AdvAdvertising- media economics

8/7/2019 AdvAdvertising- media economics

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Aba

Advanced advertising eatures in the trade press, articles, marketing papers, and conerences with

increasing regularity. The phrase oten is used so casually, and put orth with the underlying assumption

that the audience has a thorough understanding o what is meant by the term. However, dierent

media organizations, vendors, and media buyers all have dierent perceptions. This white paper covers

the landscape o advertising techniques and technologies, paying specic attention to contextualizing

advanced advertising in terms o the inrastructure required to realize it, and the economics o potential

customer reach. By ensuring that the interests o the ad buyer, seller, and consumer are balanced with the

cost o deployment, the undamental elements o a successul business model are presented.

The new economics o

cusTomer reach:AdvAnced Advertising

Taras Bugir, Sun Microsystems

White Paper

April 2009


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Sun Microsystems, Inc.

Tbl ctt

Executive summary ............................................................................................. 1

The disruptive orce o the Internet Protocol .........................................................1

Implications o multiscreen marketing ............................................................. 2

Dening the edge o infuence .........................................................................3

Target economics ................................................................................................ 4

New behaviors, new business models ............................................................... 5

Who or what is the target? ..............................................................................7

Target pricing and value ..................................................................................8

Mediums and their inrastructures ..................................................................... 10

TV-centric advertising .................................................................................... 12

Client-centric advertising ............................................................................... 12

Webication ................................................................................................. 12

Conclusion ....................................................................................................... 13

appdx a. stt t idty ov t Lt 90 Dy ................................... 14

For more inormation ........................................................................................ 23


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Sun Microsystems, Inc.1 The New Economics o Customer Reach: Advanced Advertising

In spite o all the talk

about narrowcasting

and targeted, specialized

content, there willalways be a role or

broadcasting.

extv y

Recently, the term advanced advertising has slipped into the industry vernacular,

becoming an euphemism or targeted advertising. It seems to be trying to mask

the very personal, perhaps intrusive, nature o personalized advertising. The term

attempts to portray a sophisticated, more user riendly, less threatening, high-tech

way o marketing and selling. This white paper uses the term targeted advertising,

not or any philosophical reason, but more or its descriptive nature. The media

business is undamentally all about marketing. Marketing is about dening and

targeting the right audience or the productplain and simple. There is no need or

any window dressing, however well intentioned.

All advertising is not created equally, and neither is the technology required to

deploy it. This is especially true o targeted advertising. Organizations ocused on

delivering content to the consumer understand that knowing their audience(s) and

building a relationship with them is the key to increasing revenue, regardless o

whether their revenues are undamentally subscription- or advertising-based. This

translates to targeting at one level or another.

It is commonly accepted in the marketing world that better, narrower targeting

is an absolute good, i not the holy grail o advertising. Yet, in spite o all the talk

about narrowcasting and targeted specialized content, there will always be a role or

broadcasting. The reasoning is very simple and intuitive. I everyone sells to targeted

audiences, how would anyone cross-promote? Where would one nd new customers

or those targeted products and services? True marketers understand that to create

awareness, a mix o media is essential. However, even broadcasters target. So what

does targeting really mean?

I one has a clear understanding o targeted advertising, then the real problem

becomes one o execution. Eective execution results in building an inrastructure

that supports a healthy marketing mix, aggregating the right audience, driving

economic value, and accurately delivering correctly ormatted content.

T dptv t itt Ptl

When an industry is undergoing substantial change, market leaders hoping to thrive

must adapt their business models to the new industrys realities. As simple as that

may sound, most organizations are not fexible enough to meet such challenges.

This is borne out historically, by the rise o new players as industries change.1

In the current landscape, the ability or a media organization to aggregate an

audience is becoming an increasingly Quixotian2 task. As channels, mediums, and

entertainment opportunities prolierate, audience ragmentation disproportionately

accelerates, exacerbated by the technology variants in the consumers arsenal o

1 Jumpstarting Innovation: Using Disruption to Your Advantage, Lynda M. Applegate, Harvard Business School,September 4, 2007.

2 Alonso Quixana is an older gentleman who lives in La Mancha, in the Spanish countryside. He has read many o thebooks o chivalry and as a result, he has lost his wits, and he decides to roam the country as a knight-errant namedDon Quixote de La Mancha. Quixote gets involved in several altercations and violent disputes while traveling on theroad and even attacks a windmill, believing it to be a giant, destroying his lance in the process.


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IP-based networkinga

standard, seamless way

to plug into the worldis driving behavioral

changes and is the

disruptive orce behind

the media industry.

gadgetry. The consumer is increasingly dividing time across home media networks

comprised o gaming consoles, personal computers, digital cameras, MP3 players,

DVD players and recorders, and media hub hardware in addition to traditional TV.

All o these devices are becoming Internet Protocol (IP)-enabled and networked

to the world at large. As they do, bits spill out, leaving a crumb trail leading back

to the consumer. This trail refects a decreasing span o attentiveness3, with a

correspondingly increased craving or the latest digital morsel recommended by their

social network peers.

The key here is that all o these consumer devices are now IP-enabled. This drives

networking o devices, people, and content. People with devices, devices with

devices, people with people, and both devices and people with content.

IP-based networkinga standard, seamless way to plug into the worldis driving

behavioral changes and is the disruptive orce behind the media industry. The

natural consequence o this technology and behavioral change is that ads can be

placed in the delivery channel ar closer to the consumer more cost-eectively4 than

ever beore. Further, over 70% o the world is not yet connected5. Imagine what it

will be like as greater than 30% o the world comes on board.

iplt lt ktg

As consumers spend time with a greater number o devices, a ew challenges

emerge:

How do we measure consumer activity? Ater all, in order to market to them, we

need to know where they are congregating, when they go there, and how longthey stay.

Is it the same consumer? Some devices are more personal than others, and those

less personal devices may not be the subject o the consumers attention at that

moment.

Is the consumers interactivity with the device a true measure o interest at a

given point in time? Perhaps the content is generating misleading responses.

As the consumer interacts with more devices, these tracking and aggregation issues

become commensurately more dicult. Correspondingly, the ewer devices that a

service provider can service, the more audience timeand thereore attentionis

lost, as are the opportunities or driving advertising revenue.

