Historical Modeling

Since its inception, broadcast TV, whether local or national, has been the baseline for TV pricing in the U.S. market. When cable evolved into a more meaningful advertising platform around the mid-'80s with the introduction of programmers, such as MTV, Discovery, TBS, ESPN, and A&E, the ad community welcomed cable inventory into their media mix but at a steeply discounted price. In many cases, a CPM priced at 50% of the broadcast rates.

The cablers (national and local) have been fighting ever since to get back to parity with the broadcasters. Their claim: more interesting programming (more awards), narrowcasting to target specific audiences through specific formats that broadcasters inefficiently reach (kids, young adult, CEOs), and cumulatively, greater percentage of TV viewers watch cable networks than broadcast. Although the cable networks have made headway in the national arena, local cable inventory sales have not garnered the financial respect desired. Currently, cable operators generate $5 billion in local sales compared with $20 billion for local broadcasting.

To remedy the financial inequality, the cablers conjured up two revenue generating schemes at the turn of the century: video on demand and interactive TV advertising applications. Video on demand was supposed to serve a dual purpose: generate incremental revenue from subscribers as they forsaken their local video rental retailer in favor of the plethora of pay per view movie choices at home, as well as garner some additional revenue from advertisers, who would pay handsomely for sponsorships of unique programming in a clutter free advertising environment; and become that stickiness factor that would stem the flow of their subscribers to alternative pay TV platforms, such as satellite.

To date, the cablers' VOD forays have been a disappointment: DVD rental is a healthy $16 billion business, advertisers have not been impressed with the cablers' VOD content and satellite platforms DirecTV and EchoStar claim nearly 32 million subscribers.

The deployment of iTV advertising applications, the second big revenue generating scheme, has yet to come to bear meaningful fruit as well. After much fanfare in the promise of ROI interactive TV models in the late 1990s and the "fits and starts" deployment since 2002, the operators have little to show for their speechifying. However, perhaps with the formation of Canoe, the coordinating effort by the major MSOs to deliver scale, data, and new and improved ad models, the media community will finally experience the efficacy of interactivity on the television. We can discuss these philosophical issues at another time. Back to historical pricing models.

The cable operators imagined that making their advertising inventory interactive and targeted would enhance its value to the ad community. Rightfully so, in my opinion. But by how much, since there were not any pricing precedents to build upon? The following is a guide to the interactive TV pricing models formulated, brought to market but ultimately stillborn:

Increase Marketshare (40%) + CPM Premium (30%)

The first interactive TV applications to be launched with much fanfare were Visible World's static banner over video commercial appearing during cable local commercial breaks, Wink's interactive banner over video commercial appearing during cable local commercial breaks and satellite platform DirecTV's local commercial breaks, and Navic's interactive banner over video commercial appearing during cable local and satellite platform EchoStar's commercial breaks.

The Visible World application could be delivered to "cable zones," which were defined as a series or clump of zip codes that fall within the cable operator's distribution footprint. Navic's interactive banner could be distributed to specific zip codes within an operator's footprint and thereby not limited, as Visible World was and is, to a cluster of zip codes. I do not remember Wink's distribution schemata - though the company was purchased by John Malone's Liberty Media, rechristened ProServe and absorbed by Liberty division OpenTV in the early part of the century.

Since TV pricing models up until that time were based upon passive viewing, there were few case studies to scrutinize to glean insight into pricing in an interactive environment - except, of course, the Web. Somehow, the cable operators were so sure of the efficacy of this new interactive commercial product that they approached the advertising community - rather arrogantly - with the following paraphrased pronouncement: If an advertiser wishes to utilize its interactive TV applications the advertiser will have to consider the following:

Augment Marketshare + CPM Premium (<30%) + Cost Per Overlay Click

In general, advertisers and their ad agencies balked at the demand. In response, the cablers modified their negotiating stance as follows:

Augment Marketshare (TBD)

In general, advertisers and their ad agencies balked at the demand. In response the cablers modified their negotiating stance as follows:

New National Advertiser Introductory Offer

In general, advertisers and their ad agencies balked at the demand. In response the cablers modified their negotiating stance in hopes of gleaning something for the time, money and energy they spent deploying the new interactive advertising applications and went to select clients directly - privately bypassing the ad agencies:

Let's Get Your Agency On Board/Charter Offer

In general, advertisers balked at the "special offer" and referred the cablers back to their ad agencies. In response the cablers modified their negotiating stance in hopes of gleaning something for the time, money and energy they spent deploying the new interactive advertising applications and went to select agencies in hopes of closing a "charter deal." The premise was as follows: let's work together to set your agency and its Blue Chip roster of advertisers apart from its competitors i.e., differentiation in new business pitches; and propel your agency into a leadership position in the industry. Requirements:

Epilogue

To date, none of the aforementioned pricing models have had much success and taken hold. Ultimately, there have been too few experiments actualized, distribution scale has been an impediment, the ad community has had difficulty understanding the concepts (coverage, pricing, research, consumer interaction), there has been little communications from the pay TV realm (cable, satellite, telcos) to help ameliorate the discomfort and quite frankly, other media has garnered the headlines in recent years i.e., broadband video, mobile video, search, behavioral targeting, privacy and, of course, any movement from Google.

The conception of a "Canoe" could benefit the community but unfortunately, at present, it is staffed with the same guys who have not enjoyed success when they worked for the individual cable juggernauts as well as respected members of the media community who have little pragmatic interactive TV experience and generally offer outsightful solutions.

Pricing considerations in the future should include the following components:

In order for the aforementioned to be efficient, the media community will need to have more granular data from set top boxes as well as case studies and research analysis that connects to usage and possibly to sales in order to comprehend its value proposition and incorporate into future media plans. And most importantly, we need to engage in dialogue: insightful, meaningful, pragmatic conversation.