• by John R. Osborn , Op-Ed Contributor, September 15, 2011

David Poltrack, Chief Research Officer at CBS, has said over the years that Digital Video Recording (DVR) is a transitional technology. I believe he's right, and that video-on-demand (VOD) will render traditional, linear, scheduled television to a small proportion of total digital television/video (T/V) viewing. Since VOD is now accessible on all digital platforms connected by cable, satellite or broadband internet, it's worthwhile to start imagining what this new world will look like, and what role advertising will play.

The entities that can best organize this new manner of consumption, and employ the most workable business model, will be successful. Those that try to hold on to the historically profitable linear model will ultimately be in trouble. With recent PBS and IFC moves from uninterrupted to ad-interrupted programming, there is evidence to suggest that the idea of milking ad dollars through the old model is not easily going away.

How will advertising pay for or subsidize VOD viewing? That's the $72 billion question, given the size of the T/V advertising business today*. There are many questions found within this question:

·       Should VOD with ads be fast-forwardable or fast-forward disabled? Does disabling serve advertisers or viewers?

·       Can commercial avoidance finally be addressed in the VOD model?

·       What's the right proportion of ad content to program content?

·       Should ads interrupt content, and if so how much?  What's the right proportion of Pre-roll, post-roll and mid-roll?

·       Should/could consumers have "a-la-carte" options to pay for or accept advertising for access to content?  Do bundled services like ESPN3 (online) or Cable/Satellite bring better value to viewers?  Which model best serves advertisers?

·       Will sophisticated release windows be employed within the T/V business, taking a page from theatricals where consumers can pay more nearest to release and avoid ads, or pay less and have (more) ads further down the road? (Fox recently moved toward this with Hulu.)

·       If program providers reduce the amount of ads per content hour, how will they make up the difference from advertisers?  Will advertisers be willing to pay more for guaranteed consumer engagement amidst reduced clutter?

The first VOD viewing experience for most of us has been through online video, so the industry already has a clear window into consumer needs.  Here are some things that consumers like about online T/V:

·       Most content has no incremental cost

·       Less interruptive

·       Consumer control of playback through "VCR" functionality

·       Much smaller video ad-loads than regular TV

·       Pre-roll countdowns

·       Netflix

As cable installs a newly available capacity for dynamic insertion of ads within VOD, in-home TV sets will be able to operate like online video as never before.  But this opportunity will come with these same high consumer expectations from the first VOD medium: online video.   

How to get there?

The winners will respond to the questions and viewer expectations above with real R&D innovation. Real R&D means gathering knowledge to develop a new VOD business model that works for viewers, advertisers and content providers alike.  It isn't finding new and clever ways to protect the 90 year old ad-supported broadcast business model. Content creators and distributors have a new-found ability to track viewing preferences and behavior of their customers.  Here's hoping they use this to begin exploring all the possibilities, inviting viewers, advertisers and their agencies to collaborate on ideas and wish lists for how VOD content is to be paid for -- sharing it rather than hoarding it.  That's how real innovation happens.

We are lucky to live in this amazing day and age of media transformation, and as with the internet, I don't see how any single corporation can control how and when the big move to ad-supported VOD will take place, nor corner the market on its potential.  In our decentralized, internet-powered media world everyone can contribute to this transformation; everyone can prosper and benefit. In the end, I believe the cumulative returns of smart, creative movement to a new business model will dwarf the revenues of the very TV business that so many are consciously or inadvertently trying to preserve.

*(The online video ad market is estimated at $1 billion+ and rising, national and local cable had $27.1 billion in ad sales in 2010, while national and local broadcast had $44.6 billion.)