VOD ad insertion as a Pay TV churn buster

For platform operators, advanced VOD advertising does not necessarily have to make money to make sense. As Mark Freedman, Strategic Programs Director at TELUS, the Canadian telco and IPTV provider explains, the big prize for enabling dynamic ad insertion is not a share of the advertising business but a bigger share of the Pay TV business.

Having previously helped cable operator Rogers Communications plan and implement advanced ad solutions in Canada, Freedman joined TELUS this summer and is helping to shape the cross-platform entertainment and media strategy for the company, which offers TV alongside broadband, phone and wireless services. And as he points out, it is the triple-play and quad-play bundles where operators make their real money today, so in a country where Pay TV penetration has topped out and every new subscriber gain is somebody else’s loss, avoiding TV churn and thereby protecting the larger bundle is the strategic priority. Advanced advertising, he says, can play a very useful role in this.

Freedman explains the strategy. “When we started to look at advanced advertising at Rogers in 2007 the idea was that Rogers, as the platform operator, and the programmers could both make some money. But there was a big change in the Pay TV market in Canada during 2009-10, when the recession meant growth slowed to a crawl or stopped. The only movement was from subscribers switching back and forth between Rogers and Bell; we were all stealing customers from each other. At TELUS, we believe we can grow the market with our advanced IPTV web like interface as well as acquire customers from our competitors.”

“So the focus changed for the advertising product: it went from being a revenue generator to a churn buster. The strategy was to use dynamic VOD advertising insertion to enable programmers to monetize content to the best of their ability, so encouraging them to give you more and more content on-demand. The more content you have, the more likely it is that customers will stay with you.”

With market conditions little changed, Freedman is taking the same approach at TELUS and putting churn reduction at the heart of the advanced advertising strategy.

The rationale is that if channel owners provide more programmes on-demand you can increase the perceived value of both the channel subscription and the overall Pay TV subscription. “What we are seeing is that if you can keep a customer engaged with that channel brand through VOD, and that VOD has advertising and so can be monetized by the programmer, you get more VOD content and have created a virtuous cycle. If someone stays on channel there is more revenue for the channel and more for me.”

Freedman will be outlining his strategic thinking and his experiences with Rogers and TELUS in more detail at the Future TV Advertising Forum 2012

held in London November 28-29. This includes how you cover the costs of the advertising platform. “At Rogers we charged a flat fee CPM; we were not interested in revenue shares. I don’t want to know what the programmer sells their advertising spot for and if they can sell it for 12 times what we charge them then great,” he declares. “We will be charged per ad served by our advertising platform vendor and we will pass those charges onto the programmer and cover our capital and operating costs as well.”

He says the capital cost of building an advanced advertising system to support dynamic on-demand advertising is in the “low millions of dollars” and you can easily justify that when a quad-play customer could be paying $200 a month and discounted bundles are designed so it makes financial sense to take all your services through one company. So avoiding a Pay TV churn also avoids the dreaded ‘domino churn’ effect where a customer takes TV with another supplier, is seduced by the cross-selling that follows and then moves their broadband and phone packages too.

Mark Freedman, Strategic Programs Director at TELUS, will Keynote at the Future TV Advertising Forum

Freedman is convinced of the value of VOD advertising. “There is research that shows VOD viewers are effectively a more distilled and better version of the general TV viewer. You take the linear audience, put it in a pot and simmer for 20 minutes and the result is an audience that is slightly younger, with more children, better education, more computers and cell phones, more disposable income and everything else you want as an advertiser. It is partly explained by the fact that you have to be a digital customer, rather than analogue, to get VOD so these homes are already spending more.”

With dynamic ad insertion capabilities, there is a lot of flexibility when it comes to negotiating the carriage of on-demand content, especially in the catch-up TV domain. As in the past, content could arrive with the original advertisements still included, as a straight replica of what was broadcast. This is what people refer to as ‘ads baked in’.  Some programmers offer to remove the advertising from their on-demand content but in return a platform operator has to pay more for the content. But as Freedman points out, dynamic ad insertion makes these negotiations far more interesting.

Like in a growing number of territories, on-demand viewing now counts towards TV ratings in Canada, where views within seven days of the original broadcast are added to the total, helping broadcasters monetize the original ads in this window. They need to clear talent rights including for actors in advertisements, though. Beyond that ‘C7’ window they may not want to negotiate those rights. “With VOD ad insertion you can leave the original advertisements in, then dynamically replace one or all the ads for the rest of what could be a 28 day catch-up window,” Freedman explains.

Some content contracts now take account of advertising insertion. As a simple example, the platform operator has to pay a fee to get seven days of post-broadcast on-demand programming with ‘baked in’ advertising, then the content disappears from the window. Alternatively, you can have the content for longer, like 14 or 28 days, with the advertising removed, but pay more. Now a third option is to have the content for 28 days in return for providing ad replacement (dynamic ad insertion).

There is flexibility when it comes to inventory too. Even if the advertising is baked in the platform operator can offer to add some pre-rolls or post-rolls, effectively extending the running time and creating new ad breaks on top of what was broadcast. Platform operators have another trick up their sleeve: the ability to turn off trick-play on request, so customers can fast-forward the programme but not the advertising around it.
You can hear more from Mark Freedman at the Future TV Advertising Forum, London, November 28-29, the industry’s leading event focused on the future of television advertising. Find out more here.

There is growing interest in how content owners and platform operators can cooperate in the on-demand environment. As we reported previously, German broadcasters are now making their catch-up content available freely and free (when the normal model is paid) to one cable operator in return for ad inventory. The cable operator is dynamically inserting pre-roll, mid-roll and any post-roll advertising into the on-demand programmes. The broadcaster owns and sells the spots but the advertising inventory is stored and inserted by the platform operator. You can read more about that here.