Until we see a trading mechanism o user proles emerge, targeting is not

synonymous with unique personalized advertising. The dream o one-to-one

marketing is really one-to-group marketing, where the consumer belongs to many

3 The Paradox o Choice: Why More is Less, Barry Schwartz, HarperCollins, 2004, ISBN 0-06- 000568-8.4 A Platorm-Based Approach to Managing the Media Supply Chain, Taras Bugir, John Delay & Ben Peake, IBC

Amsterdam, September 11, 2006.5 Here Comes Trouble: The Human Network, Daniel Berninger, www.GigaOM.com , January 8, 2008.


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The Edge o Inuenceis the fnal insertion

point to target rom an

audience perspective.

such groups. It just so happens that those groups are narrower than the broad

demographics that have supported the industry or many years. They are more akin

to direct marketing with immediate measurable eedback.

Multiscreen marketing should be viewed more as an audience aggregation and

less as a targeting exercise. The aggregation approach drives recommendations o

context-appropriate content to the target group. The individual is targeted as a result

o group behavior. While it creates the illusion o uniquely targeted advertising, it is

ar less complex and more cost-eective to deliver:

A ocus on groups, with ewer unique ad insertion models to manage individually

Less variation o content to produce, manage, and splice

Consumers that belong to several groups and attract ads, rather than explicit,

individual targeting

Privacy issues that can be more easily respected

Dg t dg f

I the value o targeted advertising increases as we get closer to the consumer,

then we must dene the intersection point o consumer-device-content interaction.

I dene6 this as the Edge, refecting the edge o network infuence over that

unique consumer or consumer group. Figure 1 illustrates a model o video content

distribution rom a central network owners perspective, and how that initial unique

content source encounters variants in the geographical distribution across the U.S.

marketplace. As well, global variants on this model are in play in international

media markets.

Depending upon where you dene the Edge o Inuencethe nal insertion point

to target rom an audience perspectiveit becomes quite apparent, even or this

simplistic hybrid model o distribution platorms and population, that the number o

unique targeting opportunities grows quite quickly. More importantly, this creates

another set o considerations:

What is the target? It may in act be dierent at each level, and there well may be

dierent organizations at each level targeting a dierent audience with the same

content.

What is the cost to provide an inrastructure to insert advertising at each level? It

may be grossly uneconomical or a network-ocused organization to do the actual

insertion at each level, particularly i the revenue at each level decreases with

audience size.

The number o unique ad or content schedules utilizing current workfow

technologies and practices required to deliver targeted ads is not scalable below

the zone level.

6 Advertising, Exploiting the Power o IP, Taras Bugir, IPTV Asia-Pac Forum Shanghai, September 2006.


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It is clear that with a Web- or client-centric model it is easier to aggregate up, than it

is or a traditional network distribution model to dissect down.

The Edge o Infuence needs to be dened with the ollowing in mindbalancing the

audience size, the value o that audience, and the transactional cost o delivering

to that resultant target audience. However, i new automated techniques or ad

insertion and content delivery were to be enabled, then the transaction cost could

be dramatically lowered. As such, the impediment to having an Edge o Infuence at

the consumers device would not be quite so onerous. This can only be eectively

done with a device- and medium-agnostic IP inrastructure.

Network

DMA nDMA 1

Zone nZone 1

Zip+4 nZip+4 1

HH/STB nHH/STB 1

Individual nIndividual 1

Unique Addressable Ads

Unlikely any existing traditional Ad Sales

System could cost effectively generate and

deploy schedules for a large ad insertion

deployment below this line - need a

different approach

1

1

2

1

3

3

2

1

210

42,000+

111,400,000

302,654,075

Nielson Researrch, Aug. 2006

US Postal Service, Mar. 2006

US Postal Service, Aug. 2007

TV Model

Web Model

i

p+4 1

Zip 1

n

Zi

n

p+4

Zip n

Figure 1. Searching or the network Edge o Inuence

Tgt

The ollowing quotes rom advertising agencies shed light on the consumers value

attributes and agency approaches to garnering that value or their clients: the

advertisers.

The dierence is that building brands today requires a keen understanding

o how new communications technology, new channels, vibrant creativity and

insightul consumer research combine. www.ogilvy.com

We believe that time is the new currency. The more people who spend time with

a brand the better. www.jwt.com

The prolieration and infuence on communication channels is the most dynamic

variable in driving consumer change. www.universalmccann.com


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The undamental

takeaway is that

targeting is becomingthe normal way o

advertising.

It turns out that the three most valuable items that a consumer has to trade or

content are:

Privacythe extent to which theyll trade their personal inormation

Moneyhow much theyll pay or a service

Timethe amount o their personal time they are willing to invest in a service

All media business models are derivatives o these three currencies. Targeting

enables the precise measurement and relative valuation o each o these currencies

in order to optimize the bundled value to the advertiser.

The undamental takeaway is that targeting is becoming the normal way o

advertising.

As audiences become increasingly ragmented, that ragmentation naturally

creates more target audiences. As a result o this ragmentation, more inventory

is created. However, not all o that inventory will be o a perceived high quality.

In order to derive value rom advertising, these audiences need to be more

accurately aggregated and valued.

Advertisers will increasingly aggregate audiences, rather than dissecting them

We are moving rom a multicasting world to an aggregate o unicast consumers.

n bv, b dl

Changes in viewing habits and technology are clearly aecting the way businesses

are marketing and advertising products. A quick review o the last 90 days providesample qualitative and quantitative data to support this claim. (See Appendix A.)

Change is accelerating, and the media market is converging across mediums and

distribution verticals. Advertisers are looking or new ways to market products and

services through branding techniques that include audience aggregation vehicles.

Five years ago, Larry Light, McDonalds chie marketing ocer, stated at

AdWatch:Outlook 20047, We dont need one big execution o a big idea. We

need one big idea that can be used in a multidimensional, multilayered and

multiaceted way. While he may not have been specically talking about audience

ragmentation, the point is still insightul and relevant to todays marketplace.

Years ago it was important enough, and cost-eective, to hire one person to manage

the ads in a particular program reel. Their job was to ensure that each expensive

ad got to air, no matter what happened. Today, marketing it is not about one big

expensive ad, but about many cheaper ads, which in aggregate garner the same

audience and hopeully at least as much revenue as that single expensive ad o long

ago.

