• by Erik Sass , June 12, 2007

SANTA MONICA--TV advertising is increasingly unacceptable to consumers, according to a panel of industry executives gathered at the Digital Hollywood conference. But the medium remains a singularly powerful way for delivering advertising associated with engaging premium content--the trick is to make it relevant.

That's the conclusion of the "Deconstructing Advertising" panel featuring members from Google, Microsoft and TiVo, among others. They see big opportunities, forecasting more moves by the online players in the television business.

They all agreed on the demise of traditional TV ads. "DVR growth is expected to get to 50% of total TV households by 2010," noted Davina Kent, vice president of TiVo national advertising sales, supplying them with fast-forward capabilities that allow them to skip boring ads. "That represents a huge problem for traditional TV advertising." Advertisers can find out precisely how bad the problem is with TiVo's proprietary data, including second-by-second data on ad viewership now for sale, Kent added.

The ad-skipping behavior isn't universal, of course. Kent pointed out that usage varies by age and other demographic characteristics, noting that time-stressed moms use DVRs basically like VCRs--recording their favorite programs and watching them straight through, including the ads.

But Esther Franklin, senior vice president and director of consumer context planning for Starcom USA, pointed out that younger consumers' behavior is not encouraging for the vitality of the traditional model: "They're far more specific and focused on what they're viewing. They're more likely to skip commercials."

How should advertisers and networks respond?

Tom Grayman, an independent analyst and consultant for MTV Networks' online video and gaming divisions, suggests it may be a question of "creating content that works even at high speed." Some advertisers have experimented with advertising that includes words, phrases, or visuals consistently visible even in fast-forward mode.

But his suggestion was dismissed by two other panel members, who were skeptical about the efficacy of any ad that's being consciously skipped by the viewer. Hamet Watt, CEO of NextMedium, polled the audience to determine how many people with DVRs skipped ads, and how many people remembered the advertised brands when they skipped.

Only one audience member claimed any retention. Adam Stewart, the vertical director of Google's media and entertainment group, opined: "I don't think a brand marketer can establish a deep connection" when the viewer is fast-forwarding.

Both men proposed more relevant advertising as the solution, although by rather different routes. Watt made the case for a "thoughtful and scaleable approach to embedded advertising," including product integration. Stewart emphasized the "right message in the right content. Google's business was founded on that."

Stewart said Google is experimenting with "participatory video ads" delivered in response to search terms entered by viewers on YouTube, which will appear in search results.

Both Google and Microsoft are also pursuing ad placement in traditional TV programming. Dean Carigman, Microsoft director, advertising business strategy, entertainment and devices division, said he is excited about the "growing capabilities in ad targeting and addressability, and applying that to television," which he noted is "increasingly delivered digitally."

Stewart said Google is also interested in increasing "measurability, accountability and ROI" for traditional TV advertising." He praised TiVo's work in "second-by-second television measurement of the commercials," saying "it's a great direction."

In an intriguing hint of things to come, Stewart said Google wants to develop services for "putting those kinds of tools in the marketers' hands" via "a dashboard, where the different media types can be adjusted and controlled" through an online interface.

Finally, everyone agreed that user-generated content is problematic.

While Stewart asserted that "video advertising will flow to where the content is," there was also consensus that user-generated content is proving much harder to monetize than "premium" or professional content on the Web.

Carigman added that Microsoft is courting content providers with syndication deals. But he noted it's still an open question whether "people can start driving more of the ad spend to the user-generated content." Grayman noted that advertisers remain leery of the potential for being associated with risqué content.