Broadband Cable Association of Pennsylvania

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June 27, 2013

U.S. cable companies and satellite TV providers, locked in battle with broadcasters and online sites for advertising, are taking a page from Google by using data on their subscribers' tastes to serve up tailored commercials. In Los Angeles, a 35-year-old female DirecTV subscriber with a cat might get a spot promoting cat food while the satellite provider would beam a car advertisement to her next door neighbor, a bachelor watching the same channel.

DirecTV combines data it collects from viewing habits from its customers' digital video recorders with information from third-party market researchers in categories such as income, gender, age and buying habits. This is how it figures out how to send the right ad to the person on the other end of the pitch. "We can target based on demographics, household income, geo-targeting, home owners versus rental - a wide variety," said Paul Guyardo, chief revenue and marketing officer for DirecTV. This makes commercials more relevant to customers and "can move dollars back into national television because we can provide the same targeting as online ads," Guyardo said. DirecTV said it keeps this data anonymous and in "aggregate form" so it does not invade its customers' privacy.

Dish Network Inc and cable providers Comcast Corp and Cablevision also let advertisers create "addressable" ads, using third-party data on demographics and buying patterns to aim for certain types of subscribers. They said they do not cull information about shows being watched to target specific homes, as DirecTV does. Dish's senior vice president of media sales Warren Schlichting said his company is taking a more conservative approach than DirecTV by choosing not to target ads based on behavioral viewing habits. Dish's Schlichting said this is because Dish does not want to make any customers uncomfortable. As it relates to privacy, "the rules need to be worked out as companies and viewers get used to this new approach in advertising," Dish's Schlicting said. Comcast declined to comment about why the company doesn't use TV viewing data to tailor ads.

Pay television providers say the data they use is kept anonymous and aggregated, which blocks them from connecting a name and address with specific details about a household, and that customers can opt out from receiving targeted ads. Even so, some consumer advocates bristle at the amount of data TV providers can use to target ads to viewers. "They have more information today through your TV viewing than they have ever had before," said Jeff Chester, executive director of the Center for Digital Democracy. "Consumers are getting little in return except an invasion of privacy."

Technology to deliver customized ads is widely used online by companies such as Google and Facebook, but is only now starting to get a foothold among TV providers. In January, DirecTV allowed 40 of its advertisers, including Allstate and Volkswagen, use its addressable technology to send ads. DirecTV's agreements with the cable channels allow the satellite operator to intercept and replace an average of two minutes every hour with its own commercials on such heavily watched channels as Walt Disney Co's ESPN and AMC. It can beam addressable commercials for those advertisers to 12 million of its subscribers who have digital video recorders. DirecTV is on track to generate more than $60 million in revenue from those ads by year's end, according to a person familiar with the matter. That figure is up from zero a year ago and growing by a double-digit percentage.

In March, premium movie channel Starz tested addressable advertising for five days by targeting ads using data from DirecTV to pinpoint movie fans between the ages of 35 to 54 who also were subscribers of rival HBO. Those customers got an ad tailored for them promoting the Starz service for $12.99 per month. Starz saw a "huge lift" in sales, according to Ed Huguez, president of affiliate distribution at premium movie channel Starz. Sales jumped 49 percent among the targeted viewers compared with another group who were less likely to watch movies and whom Starz pitched with a more general offer. That prompted Starz to invest a "meaningful amount of money" in a two-week campaign in June to use commercials promoting different offers tailored to its target audience. For instance, discounts were offered to those consumers Starz considered less likely to subscribe. "We have multiple offers based on who we know will get that commercial," Huguez said. "If you're going to spend tens of millions of dollars to promote and drive your business, you want those dollars to be spent on those who have the highest probability of buying."

Dish Network, DirecTV's satellite TV rival, is signing six and seven figure deals with advertisers for its addressable technology, which now reaches 7 million homes, according to Dish's Schlichting. Cable provider Comcast also has started offering addressable options to advertisers. One credit card provider used data from market research firm Experian to send TV commercials to Comcast customers in zip codes with a larger number of households earning $150,000-plus and credit scores over 700. Online credit card applications in those areas more than doubled, said Andrew Ward, a group vice president for Comcast Spotlight, the advertising sales division of Comcast Cable.

Comcast plans to use the technology to make its TV own advertising more efficient, it says, by avoiding ads that promote its "triple play" offer -- combining phone, Internet and cable services in a single package -- to subscribers who already take it. Instead, those customers might get a pitch for Comcast's home security offering. The ads have potential, but there are hurdles before the technology becomes widespread, said Jeff Minsky, director of emerging media at media agency OMD. Buying the custom ads currently requires an extra step of signing an agreement with a cable or satellite operator and prices still run high, said Minsky, who has some deals for tailored ads in the works. "I would like to have that personal conversation with the consumer," Minsky said, "but sometimes it's more cost-effective to just have a mass-market, national commercial." Reuters

Intel said Tuesday that it plans to begin selling a set-top box offering Internet-based television service this year and is confident it can obtain programming. Eric Free, a vice president and general manager of the Santa Clara, California-based chipmaker, outlined plans for the product and service today at the TV of Tomorrow conference in San Francisco. "Ultimately we want to deliver a better form of television," Free said. "We're very confident we'll get the content we need to launch later this year." Intel, the world's largest semiconductor maker, plans to offer pay television through Web connections, creating new competition for incumbent providers like Time Warner Cable and DirecTV. Intel has been testing the service among employees as it seeks programming from media companies such as Time Warner Inc., Comcast Corp.'s NBC Universal and Viacom.

The company hopes to build a customer base on par with satellite services, Free said. DirecTV had 20.1 million customers at year end, while Dish Network had 14.1 million, according to company reports. Intel hasn't provided pricing details yet. Consumers increasingly view TV on their own schedule, wherever they are, Free said. They would prefer an experience at home where they don't have to wade through hundreds of channels and can purchase and view shows based on their interests, he said. "One of the places where innovation really hasn't happened, at least not at the pace of your phone, your tablet or your laptop, is really within the pay-TV stack," Free said. Intel shares rose 1.3 percent to $23.88 Tuesday. The shares have advanced 16 percent this year, compared with 11 percent for the Standard & Poor's 500 Index.

With its own set-top box, Intel is betting it can create a flexible service that gives subscribers more choices over the channels they receive and better ways to navigate content, Erik Huggers, general manager of Intel Media, said in February. Intel plans to offer live channels and on-demand programming. Time Warner Cable and other pay-TV operators are offering incentives to media companies to withhold content from Web-based entertainment services such as the one Intel is pursuing, people with knowledge of the matter said this month. The incentives can take the form of higher payments, or they can include threats to drop programming, the people said then. Networks such as Time Warner's CNN, NBC Universal's USA Network and Viacom's MTV would give Intel critical mass to offer consumers an alternative to established pay-TV services.

Time Warner, NBC and Viacom had signed off on the broad outlines of the proposed service, people with knowledge of the situation said in March, with some aspects to be settled. Other network owners weren't as far along, the people said then. The company must negotiate on local levels as well, which will make Intel's planned nationwide rollout occur on a staggered delivery schedule, Free said. The chipmaker has been working closely with Nielsen and content providers to find "the appropriate value and appropriate balance between consumers and business," Free said. One stumbling block for content providers has been measuring the digital audience to gauge the effect of advertising, he said. "We're tempered by the practical business realities of the industry," Free said. "While we are in somewhat of a green field, that green field is strongly associated with an existing field that may be less green." Bloomberg

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