7 AdWatch: Outlook 2004 is the third annual conerence hosted by Advertising Age and TNS Media Intelligence/CMRthat eatures the exclusive release o rst hal and ull year advertising spending estimates. Key buyers, sellers,agency representatives, and analysts participate in panel discussions throughout the conerence ocusing on themedia industrys most pressing issues, including market turnaround, ROI, and the uture o advertising, marketing,

and media.


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The only way to

automate eectively

across mediums isto have a common

inrastructure.

The average cost o the transaction has been lowered over the years due to

automation. Correspondingly, the economics o advertising have changed as a result

o technology. Pushing to the Edge o Infuence leads to the ollowing:

I you cannot place the ad, instruct it, and manage the content cheaply and

eectively, then your margin erodes (Figure 2).

Organizations have consolidated in the hope o getting larger audiences and

inventories. As a result, they must handle more diverse ads. Unortunately, they

have inherited cost structures during these acquisitions that are not conducive

to delivering a multimedia campaignthe very reason or acquisition in the rst

place. The only way to drive eciencies is to automate.

The only way to automate eectively across mediums is to have a common

inrastructure. You cannot have dierent workfows or dierent mediums in a

consolidated business. It costs too much.

To achieve a common inrastructure, you need:

Open, scalable platorms to accommodate constant change at an aordable price.

These platorms must be able to coexist with the current inrastructure until such

time as it is eectively amortized.

Accurate, scalable processes that leverage metadata to drive rules. Sotware is

needed to interpret those rules that help produce, distribute, and track content

usage to control the inevitable prolieration o content.

A common industry language to transact common media currencies. The

language must be tied to content management, consumer behavior, ad

awareness, brand vitality, and sales and prots.

Ad Booking Ad Content

Medium (SP)

Consumer

The revenue is generally booked

as the order or contract is placed,

because the inventory is consumed

It costs money to manage that content

in getting it from the point of creation

to the SP, and then it costs the SP to

manage and move that content to the

right insertion point in the workflow

Not only does it cost money, people, and

processes to track the instructions, if the

content usage instructions are not followed,

then the SP can lose money, because the

ad contract was not fulfilled correctly

Ad Instruction

$ ($) ($)

Figure 2. What is an ad, and what does it cost to deliver it?


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The realization that

sales organizations and

research departmentsmust evolve concurrently

with multimedia content

delivery models is

increasingly coming to

the ore.

Until now, the industry has largely ocused on technically solving the inrastructure

problems that have emerged as a result o the digital transition and audience

expectations. A quick look at NAB or IBC conerence topics conrms this reality.

The realization that sales organizations and research departments must evolve

concurrently with multimedia content delivery models is increasingly coming to

the ore. These organizational disciplines must consider targeted marketing, ROI

measurement, advertainment strategies, interactive television, pay-or-play, and

the eects o device prolieration on consumers. More than ever, service providers

must engage in marketing and promotion o their own capabilities, with their own

inventories, more than ever beore in a bid to retain audiences.

Organizations that leverage metadata upstream in the value-chain are better able

to enable greater automation and scalability o downstream workfows. Accordingly,

metadata collection, enrichment, and management should ideally extend acrossthe enterprise. This approach ensures that departmental activities such as sales,

scheduling, customer relationship management (CRM), subscription management,

access management, rights management, and nancial systems all complement

their behaviors to drive the business and support the business model.8

w t t tgt?

Today, the target largely depends upon the capabilities, processes, and systems

employed by the organization in each respective medium. However, Table 1

summarizes the primary marketing (targeting) approaches.

Note that the approaches, along with their highlighted examples, make no mentiono medium-specic subtleties. Oten these subtleties have been institutionalized by

work practices or consumer-medium interactions, or imposed by the constraints o

the mediums inrastructure capabilities. Consequently, the more dierent mediums

consolidated by an organizations business model, the more dicult it is to price,

oer, deliver, and measure multimedia advertising oerings to buyers. Even more

dicult is to create meaningul cross-medium targeted buys.

8 Extending Metadata into the Enterprise, Taras Bugir, SMPTE Brooklyn, October 25, 2007,http://wikis.sun.com/download/attachments/10388082/Extending+Metadata+into+the+Enterprise.pd


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Table 1. Targeting an audience.

dmoaphTraditional targeting o consumers based upon commonly accepted

media currencies, such as age, gender, income, and ethnicity.

go-a

Targets a consumer in a certain geographic area using location datamined rom the ISP or IP address. This is a powerul tool or localbusinesses to leverage new rich-media ads. This approach enables thedisplay o local product inventories to customers, and is especiallyvaluable or promotional and impulse buys.

Bhaoal

Sometimes called profling. It works by tracking the actions o largenumbers o users as they sur the Web and aggregates their behavioror trends. These patterns signal behaviors that become the basis ortargeting and oten include purchase history. For example: a visit to anonline car site can be the basis or serving an auto ad ater a consumercontinues on to a non-auto-related site. Behavioral targeting allows aWeb publisher, or example, to charge premium rates or a luxury-car adeven on a lightly visited site about needlepoint, especially i the usersprevious Web activity shows an interest in buying an automobile.

coxual

Matches the ad to the content actually being consumed, regardlesso ormat. For example, an article about buying homes serves up aninsurance ad, or a documentary lm on animals provides a good place toinject a public service ad or animal protection.

Afy

Similar to contextual, this approach tends to match an ad to the themeor genre o the published content. For example, a digital cameramarketer can choose to advertise on sites or video channels dedicated toconsumer electronics.

daypa

Focuses on peoples work and liestyle schedules, such as serving adsor coee to commuters between 7 to 10 a.m. This type o targeting alsoworks well or impending product releases and roadblock campaigns, butis generally directed to an audience to increase the candidate consumerbase as prospects or more rened uture targeting. Alternatively, italso can be used in conjunction with other approaches to rene the

consumers being targeted.

Puha-baTracks the purchase history o users to establish trends. Similar to thebehavioral approach. People who bought one brands shoes might beinterested in more o the same, or those rom another brand.

ra

Aims to locate consumers who dropped o midway through the pathto a purchase and serve them a new ad in the hopes they will completethe purchase. Called remarketing in the ofine world, and sometimesclassied as part o behavioral targeting online.

