This report is broken into two general sections – “Planning & Early Trail Results” and “Trial and Early Execution Results”, based on two surveys in mid-2005 and early 2006. The same MSOs are surveyed, making this a progress report on Digital Advertising practice in large U.S. cable operations.

Figure 2-1: DID (Digital Into Digital) Range of Targeted Ads 

2.1 The Candidates

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.

Table 2-1: Choices of Digital Advertising Services

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

Table 2-2: Overall Results by MSOs—Top DA Candidates by 2007

Source : MRG, Inc.

Table 2-3 shows that 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.

1         Background On U.S. Advertising Industry

2         Executive Overview — Planning & Early Trial Results
2.1       The Candidates
2.2       Methodology
2.3       Findings — DA Priorities for Top MSOs
              FOD
              Interactive Ads (iADs) as Permitted by the STB
              DVR Ads as Permitted by the DVR
              Integrated Ad Service
              Buzz and Product Placement Ads
2.4       General Conclusion — MSO Priorities for Digital Advertising

3         Top Business Models For Digital Advertising
3.1       MSO: FOD (VOD-Based) Business Model
              Primary Revenue Stream: FOD (VOD based AOD)
              Secondary Revenue Stream: FOD
              Future Projected Revenue Stream: FOD
3.2       MSO: Interactive (STB-Based) Ad Business Model (iAD)
              Primary Revenue Stream: iAD
              Future Projected Revenue Stream: iAD
3.3       MSO: (DVR-Based) Business Model
              DVR Showcase – Technical Infrastructure
              Primary Revenue Stream: DVR
              Secondary Revenue Stream: DVR
              Future Projected Ad Revenue
3.4       MSO: Integrated Ads (Interstitial, Internet, Interactive) Business Model
              Primary Revenue Stream: Integrated Ads
              Future Projected Revenue
3.5       MSO: Buzz Advertising: Business Model
3.6       MSO: Product Placement Business Model
3.7       Satellite: TV iAD (STB-Based) Business Model

4         Ad Service Technology For Top Business Models
4.1       FOD (Long Form on FOD) — Technical Infrastructure
              Outline of System and Technology Infrastructure
              Ad Service Mechanism (System)
              Billing/Charging Methodology
              Content Delivery Method
              Target Customers
              Data Collections Methods
4.2       iAD (Interactive Advertising) — Technical Infrastructure
              Outline of System and Technology Infrastructure
              Ad Service Mechanism (System)
              Billing/Charging Methodology
              Content Delivery Method
              Target Customers
              Data Collections Methods
4.3       DVR Showcase
              Outline of System and Technology Infrastructure (Cable and Satellite)
              Ad Service Mechanism (System)
              Billing/Charging Methodology
              Content Delivery Method
              Target Customers
              Data Collections Methods
              RBOC Opportunities

5         Digital Advertising Plans By MSO
5.1       MSO2
              DVR Advertising
              Integrated Ads
              Long Form FOD
5.2       MSO3
5.3       MSO4
5.4       MSO5
5.5       MSO6
5.6       ABC / Disney (Sample Broadcaster)

6         Conclusion For Planning Stage
6.1       FOD
6.2       Interactive Ads (iAD)
6.3       DVR
6.4       Intergrated Ads
6.5       Buzz Advertising
6.6       Product Placement Advertising
6.7       Possible Telco TV Reaction & Opportunities

7         Overview — Trial & Early Execution Results
7.1       Categories of Interactive Cable Advertising
7.2       Impact of Case-Study Ads Based On Interviews
7.3       Sponsor Exepectactions - Overview
7.4       Summary of Findings
7.5       Advertising Business model by type: Current Status
              Buzz Advertising based on Search

8         MSO Experience Trials & Early Execution
8.1       Sponsor Exepectations - Overview

9         Digital Advertising Market Growth Projection 2006-2009

10       Profiles of Digital Ad Samples (Listed by Ad Type)

11       Conclusion

12       Addendum #1 – Third Party Vendors

13       Addendum #2 – Glossary of Terms

14       Addendum #3 - Table 14-1: Annual $ Ad Revenue Growth - First 11 Years

Table of Figures

Figure 1-1: Visual Electronic Media Comparison = US Advertising
Figure 1-2: U.S. Cable TV Gaining on Broadcast Ads
Figure 2-1: DID (Digital Into Digital) Range of Targeted Ads
Figure 2-2: Choices of Digital Advertising Services
Figure 3-1: Sample Cable Integrated Ad Campaign
Figure 3-2: Satellite Long-Form Ad Channel Demonstration
Figure 3-3: Sample Campaign for Integrated Ad-Satellite

Table of Tables

Table 1-1: Total U.S. Advertising — 2004-2005
Table 1-2: Cable Advertising Revenues: 2002-2009
Table 1-3: U.S. TV & Radio Advertising — 2005
Table 1-4: Print Advertising - U.S. — 2005
Table 1-5: Visual Electronic Media Advertising Comparison — 2005
Table 1-6: Internet Ads by Format 2005
Table 2-1: Choices of Digital Advertising Services
Table 2-2: Overall Results by MSOs — Top DA Candidates by 2007
Table 2-3: FOD Advertising Results
Table 2-4: Cable FOD (Long Form) Best Supported DA Service
Table 2-5: iAD Advertising Results
Table 2-6: DVR Advertising Results
Table 2-7: Integrated Advertising Results
Table 3-1: The On-Demand Landscape — U.S. 2005
Table 3-2: Satellite DA Preferences
Table 4-1: Support Vendors for FOD Data Processing
Table 5-1: Overall DA Ratings for MSO2
Table 5-2: MSO2: Reasons for Preferring LF and Intergrated
Table 5-3: Overall DA Ratings for MSO3
Table 5-4: Long Form and Interactive Ad Ratings for MSO3
Table 5-5: DVR & Intergrated Ad Ratings for MSO3
Table 5-6: Overall DA Ratings for MSO4
Table 5-7: MSO4: Reasons for Preferring LF and Interactive
Table 5-8: MSO4: Opinions About DVR and Intergrated Ads
Table 5-9: Overall DA Ratings for MSO5
Table 5-10: MSO5: Reasons for Preferring LF and Interactive
Table 5-11: MSO5: Opinions About DVR and Intergrated
Table 5-12: Overall DA Ratings for MSO6
Table 5-13: MSO6: Reasons for Preferring LF and FOD
Table 5-14: MSO6: Reasons for Preferring Interactive Ads (iAD)
Table 5-15: Top DA Preferences
Table 7-1: Basic Overview of Profiles
Table 7-2: Sample List for Long Form Ads
Table 7-3: Sample List for DVR-Downloads
Table 7-4: Sample List for Interactive Ads
Table 7-5: Sample List for Integrated Campaigns
Table 7-6: Sample List for Product Placement
Table 8-1: Outcomes of Long Form Ads
Table 8-2: Outcomes of Interactive Ads
Table 8-3: Outcomes of DVR Downloads
Table 8-4: Outcomes of Integrated Campaigns
Table 8-5: Outcomes of Product Placements
Table 8-6: Sponsors’ Expectations for Long-Form Ads 
Table 8-7: Sponsors’ Expectations for Interactive Ads
Table 8-8: Sponsors’ Expectations for DVR Showcase Ads
Table 8-9: Sponsors’ Expectations for Integrated Campaigns
Table 8-10: Sponsors’ Expectations for Product Placement
Table 9-1: Views Growth (in millions) 2005-2009
Table 9-2: Revenue Growth (in millions of $) 2005-2009
Table 9-3: Complete List of Video Samples
Table 14-1: Annual $ Ad Revenue Growth - First 11 Years