1

Targeted Addressable Advertising Using Digital TVArthur Middleton Hughes

Vice President / Solutions ArchitectKnowledgeBase Marketing

Title

Subtitle

Date

: Targeted Addressable Advertising Using

Digital TVArthur Middleton Hughes

Vice President / Solutions ArchitectKnowledgeBase Marketing

DMDAYS NYJacob Javits Center

June 21, 20071:25 – 2:20 PM

3

What is happening in Telecom?

• In 2000, we had Telcos, Cable TV companies, satellite and wireless companies.

• Since then, technology has mixed everything up.

• Cable TV companies are offering phone, TV and broadband

• Phone companies are offering phone, TV and broadband – identical services

• The Internet and Packet Switching are responsible for the changes.

4

How Analog TV Works

• Most cable TV today is still analog.

• With analog, 100 channels are sent all together in a coaxial cable.

• The subscriber uses his remote to click the one he wants to see.

• No one knows which one he is watching.

• All this will change as we shift to digital TV.

• The change will be due to packet switching.

5

What is packet switching?

• For 100 years, telephone service has used copper wires that entered your home or office.

• You were directly connected to the party you called by copper wires going through switches.

• With packet switching, phone calls, emails, websites, & TV are broken down into tiny packets

• Billions of packets travel over the Internet without direct connections.

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

6

Voice over Internet Phone Calls• In VoIP, a voice conversation is sampled 8,000 times a

second and converted into numeric code

• The codes are put into packets and sent through the Internet, with about 30 to 50 packets / second

• Each of these packets is sent to a specific address: the person you are calling. They are directed by routers.

• At the destination, the packets are reassembled in numeric order, and converted back in to conversation.

• The person being called sends packets back as well

7

Codec

Codec

Router Router

Router

Router

Router

VoIP over the Internet

Digitizes the call samples 8000 times

per second

Puts packets in numerical order Converts digital back to analog

Packets travel at the speed of light

Each router decides where each packet goes next

The InternetFlag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

Flag: PacketEnds Here

Packet # & Controls

Address:To where?

Flag: PacketStarts Here

Payload: Webpage, TV, VoIP or Email

8

Digital TV• Digital TV is also sent in packets.

• Any company can send it: cable, phone, and electric utilities. Digital TV does not use the Internet!

• Digital TV uses company owned cables and wires

• Subscribers use their remote to change channels.

• A packet goes back to the provider.

• Result: provider knows what everyone watches.

9

Digital TV providers know what set top boxes are receiving

TV Provider Cable TV, Phone Co. Elec. Utility

“Send me channel 32”

Channel 32

Provider knows which set top box is receiving what at all times.

.

Provider owned cable

Packet

Request

With digital TV, box receives only the channel requested not others. Your remote asks the set top box to send a packet request to the provider.

10

Only two digital channels are received

So the Digital TV providers know exactly what all digital TV set top boxes are receiving at all times

Channel Being Watched

Guide Channel

Set top box

11

TV Ads are big. Direct Mail is Bigger

Billions of US Dollars ----2007 Estimates by McCann

12

The TV Advertising World

Networks (CNN, HBO, TNT)

Comcast

Time Warner

DirecTVCSI Dr. Phil Cold Case ER

Ford Di-Tech Pacific Life

Y&R O&M JWT

Illustrative Programs

Illustrative Advertising Agencies

Illustrative AdvertisersIllustrative Operators

13

TV is not a very cost effective way to get a response.

• Phone calls and direct mail are the most cost efficient.

• TV is mass marketing – better for brand awareness than for direct response.

Average Response Cost Cost Index ofMarketing Response Per Per Per Cost Per

Method Rate 100,000 Response Sale SaleDirect Mail 1.88% 1,880 $0.56 $9.13 228 Phone Call 5.78% 5,780 $2.50 $4.00 100 Print Ad 0.13% 130 $0.11 $12.00 300 Direct Response TV 0.04% 40 $0.03 $166.67 4,167

* The DMA 2004 Response Rate Report

14

But, what if you could target TV?

• Direct mail is powerful because it is targeted.

• Instead of mailing to everyone, you mail to people who have bought something before, and who have the right age, income, housing type, children, etc.

• Suppose you could do the same targeting with TV?

15

There is a way

• Digital TV is fundamentally different from Analog TV.

• 30 million watch Cable Digital TV Today

• Verizon and AT&T are now offering digital TV

• Digital TV permits individually targeted TV ads.