Tgt pg d vl

For a given audience at a given time, on a given medium, there is a base rate that

service providers and aggregators charge advertisers. (Here the term advertiser is

used generically to mean the buyer o the audience, be it the agency, the buying

house or the actual advertiser.) This economic model is generally expressed as a

buyers demand curve (Figure 3).


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#1 Base Rate

Buyers Demand Curve

#3

#2

Extra

Revenue

Extra

Revenue

Base

RevenueNumberofUnitsSold

$/Unit

Figure 3. Advertising demand curve

For a given buy-sell transaction, the seller denes a price or inventory, the units

being in time or audience impressions o one kind or another. Based upon the

number o units sold and the base rate (#1) per unit, the seller achieves their target

revenue (in this case the base revenue). I inventory valuations can be established at

dierent price points (#2 and #3), then clearly total revenue increases as a unction

o addressing the variants o price and value o associated inventory. The maximumachievable revenue resulting rom a particular buyers demand curve is represented

by the area below the curve. By extension, the more price points dened, the more

chance there is o eecting a transaction and thereby increasing revenue.

This approach has been attempted by the media industry on both sides o the

buy-sell relationship9, each with their roots in broadcasting. Only the buyers have

enjoyed signicant long-term success. The agencies and advertisers have arbitraged

increased values on this dierential with the service providers and aggregators

largely oblivious.

The immediate benet o targeting is to be able to more eectively and accurately

value inventory with a common measurement that ensures all potential revenue

remains with the inventory owner. There is a strong argument to be made that or

any given audience there should be many such demand curves, each with a dierent

9 In the mid-1990s the advertising community optimized broadcaster rate cards against audiences to yield optimizedcampaigns that delivered reductions in advertising spending or clients but delivered better audiences. The sellerswere largely oblivious. Over the dawn o the millenium, large media providers in Europe started looking at their

inventories and turned to yield management techniques or variants. They met with mixed success, oten as a resulto institutional inertia that did not enable them to ully implement these approaches through the entire sales cycle.


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Todays media company

fnds it difcult at best to

generate buyer demandcurves or one medium,

let alone to create

several permutations

across the entire

possibility set.

price matrix, refective o the value o that audience to the buyer. However, such

demand side economics are rapidly running out o steam in an environment with so

much more inventory being generated by new media options.

Todays media company nds it dicult at best to generate buyer demand curves or

one medium, let alone to create several permutations across the entire possibility

set. I service providers had a common inrastructure providing immediate audience

eedback, this problem would devolve into a sotware requirement and the will

to implement a complementary business process. The best tools in a media

organizations arsenal are:

Well-dened audience metrics

Real-time capabilities to substantiate value

A smart inrastructure to drive down transactional costs

A well-dened sales process to execute business policy

There has been anecdotal inormation rom actual customers citing that targeting

can increase CPMs by up to veold.10 It is broadly accepted that targeting increases

revenues:

Through actual increased CPM values, brought about by the quality and accuracy

o the targeted audience

With the ability to multiply the inventory by leveraging the same available time

slots across narrower slices o parallel audiences

By improving the eciency o inventory utilization by nding better (or optimum)

audiences or whatto a dierent audiencecould be regarded as low-grade

inventory

md d t tt

Beore we ocus upon the inrastructure requirements o targeted advertising, it

is important to survey the current capabilities o the major mediums engaging

consumers and their ad dollars in todays market. Figure 4 leverages the previous

content distribution model to illustrate the capabilities o mediums that represent

the bulk o the electronic media advertising space.

Examining the mediums, we observe that they dier substantially in their ability to

support interaction, and the degree to which they can get close to the consumer.

It is important to note that cable and satellite are increasingly leveraging IP

capabilities, but intrinsically, they have some network topology diculties that limit

the bandwidth o the duplex channel rom the consumer back to the service provider

or aggregator. Pure IP-based delivery has the greatest advantage. It can support the

10 IPTV World Forum in Budapest June 22, 1996.


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greatest back channel bandwidth, and it can address the device uniquely. Arguably

cable and satellite can uniquely address the set top box, but their addressability is

unique to that device. IP is ubiquitous across all IP addressable devices.

It is important to understand that addressability is not the same as the ability to

support targeted advertising. Depending upon the entire delivery chain, some

devices may still require local storage or a highly scalable number o unique streams

to support individual ad placement.

Network

DMA nDMA 1

Zone nZone 1

Zip nZip 1

Zip+4 nZip+4 1

HH/STB nHH/STB 1

Individual nIndividual 1

IP

Unique Addressable Ads

1

1

2

1

3

3

2

1

210

42,000+

111,400,000

302,654,075

Nielson Researrch, Aug. 2006

US Postal Service, Mar. 2006

US Postal Service, Aug. 2007

Satellite Cable BCast TV

Figure 4. Capabilities o the mediums

The key point here is to realize that to place a targeted ad, one needs to consider:

Desired proximity to the consumer

Capability o the medium

Cost o delivering unique content to, and removing it rom, an Edge storage device

Cost o managing the ad insertion logic at the Edge o Infuence

Anticipated value o the target at the Edge o Infuence

All o these issues drive the economics o advertising, and they vary considerably

across dierent mediums.


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TV-t dvtg

Most o the discussion thus ar has been largely TV-centric. This equates to a

mass audience approach to advertising, and has led to a largely unsophisticatedsales process and ad placement regimen built around local and national market

measurements11. To be air, in many countries it has evolved rom treating inventory

as spots in slots to segmenting the viewing audience in terms o base and sub-

demographics, and valuing the audience in terms o impressions, rather than

viewers who happen to appear at a particular part o the program stream. As

audience sample measurements have become more timely, and generally perceived

as more accurate, we have seen service providers and aggregators shit rom spot

management to audience management practices. Those that have embraced

audience valuations have generally ared better economically than those managing

spot inventories.

clt-t dvtg

Client-centric advertising ocuses on the device leveraging inormation utilizing

tokens (or cookies) and history in placing candidate consumer ads. This technique

is much more scalable, as the processing or ad placement is largely done by the

client device. Some set top boxes, mobile phones, and PC browsers are employing

the same approaches. The unique value o this approach is the ability to aggregate

eedback and responses in real time, rather than waiting or the next survey

sampling or set top box polling aggregation to provide insight. This value has directly

translated into advertising ROIs addressing the classic Hal the money I spend on

advertising is wasted; the trouble is, I dont know which hal.

