Friday, April 01, 2005

Cable’s Digital Future Too Close for Comfort

Red Sky at Morning
The hundreds of cable executives who are descending upon San Francisco next week have much to discuss. Now, more than any time in its brief history, their industry stands poised to inherit the future of American television. And many of these executives have come to the National Cable and Telecommunications Association’s annual convention to marshal through projects that will guarantee their position atop the TV heap.

No one project is more vital to cable’s power grab than interactive television. And no one component of interactive television is more important to cable executives than its ability to gather personal information about the millions of customers they’re supposed to serve.

Cast in its best light, interactive television is about enabling viewers to pick the shows they want to watch at the most convenient times. It marks a tectonic shift of the power dynamic between the television business and its audience, placing more control in the hands of those who hold the remote.

But the technology behind all that new viewer freedom slices both ways.

The same digital pipeline that turns your television into a viewer-customized device also can be used to siphon off personal data to be sold to an advertising industry eager to target their products more finely, one consumer at a time.

Until recently, the history of commercial television was built around broadcasters’ ability to beam into homes a carefully mixed cocktail of programming and advertisements. This is all changing as new technologies such as Tivo allow millions of viewers to fast-forward through the 30-second commercials that once bankrolled commercial programming. This practice, known as “commercial avoidance,” threatens to bring the $60-billion-a-year TV advertising business to its knees.

According to a recent Smith Barney report, the tipping point for commercial avoidance devices could come as early as 2007, when the television industry may lose as much as $7.6 billion -- or about 10 percent of its annual ad revenue -- as companies seek other ways to reach consumers.

This stormy media forecast has scattered television’s business model to the whims of the viewers, forcing a mass industry shift toward new devices that will keep them in the game.

Cable’s safe harbor is a technology called “video on demand,” or VOD. Its concept is simple: make users pay for their content directly. This notion is not foreign to cable. Since its inception, cable has asked consumers to ante up endlessly rising sums for programming. But many of the cable executives in town this week believe they need to go one step further: that the very survival of television depends on viewers, not just advertisers, accepting that they must subsidize the high cost of producing each of the shows that Americans love to watch.

VOD and its sister service, pay-per-view, is already a $1.35 billion business; many cable analysts are projecting a meteoric increase as the service spreads from home to home. Cable is going to be the conduit by which this revenue streams back to the content makers -- but not before cable providers gobble up their chunk of the fee.

Companies like Comcast, Cox Communications and Time Warner have spent nearly $95 billion since 1996 to make VOD a reality, laying an on-demand path into American homes, involving high-speed fiber networks and cable wires. And they’re ready for their big payback.

With the groundwork in place, VOD will allow users to choose their own programming from a startling array of content -- from movies and sitcoms to, one hopes, locally produced documentaries and niche news and information -- all at the click of a remote. According to industry analysts, the cost will range from 30 cents to $1 for standard programming, with higher rates applied to first-run films, sporting events, live concerts and, yes, even pornography.

More than 91 percent of cable-ready homes in the U.S. have access to interactive television services that make VOD services possible -- with more than a third of U.S. cable customers now subscribing to digital cable. This number is expected to increase apace as cable providers roll out more interactive technology.

Ultimately, viewers who spend several hours each day before their sets will be paying more to the cable industry to enjoy their favorite programs. But that’s not all they’ll be giving away.

A spate of new companies have rushed forth to offer software and services that will give cable operators more direct access to viewer tastes by cataloguing their VOD choices in centralized databanks. In turn, the cable industry can repackage this viewer data and sell it to advertisers that are eager to fine-tune their product pitches to “high-probability” consumers. And since traditional advertising -- in the form of the 30-second spots – is on the wane, advertisers will infiltrate their products throughout the programs themselves as they devise more intrusive methods to hit their targets.

From the industry’s perspective, this technology will make ads more relevant to the lives and needs of their viewing customers. A recent New York Times article casts a rosy light on the new technology: “Instead of commercials being an annoyance, they become information a viewer needs, perhaps even craves.”

But privacy concerns loom large as advertisers could collect more information about each viewer’s tastes than the viewer might want to reveal. The cable industry promises to safeguard this consumer data behind impenetrable firewalls. Recent cases of mass identity theft at credit companies such as Choicepoint and Bank of America demonstrate that these systems are vulnerable to attack.

This danger won’t stop the industry from pushing forward a viewer identifying technology that would place cable firmly at the center of the billion-dollar business model for the future of all television.

But as the cable executives in San Francisco meet, greet and plot out more inventive ways to win American hearts, minds and pocketbooks, know that your personal data has become their Holy Grail.

4 comments:

spyder said...

This practice, known as “commercial avoidance,” threatens to bring the $60-billion-a-year TV advertising business to its knees. According to a recent Smith Barney report, the tipping point for commercial avoidance devices could come as early as 2007, when the television industry may lose as much as $7.6 billion -- or about 10 percent of its annual ad revenue -- as companies seek other ways to reach consumers.

This practice also represents the failure of cable to offer advertising in forms that attract attention. There will always be those car and beverage commercials because the advertising agencies and their media associates make interesting and appealing video montages. A bulk of sold time on cable is produced locally or regionally. There is no moderator of quality that keeps a shabby cheap spoken word commercial from running back to back with a highend one. And no matter how the industry chooses to play with selective accumulation of individual viewer profiles, they still won't be able to provide substantive improvement in the products they broadcast.

Tom said...

Well, spyder's comments detail *exactly* why the industry is so hot and bothered over AD-ID, which will let them specify who is receiving what ad, down to a ultra-local level if they have particular information available about the consumer.

Anonymous said...

I also feel more than annoyed when I have to watch advertising formerly reserved for TV, while I'm at a movie theatre.

Martino said...

You wrote: "Companies like Comcast, Cox Communications and Time Warner have spent nearly $95 billion since 1996 to make VOD a reality."

I do not see how you can come up with a VOD number that high unless you are saying that every capital expenditure to deliver analog, digital, internet, vod, and voip is levied against VOD along.