• by Frank S. Foster , July 28, 2008

If my inbox is any indication, addressable advertising is a hot topic in media buying and selling circles.  I have taken the liberty of presenting several questions sent to me via email last week along with my opinion on the respective topics.  Please feel free to agree, disagree or clarify my remarks with your own.  Happy blogging.

"With the proliferation of digital video recorders, why would anyone watch commercials even if they are targeted?  No one I know in their early 20s watches ANY commercials on cable programming ..." Angela W., Media Buyer in New York

While the suggestion feeds into the fear that advertisers share regarding time-shifting technology, I would argue that addressable advertising is one of the few ways advertisers can fight back.  There is precious little research on the subject of DVR-enhanced commercial skipping, but what does exist clearly shows that some commercials are skipped more often than others -- suggesting that content is important.  Were all commercials skipped at the same rate, one might argue that addressable advertising would likely have no appreciable effect upon commercial viewership in DVR-equipped households.

I have seen time-shifted research data that shows commercials with ratings that are not only similar to the program but, in some cases, are higher.  Within shows geared toward young adults and widely believed to be frequently time shifted, you need look no further than Joseph Francis' ads for "Girls Gone Wild." While unappealing to many, his commercials are widely viewed -- and reviewed -- by a segment of the television audience.  Movie trailers exhibit similar behavior changes in mainstream programming, especially when inserted in late-week, prime-time dramas.  So I would argue, targeted content can positively affect commercial viewership.

From a research perspective, actively avoiding commercials is interesting behavior, as it may shed light on viewer engagement.  Fast-forwarding requires that the viewer be somewhat involved with the content -- as anyone who has ever tried to stop the act at the end of a pod will attest.  Well-executed advertising can be appealing to engaged viewers, and examination of commercial skipping behavior is one of the more quantitative approaches to measuring engagement.  Put another way, data that suggests a viewer turned to The Comedy Channel and left it there for four hours is not very interesting.  However, a viewer who actively fast-forwards and rewinds his DVR to view programming and commercial content exhibits behavior I want to examine.  

Finally, avoiding commercials is nothing new.  It is widely assumed that some percentage of the linear audience avoids watching commercials by leaving the room, engaging in conversation with other people (who may or may not be watching the program) or simply by channel surfing.  All of these behaviors are widely accepted, and most viewers participate in some if not all of them on a regular basis.  Lest we forget, channel surfing, the older sibling of DVR-enhanced commercial skipping, was ignored by Nielsen for decades under their quarter-hour edit rules.  Dismissing addressable advertising before any significant research can be done to measure its efficacy is detrimental to television as a medium.  Let's leave the doomsday predictions to the tabloids.  


"The majority of cable inventory is already available at very affordable prices.  If a network must make five sales to fill a commercial pod, won't addressable technologies force that same seller to find 25 buyers?  If they can't, won't we have a much more difficult remnant market?" Tom P., Media Seller in New York

Addressable advertising is available in many forms (Experian data meld, traditional demographics, behavioral targeting, etc.), and I think it is unlikely that advertisers will agree on which approach is best, so remnant inventory will likely grow.  Additionally, the remnant inventory may be funky and non-traditional, such as M55+ watching LMN.  It goes without saying that inventory left over from addressable targeting will be more difficult to sell.

The $64,000 question then becomes, how will sellers handle the situation?  Several responses on the MediaPost blog mentioned optimization as a solution to the problem.  In my opinion, aggregating the inventory (or further slicing it into smaller targets depending upon your need) is impractical because guarantees make-goods, and posting in general will prove problematic.  Add to that the time required to negotiate several issues for so many inventory shards, and you end up with a very cumbersome solution.  Additionally, pricing will likely become more volatile, as addressability will drive CPMs higher -- while at the same time, increased and more fractured remnant inventory will drive CPMs lower.  A new business model is needed, ideally one sans guarantees and make-goods.  

While there may be several options, I suggest a hybrid cost-per-action (CPA) approach may be most effective.  Under a hybrid CPA buy, payouts to the sellers could be based on both exposure and performance.  Some buyers may be willing to offer equivalent CPMs if certain conditions are met.  Equivalent CPMs would undoubtedly be much higher than those paid by traditional direct response buyers.  Additionally, it would be unlikely that Hybrid CPA buyers would limit their purchases to specific dayparts, since this approach would be appealing to brand buyers as well.
 
"Given the problems we have with local cable ratings, how on earth are we going to get reliable audience data for addressable advertising?  I assume you were joking when you suggested Nielsen's panel would work... " Erika K., Media Buyer in Chicago

By far the most popular theme in the emails I received was that measurement will indeed need to change.  Some have suggested that Nielsen could increase the size of its panels to accommodate addressable advertising.  A rudimentary statistical analysis would suggest that an increase in sample size sufficient to accurately measure addressable audiences would make that approach fiscally impractical.

Others have argued that the technology provider logs should be used to determine how many set-top boxes were targeted.  But there are problems with that approach as well. Namely, if there were a hiccup and the wrong ad were sent or the set-top box were incorrectly targeted, there would be no check on the system.

The most logical solution involves pairing tuning data collected from set-top boxes with technology provider logs.  Privacy-compliant data harvested from set-top boxes would provide confirmation of delivery, audience size and audience composition.  The traditional argument against set-top-box-based ratings, namely that the data set is biased and not projectable, does not apply for addressable advertising.  Nielsen's national panel measures roughly 1 in 10,000 households.  Set-top-box-based measurement for addressable advertising would count nearly every box with the ability to receive a targeted advertisement.  While there will still be the issue of demographic attribution, good old-fashioned mathematics will come to the rescue.

The remaining problem is access to the STB data.  Data-collection technology has existed for years and has been deployed somewhere on a trial basis in almost every operator's organization.  In the end, operators own the data -- and they must determine that it is in their best interest to make it available.  Increased revenue attributable to addressable advertising may provide that incentive but media buyers must demand the data.  Only then will we truly know if addressable advertising works as well as... advertised.
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