12

wbt

No discussion would be complete without the mention o Google, Yahoo, and MSN.

As an example, Googles orays into the non-Web space, initially with the acquisition

o dMarc or Radio13 and subsequently with the internal trials, partnerships, and

development o video insertion, suggest that their approach to a three-screen

coverage is largely an extension o their current business model. Clearly, it would

make sense to leverage that approach as a single purchasing point or advertisers.

However, it does not make sense or those telecommunications providers and cable

companies that are supplying these models with the bandwidth necessary or this

business model. It makes even less sense or these service providers to share their

revenue in order to provide a conduit to the subscribers that they have painstakingly

collected.

11 This Business o Television, Howard Blumenthal and Oliver Goodenough, Billboard Books, 1998, ISBN 0- 8230-7704-7.

12 John Wanamaker (1838-1922), owner o Americas rst department store.13 Google to Acquire dMarc Broadcasting, Google Inc., Mountain View, CA, January 17, 2006.


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For advanced advertising

to evolve eectively

and assist in thetransition to new media

business models, both

technical and business

requirements must be

addressed.

cl

Targeted advertising conversations range widely, depending on whether the

discussion is with the advertiser, the agency, the content provider, the serviceprovider or aggregator, dierent roles in each o these organizations, or the

consumer. Furthermore, these discussions are ltered by institutionalized workfows,

and tend to be very subjective and dened by the technical capabilities o the

content delivery platorm and attached devices.

This leads us to conclude that or advanced advertising to evolve eectively and

assist in the transition to new media business models, we need to address both

technical and business requirements. Specically:

Advertisers need to think dierently. They need to push the envelope o the

currently institutionalized media value chain. Theyll need to ask or more, and be

prepared to pay or a real media ROI.

Agencies need to think multimultimedia, multinational, multiaudience,

multiscreen. They need to understand that marketing concepts need not be siloed

ater media budget allocations are made, and aggregate audiences up rather than

split budgets down. This requires agencies to buy media and develop creative in a

more integrated ashion.

Service providers and aggregators need to manage their audiences in a more

value-centric manner. Audience measurements must be meaningul to advertisers

and agencies alike. Multiscreen platorm measurements need to refect value, and

not just be deal sweeteners. They need to consolidate platorms and workfows,

and realize that digital content is data that can be automated and scaled.

Consumers need to understand that advertising is a valuable service. It subsidizes

their content experiences. They must understand that their time, privacy, and

payments have value that they can balance across the wide choice o mediums

increasingly being presented.

These changes will not happen overnight. That is why this transition to a digital

media business is so painul. The technology is constantly evolving, and the pace at

which it can be deployed is a unction o economics and coexistence. There is one

constant beyond change itsel, and that is that the days o proprietary inrastructures

are numbered and the uture is IP. As the industry collectively marches down thispath o targeted advertising, privacy issues are likely to become a major eature in

the discussion. A balance between consumer and marketing must be bargained.

As we move rom a centralized scheduled world o media to a more interactive user-

engaged world, we will start seeing increased sel-organization in the media system

as a whole. This kind o intelligent systemic behavior, based upon simple rules o the

component pieces, is best understood in the context o Emergence Theory14. But that

is beyond the constraints o this discussion.

14 Emergence: The Connected lie o Ants, Brains, Cities and Sotware, Steven Johnson, Touchstone Press, 2002,ISBN 0- 684-86875-X.


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Appendix A

stt t idty ov t Lt 90 Dy

This chapter provides excerpts rom articles that describe the state o the industry.

wPP Dv stk cl t Dt it ol ad

When it comes to data ownership, the web is still in the Wild West phase, but

WPP Groups media-buying arm, Group M, laid down the law recently by changing

the terms o its online-ad deals to the ollowing: All data generated or collected

by the Media Company in perorming under this Agreement shall be deemed

Confdential Inormation o Agency/Advertiser.

With that phrase, Group M is making it very clear where it stands on a debate

thats been around since the dawn o internet advertising in the mid-1990s: Who

owns the data and under what terms? Group M Interaction CEO John Montgomery

casts the move, frst reported by MediaPost, as standardizing the way business

is increasingly being done at the worlds largest media-buying frm. Its to

ensure that data is confdential and cannot be accessed by our competitors, Mr.

Montgomery said. Its a loophole we wanted to close.15

mbl htl Bkg s roi r

Hotel operator Marriott reported an earnings loss or the ourth quarter last

week, but theres one small encouraging sign: the chains mobile bookings.

Marriott Mobile generated $2 million in gross revenue between its August 2008

launch and the end o the year. But revenue rom mobile bookings in January

was headed upward airly quickly, the hotel chain told Ad Age. Meanwhile, Omni

Hotels mobile site has grown 85% in the past six months, and Hiltons mobile

channel has generated a 22% return on investment or the brand. Those kinds o

numbers are bright spots in a tough time or hoteliers -- and they show that even

in recession, companies are willing to invest in and experiment with new media

when the ROI is clear.

... A third o U.S. travelers have used their mobile phones to access the internet,

although only 15% o travelers showed interest in purchasing travel using their

handsets, according to a PhoCusWright survey based on about 800 responses. On

the upside, 48% o travelers who earn more than $200,000 a year said they wereopen to getting travel oers, vs. 32% o those who earn less. Twenty percent o

the highest-earning group said they were interested in mobile bookings, likely

because theyre early adopters.16

15 WPP Division Stakes Claim to Data From Its Online Ads, Michael Learmonth, AdAge.com, February 9, 2009.See http://adage.com/abstract.php?article_id=134414

16. Mobile Hotel Bookings Show ROI in Recession, Rita Change, AdAge.com, February 19, 2009.

See http://adage.com/abstract.php?article_id=134711


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T nxt B mdl ad-spptd TV?