16

Suppose this ad went only to households with babies present

17

And this ad would never go to high rise subscribers

18

Units start at $1.4 million. Send this ad only to those interested who can afford to buy

19

TV could be as powerful as Direct Mail

Average Response Cost Cost Index ofMarketing Response Per Per Per Cost Per

Method Rate 100,000 Response Sale SaleDirect Mail 1.88% 1,880 $0.56 $9.13 228 Phone Call 5.78% 5,780 $2.50 $4.00 100 Print Ad 0.13% 130 $0.11 $12.00 300 Direct Response TV 0.04% 40 $0.03 $166.67 4,167

• You get the power by NOT SENDING ADS to those households who are unlikely to buy.

• Suppose TV could deliver a 2% response rate

20

How it works

21

Step One: Create a Set Top Box Database

• Start with the digital TV subscribers, with set top box number and name and address.

• Append demographics from a compiled database

• The strip off the name and address.

• The remaining database has no personal identifying information, but is perfect for targeting of ads.

22

Creating a Set Top Box (STB) Database

Set Top Box Number

Name and Address

Zip Code

Demographics

Remaining database has no personal identifying information

23

Set Top Box Number

Name and Address

Zip Code

Demographics

Set Top Box Number

Zip Code

Demographics

24

Step Two: find out what advertisers want

• Each advertiser specifies his ideal market.

• This is done by intuition, purchase history, or modeling – just like direct mail.

• Example: High end lawn mower. Ad Specs:– Single family home– Income over $50K– Zip codes near advertiser’s stores.– Ad to run from 6:00 PM to 9:30 PM– Will pay for 20,000 impressions

25

Why targeting is profitable

• Out of one million households, only 180 will buy this lawn mower.

• Why pay for one million ads. Why not pay for 18,000? It is much less expensive.

26

Step Three: Code the STB DB for ads

• Time: 6:04:30 PM. Advertiser specs run against the STP DB. Each set top box has an ad scheduled for it. There may be scores of different ads.

Ads to be run at 6:04:30 PM Set Top Box Database Records

Every set top box has one 30 second ad scheduled for it at 6:04:30

30 Second Ads

27

The channel watched doesn’t matter• At 6:04:30 every digital set top box is either ready

for an ad, or not ready.

• Not ready means the box is watching a DVD, TIVO, non-ad channel (HBO) or actually turned off.

• Ads will be sent only to those set top boxes that are ready for an ad.

• Ads will appear on whatever TV program the set top box is receiving at that time.

• Like direct mail, each ad can have a unique response code. (Toll free number, or URL)

28

How to prove that targeting works

• Send 100,000 Direct Response TV ads to targeted households

• Send the same Direct Response ad to 100,000 digital TV households without any targeting – the way TV has always been done.

• See the difference in response rate and conversion.

29

Insurance Ad for Seniors

30

Ad for families with children

31

Ad designed for just one subscriber

32

Step Four: One Click to order products

Digital TV Subscribers have their names, addresses and credit cards registered. Order

movies or products with one click of their remote.

Click to Order

33

The new direct marketing

• Think about it: you can address 65% of all households in America with targeted TV ads directed to specific consumers.

• Using databases like AmerLINK you can know the income, age, lifestyle of every digital TV viewer.

• Send different ads to households with new babies, with high income, with single family homes, with empty nesters.

• Digital TV can create a whole new direct marketing industry. 65% of US viewers will have it.

34

How much will Targeted TV Ads Cost?

• TV ads today cost $20 per thousand impressions

• Targeted TV ads could cost ten times that amount -- $200 per thousand.

• Direct mail costs $500 - $600 per thousand

• TV, if it gets similar response, could be more cost effective than direct mail.

35

Implications for Nielsen

• For 40 years, a few Nielsen households have reported on what everyone in the US watches.

• With digital TV, the providers can know what everyone is watching all the time.

• They can tell advertisers the exact makeup of all TV viewers. You can send targeted ads.

• Digital TV can become direct marketing, not mass marketing.

36

Conclusions

• A revolution has begun in the telecom industry

• Digital TV will change everything.

• Direct marketing will become much more important as digital TV becomes a direct marketing vehicle

37

From McGraw Hill. Order at www.telecom-marketing.com Contact Arthur: arthur.hughes@kbm1.com

Books by Arthur Hughes