatening the success of their own IPTV offerings.
Hence Telcos offering IPTV services should look at alternative business models like advertising to enhance the ROI of their IPTV deployments. Having a treasure chest of information about the consumer demographics will go a long way in helping the Telcos target ads with a great accuracy. Telcos offering multiple access services should also look at realizing the potential of multi-screen media delivery which will also provide a major boost to the advertising business model.
Should the Telcos also look at extending the highly successful and ad-driven user generated content (UGC) and other free Internet video services to the living room through their extensive home network to dominate the living rooms of their consumers?
Posted by: Sandeep Chandrasekar Seshadri | September 14, 2008 01:34 AM
Sandeep,
Terrific insights and thanks for adding to the thread with the media company examples. I want to address a few different items from above.
While we get more advertising potential, the biggest barrier will be the use of the consumer data since this is a departure from the Service Provider's standard operating procedure. It will be interesting to see how privacy and opt-in models evolve to really take advantage of those information assets.
The second point is in regards to "owning" the home. This will be an intereting battle and worthy of a separate blog. We are seeing the consumer electronic companies vying to stake their claim, but somebody else may ultimately needed to support the home network. There is an opportunity for the Service Providers here and we have already seen some announcements (e.g. ATT http://news.cnet.com/8301-1023_3-10022183-93.html), but it may be difficult to cost effectively manage since there are many variables in the home to control. You also have competition from electronic retailers (e.g. Best Buy Geek Squad) who provide similar services and will be positioned at the point of sale for electronics purchases.
All very interesting developments to watch.
Posted by: Jeremy Kloubec | September 16, 2008 03:55 AM