Many in the advertising business are calling or a new business model or ad-

supported TV. It is clear that the value o traditional TV as a medium or deliveringadvertising messages eectively is quickly eroding, and there is a scramble or

new technologies and models to fll the void. Three current and emerging ways or

consumers to get TV or video content (including advertising) oer a good place to

start to understand how we might answer these calls or change:

1. Traditional, linear-programmed, multichannel TV with optional DVR

and video on demand delivered by cable systems, telecoms or satellite

providers. Greater two-way interactivity is one or two years away.

2. Behaviorally or demographically addressable ads delivered at the

household or sub-household level using TV-distributor data within

acceptable privacy guidelines (baby-ood ads in homes with babies, or

example).

3. Consumers searching or and etching desired programs rom internet sites

via broadband, bypassing cable or satellite services and bundled networks

entirely. Content may be played on computer or TV screens.

It is noteworthy that the more-traditional delivery methods (Nos. 1 and 2 above)

can be described with a verb that denotes a push o content (delivered), while

the third method uses verbs that indicate an active choice by the viewer (search,

etcha pull o content. Even consumers in scenario No. 1 are searching or,

recording and retrieving content through their DVRs and watching their choices

when and where they want to -- and, by the way, skipping the commercials.

Consumers are increasingly embracing these more-empowering ways to enjoy

programs on their terms, and advertising is being bypassed in the process.17

T n wld app-oly advtg

The widgets and other applications that were little more than digital window

dressing a ew years ago have exploded into a vast new advertising venue. Many

apps now draw millions o users each day at the same time theyve become a

broadly networked social medium in their own right. And, that, in turn, has given

rise to a new sort o apps-only media-buying agency.18

TV evya Lg a Y Py it

Je Bewkes hopes to put more TV on the internet, but hes going to makeconsumers prove theyve paid or it. ... I you want to watch your avorite TV

network or shows through broadband on any device -- PCs or mobile -- you can

do it as long as you subscribe to any multichannel provider, Mr. Bewkes told

Advertising Age. Its a natural extension o the existing model.19

17 The Next Business Model or Ad-Supported TV?, John Osborn, AdAge.com, February 20, 2009.

See http://adage.com/abstract.php?article_id=134746.18 The New World o Apps-Only Advertising, Hoag Levins, AdAge.com, February 23,2009.

See http://adage.com/video/article?article_id=134798

19 TV EverywhereAs Long As You Pay or It, Michael Learmonth, AdAge.com, March 2, 2009.

See http://adage.com/abstract.php?article_id=134961


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...Advertising systems can track not only the location o the phone, but also

that persons travel pattern: uptown New York to Nob Hill in San Francisco, or

instance.

...For now, there are not enough people using smartphones to make it worthwhile

or advertisers to use highly specifc criteria. But as more people switch to

smartphones, that will happen more requently. The smartphone market in North

America increased 69 percent in 2008, according to the research frm Gartner.20

cbl Tg upt mkt

As the broadcast networks gear up or whats shaping up to be their most

challenging upront yet, the picture or cable is clouded with the same economic

uncertainty thats already prompting advertisers to cancel as much as 10% to

14% o their frst- and second-quarter upront commitments. The cable upront,

which last year increased by 9.3% to $7.65 billion, according to the Cable

Advertising Bureau, is working overtime to maintain its momentum as advertisers

cut back on everything rom volume o inventory bought to number o networks.

...As one media buyer told Ad Age, I you bought eight or nine cable networks

last year, youre probably only going to buy our or fve that really work or you

this year.

But CAB CEO Sean Cunningham noted that so ar some cable networks are doing

fne, thanks to what he characterized as a ight to quality, a ight to the right

kind o value in that its properly priced as an oering that only gets better with

every week, month and quarter.

Cables relative strength will also be a direct result o its continued ratings

growth, as it now controls 58% o season-to-date prime-time viewing compared

with broadcasts 36% share, according to research rom Interpublic Group o Cos.

Magna Global. Thats up rom cables 56% share o prime vs. broadcasts 39%

share last season.

...In certain cases, such as Time Warners CNN, some networks that have large-

scale online audiences are seeing upront redistribution rom their TV property

to the web. Greg DAlba, CNNs exec VP-ad sales, said, Even i we do have a

uctuation in terms o options, were seeing a lot o that money stay in-house and

move rom platorm to platorm.

... Those outperorming the market thus ar are demographically targeted

networks such as MTV Networks Comedy Central, Spike and TV Land, which cater

to young adults, young men and baby boomers, respectively. MTVs Mr. Lucas said

Comedy and Spike are outperorming the market thus ar based on little exposure

to automotive cutbacks and strength among thriving categories such as video

20 Advertisers Get a Trove o Clues in Smartphones, Stephanie Cliord, nytimes.com, March 11, 2009.See http://www.nytimes.com/2009/03/11/business/media/11target.html?_r=1&scp=1&sq=advertisers%20get%20a%20trove%20o%20clues%20in%20smartphones&st=cse


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games, ast ood, movies and home entertainment. Targetability -- getting the

audience you need to get to move the product with little waste in an efcient

manner -- is whats winning out this year, Mr. Lucas said.21

nBc Zk Dd ntk n Pgg sdl

NBC Universal CEO Je Zucker tried to put the best spin possible on the media

industrys increasing woes, saying during a question-and-answer session

today that he was placing aith in his companys cable assets while NBC and

others attempt to fgure out how to monetize TV and other programming in an

increasingly digital world.

...I dont want to say ratings dont matter, because they do. This is not about

ratings dont matter. This is about they are not the only gauge o success, Mr.

Zucker said. Were in show business, and the show is important, and the business

is important. I think it was easier to be in the show when the business was easier,

he said.

The media chie said NBC Universal was making some progress in the quest

to monetize traditional TV content online. Where he once warned that media

companies could not aord to lose analog dollars in exchange or digital pennies,

he joked today that he elt NBC was now able to get digital dimes.

...The TV business will remain in transition or some time to come, he added.

What weve lost in terms o viewers and ad dollars on the traditional audience

system is not being made up, not even close, on the digital side. Until we do that,

there is a risk, he said. I think well get there, but can we survive rom here to

there is the question. A lot o newspapers have not been able to survive, and a

lot o local TV stations are having trouble surviving. So we believe in ubiquitous

distribution. We want our content to continue to be available. We want to fnd an

economic model that makes sense and the next two to three years is going to be

what thats all about.22

t my B Bgt, bt it aplyp n

The toll will be so vast -- and the institutions o media and marketing are so

central to our economy, our culture, our democracy and our very selves -- that its

easy to antasize about some miraculous preserver o reach dangling just out

o reach. We need mass, so mass, thereore, must survive. Alas, economies areunsentimental and denial unproductive. The post-advertising age is under way.

This isnt about the end o commerce or the end o marketing or news or

entertainment. All o the above are fnding new expressions online, and in time

will ourish thanks to the very digital revolution that is now ravaging them.

21 Cable Faces Tough Upront Market, Andrew Hampp, AdAge.com, March 16, 2009.See http://adage.com/abstract.php?article_id=135252.

22 NBCs Zucker Deends Networks New Programming Schedule, Brian Steinberg, AdAge.com, March 18, 2009.

See http://adage.com/abstract.php?article_id=135320.


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The uture is bright. But the present is apocalyptic. Any hope or a seamless

transition -- or any transition at all -- rom mass media and marketing to micro

media and marketing are absurd.

The sky is alling, the rog in the pot has come to a boil and, oh yeah, we are,

most o us, exquisitely, irretrievably [destroyed].

...Amid 23% population growth in the past two decades, U.S. newspaper

circulation has dropped 20% -- one reason your morning paper, downsized every

which way, is no match or a sti breeze. Craigslist, siphoning o $7 billion worth

o classifeds, is another.

...On the plus side, thanks to the internet, all o these papers -- especially the

Times -- have seen their readership soar. ... 1) Nobody clicks on ads, because why

would they? 2) The virtually infnite supply o online ad inventory will always

depress the price even the best publisher can etch. Always. Immutably. Forever.

Mass media thrived on the economics o scarcity. The internet represents an

economy o unending abundance.

...In 2008, newsstand sales -- the proft engine o the industry -- ell 12%. According

to Media Industry Newsletter, gross ad pages so ar in 2009 have dropped a

staggering 22% -- that coming o a dismal 2008. In recent months, Cond Nast

has olded Domino, Meredith has olded Country Home, Zi-Davis has olded PC

Magazine, Hearst has olded CosmoGirl and O at Home, The New York Times has

olded Play, and Hachette has olded Home.

... Bernstein Research predicts a 20% to 30% drop in 2009 TV station ad revenue.

Stations share o TV ad dollars, according to TNS Media Intelligence, dropped

to 26% in 2007 rom 34% in 2000. Afliate ees rom networks have essentially

disappeared, and the values o local licenses have plummeted, resulting in

massive write-downs by ownership groups. And two o the our major networks

-- CBS and NBC -- have publicly hinted that the days o distributing programming

over the air via afliates are numbered.

... According to Nielsen Media Research, in the last reporting period, CBSs prime-

time audience was down 2.9%. ABC was down 9.7%, Fox was down 17.5% and

NBC was down 14.3%.

... The average price o reaching 1,000 households with a 30-second spot in primetime, according to Media Dynamics, has jumped rom $8.28 in 1986 to $22.65 in

2008 -- but eectively more like $32, because between 150 and 200 o those 1000

households use DVRs to skip past the ads.

... Cable has problems o its own. Its no more DVR-proo than broadcast. It is also

suering a sort o distribution autoimmune disease, wherein the body attacks

itsel. The very coax the industry has been stringing or 50 years is now the pipe or

broadband, which households increasingly are using to bypass pay cable entirely.


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... Yahoo, at about 3.5 billion daily page views, is the most visited website in the

world. In 2008, it had a proft o $424 million on $7.2 billion in revenue. Not too

shabby, unless you compare it with 2005, when the company had a proft o $1.9

billion on revenue o $5.3 billion. Last spring, ater a prolonged dance, it fnally

rejected Microsots takeover bid at $33 per share, or about $50 billion. Yahoo now

trades in the range o $12, or a market cap o $17 billion.

... The undamental obstacle or online publishing, according to the president o

the Interactive Advertising Bureau: It couldnt be more straightorward, Randall

Rothenberg says. It is a disequilibrium between supply and demand.

... But why pick on poor Yahoo? Consider Twitter, Facebook and YouTube, which

among them have altered human behavior o a grand scale. Two and a hal years

ago, Google paid $1.65 billion or YouTube. The 2008 payo: about $90 million

in ad revenue -- which might (but probably wont) cover the costs o copyright-inringement litigation and certainly wont cover bandwidth charges. Facebook,

whose 2007 valuation o $15 billion has shrunk to about $3.7 billion, had 2008

revenue estimated at $300 million. And Twitter had $0.

Thus, the mantra: We have the audience. All we need is a business model. As i

adequate revenue were somehow guaranteed by physics or heavenly deity. It isnt.

Ive pored over Isaac Newton and the Ten Commandments. There is no Thou

shalt monetize.23

Dgtl md Tg TKy Tky

In the absence of new infrastructure buildouts and lengtheningsales cycles, vendore are likely the worst hit. They will necessarilyhave to reinvent their business models to survive in this market.

There are newer media avenues to put out content, but fewmeans to monetize it. Already struggling against freecontent overflow over the Internet, content providerswill also have to deal with lack of traditional advertising.

While large system integrators will continue to havean increased role in enabling cost-effective andefficient workflows, smaller niche providerswill struggle as business starts shrinking

Service providers will experience a marginaldecline in revenues. There will be price-driven competition. Competition will growfrom Internet based service providers.

Consumers will be least affectedas they will continue to gain

access to digital contentover multiple media

High

Low

ImpactofRecession

Vendors

ContentCreators

SystemIntegrators

Multiple Service Providers(MSOs)

Consumers

Figure 5. Impact o the recession on the digital marketplace24

23 Future May Be Brighter, but Its Apocalypse Now, Bob Gareld, AdAge.com, March 23, 2009.

See http://adage.com/article?article_id=135440.

24 Source: Frost & Sullivan, March 26, 2009.


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Gp m rv md-spdg t Dd

WPPs Group M announced today that it has revised its measured-media-

spending orecast or 2009, and the news isnt good. The media unit predicts thatglobal measured media spending will drop 4.4% to $425 billion, a much bigger

drop than the 0.2% it predicted back in December.

The group said it expects a near identical drop o 4.3% to $155 billion in measured

media spending in the U.S., rather than the 3% it predicted in December. Looking

orward, Group M said the industry could see a drop o 6.8% in the U.S. in 2010.

London-based Adam Smith, utures director at Group M, said in a statement: The

2008/2009 period is now a more serious advertising recession, in scale, duration

and relative to the global economy, than the extraordinary 5.1% real-terms post-

dot-com global advertising correction o 2001.25

md n mt wb Vd: G rtg Pt

Good news or online video: Mindshare, a unit o WPPs giant media buying

operation GroupM, is embracing a new metric that could speed the migration o

TV advertising dollars to the web.

Since YuMe specializes in placing video ads in premium video, including TV shows

on the web, a GRP metric will allow an advertiser to buy both TV and online or

the same campaign on the same standard.

The agency is throwing its weight behind a translation o TVs gross ratings point

to online video developed with video ad network YuMe, meaning Mindshare

clients such as Unilever and Ford will start buying online video on a gross-ratings-

point basis, the same way they buy TV.

Agencies have or some time looked or a way to measure online video in terms

o gross ratings points (GRPs), or the sum o the reach o a campaign times the

requency that the target audience was exposed to an ad.26

Vz P Tgtd advtg By ed Y

Targeted, web-like TV advertising has been long-promised, but will Verizons

FiOS, a relative latecomer to the party, be the frst to deliver it?

Verizon will start targeting advertising on a household level by the end o the

year, allowing advertisers to target homes, rather than shows, or to buy specifc

demographics and behaviors via the set-top box. This is not something on the

drawing board; its what were doing right now, said Verizon CMO John Stratton

at Advertising Ages Digital Conerence in New York.27

25 Group M Revises Media-Spending Forecast Downward, Michael Bush, AdAge.com, March 31,2009.

See http://adage.com/abstract.php?article_id=135683.26 Mindshares New Metric or Web Video: Gross Ratings Points, Michael Learmonth, AdAge.com, April 6, 2009.

See http://adage.com/mediaworks/article?article_id=135812.

27 Verizon Promises Targeted Advertising By End o Year, Michael Learmonth, AdAge.com, April 7, 2009.See http://adage.com/digital/article?article_id=135853.


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T D cbl TV addbl advtg n

Canoe, the technology consortium backed by the countrys six largest cable media

companies, will launch the television industrys frst national addressable advertisingsystem next month. A long-talked about concept, national addressable advertising

means a single advertiser with a single placement can simultaneously target

dierent versions o a commercial at dierent demographics o cable subscribers

across the entire country. The move is a major step toward a TV experience that is

more internet-like.28

YTb mvg t ndl ad sl

YouTube is still Googles toughest sell to advertisers, but the video site is doing

better by one measure than most people think: YouTube is selling ads against about

9% o its video views in the U.S., up rom just 6% a year ago. YouTube declined to

comment on the exact rate at which it is selling ads and keeps the exact percentagea closely held secret. But Shishir Mehrotra, YouTubes director-product management,

told Ad Age that the company is selling ads against hundreds o millions o views

each month. More important, he said, YouTube is selling ads against more videos

than its nearest competitor has total views.

A YouTube spokesman confrmed that the social site is placing ads on more videos

than Fox Interactive Media, parent o MySpace and IGN Entertainment. Fox

Interactive ranks No. 2 by ComScores measure, with 463 million views in February, or

about 8.7% o YouTubes 5.3 billion views in the U.S.29

T ot v Bdt ntk D ad rv

Three o the nations fve big broadcast networks showed year-over-year declines in

2008 ad revenue, according to TNS Media Intelligence, a sign that one o the media

industrys most stable venues continues to struggle in an extremely challenging

and changing economic and media landscape. In 2008, only News Corp.s Fox and

General Electrics NBC mustered gains in ad sales, and one analyst suggested the

two networks may have benefted rom broadcasting either the Olympics (NBC)

or the Super Bowl (Fox) in that year. In general, it was a disastrous year or most

advertising-based media, said Marci Ryvicker, a media-industry analyst or Wachovia

Capital Markets...

The 2008 numbers are notable because its relatively rare or broadcast revenues to

decline rom one year to the next. Indeed, until 2008, CBSs ad revenue as measured

by TNS had risen steadily rom 2005, when the network took in about $6.674 billion.

Likewise, ABC took in about $5.897 billion in 2005, and had seen steady increases.

O the our biggest broadcast networks, only NBC, beset in the last several years

by ratings declines and programming issues, saw its 2007 ad revenue decrease

noticeably rom the about $6.02 billion it raked in during 2006.30

28 The Dawn o Cable TVs Addressable Advertising Nears , Hoag Levins, AdAge.com, April 8, 2009.See http://adage.com/video/article?article_id=135856.

29 YouTube Moving the Needle on Ad Sales, Michael Learmonth , AdAge.com, April 8, 2009.

See http://adage.com/digital/article?article_id=135859.30 Three Out o Five Broadcast Networks Down in Ad Revenue, Brian Steinberg, AdAge.com, April 7, 2009.

See http://adage.com/mediaworks/article?article_id=135852.


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t

This white paper is sponsored by the Sun Microsystems Communications and Media

Industry Practice and Suns executive Media Advisory Board (MAB). Led by Sun andleading media industry executives, MAB is ocused on identiying practical solutions

to shared business challenges o cable and TV programmers, broadcast networks,

lm studios, and other major content owners and aggregators. The paper was rst

presented to participants o a Sun MAB roundtable on Advanced Advertising held

at the 2009 NAB conerence in Las Vegas. In making this work reely available, Sun

MABs intent is to oster industry dialog on certain technologies and practices that

have potential to accelerate the realization o digital distribution business benets,

particularly as they pertain to video content. The paper is available on sun.com.


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Sun Microsystems, Inc.

Sun Microsystems, Inc. 4150 Network Circle, Santa Clara, CA 95054 USA Phone 1-650-960-1300 or 1-800-555-9SUN (9786) Web sun.com

The New Economics o Customer Reach: Advanced Advertising

2009 Sun Microsystems, Inc. All rights reserved. Sun, Sun Microsystems, and the Sun logo are trademarks or registered trademarks o Sun Microsystems, Inc. or its subsidiaries in the United States and othercountries. Inormation subject to change without notice. Printed in USA 04/09

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