Is the cable video business in a terminal decline? Or is it poised for explosive growth? There are executives on both sides.
During a recent investor conference, Cable One CEO Thomas Might proclaimed that the cable video business is a "dog, a mature business." Just hours later, however, Comcast (NASDAQ: CMCSA) video services chief Matt Strauss took the opposite position, arguing that "people are watching more video than ever."
Cable One's Might pointed to still-declining video customer metrics and skyrocketing program licensing costs as the reasons for his position. But Strauss noted that on-demand viewing is exploding, and that pay-TV companies are in a unique position to serve that explosive demand -- and cash in on it. And a major element of that strategy revolves around advanced set-top boxes and new advertising systems such as dynamic ad insertion and programmatic marketplaces.
Indeed, in television's most disrupted hour, pay-TV operators are in a prime position to not only control the broadband infrastructure that will transport the video of the future, but also to facilitate the advanced advertising schemes that will support it.
"We don't report it publicly, but over the last 18 months, [serving national advertisers with addressable data from set-tops] has grown to be pretty big part of our data business," said Ben Tatta, president of Cablevision Media Sales. "We're now able to offer advertisers much more granular measurement, and it's opened up opportunities we haven't had before."
To be clear, it's still relatively early days. For example, in the third quarter Cablevision (NYSE: CVC) said it generated about $32 million selling local advertisements, a figure far outstripped by the company's $1.44 billion in cable revenue during the period. But with growing interest in advanced advertising services, operators may well be able to develop that opportunity.
"We're all trying to work through and monetize what TV viewing is today," added Chris Pizzurro, head of product sales and marketing for Canoe, the cable-industry consortium that has helped develop the fast-growing market for dynamic ad insertion into cable's on-demand programming. "We're all dealing with the new reality of televisions and currency of human behavior at a census level."
Getting granular with set-tops
For half a century, Nielsen created the measurement currency on which television advertising was bought and sold. But today Nielsen counts only 17,000 electronic "People Meters," and the company is struggling to measure increasingly popular TV services like Netflix and Hulu. (Nielsen's struggles were recently highlighted by reports that it offered Comcast $100 million to obtain the data generated by the MSO's X1 set-top boxes. Comcast reportedly declined the offer.)
Thus, programming networks are looking for better ways to monetize their viewership. And cable companies are stepping into that void.
"In terms of the data cable operators get, it's not an estimate based on a sampling, the way Nielsen's is, but rather a full accounting of every set top box owner's behavior -- what they watched, how long they watched, and whether they changed channels on the commercial break," said Alan Wolk, a senior analyst for The Diffusion Group.
According to Cablevision's Tatta, having granular information about individual users comes in handy in marketing Cablevision services -- why try to sell triple-play bundles to customers who already have triple-play bundles, after all. But media companies have aggressively sought this data, too.
Comcast, for example, is talking to Walt Disney Company's ESPN, Time Warner Inc.'s Turner Broadcasting and Discovery Communications about packaging the MSO's viewer data into "dashboards" that could be used for the purpose of more targeted advertising.
And Cablevision is already in this business with ESPN and other media companies. In May, the MSO signed a multiyear agreement in which ESPN and its broader parent company, Disney, will have the ability to access first-party, "census-level" audience data, culled from nearly 7 million Cablevision set-tops in the New York market.
Even in the digital age, Tatta said set-top data helps deliver a fuller picture of linear audiences, since about 20 percent of linear viewing occurs on fringe channels and has not been measurable by traditional Nielsen sampling.
For its part, TiVo said it will start giving away for free the demographic ratings data it gathers on more than 2 million pay-TV set-top boxes, starting in the first quarter of 2016. The ratings data is a carrot to what the company promises are greater analytical insights.
"We are giving away basic ratings data to highlight the fact that ratings aren't what is ultimately valuable," said Frank Foster, senior VP and general manager of TiVo Research. "Rather, what is valuable is answering the question of how to advertise to viewers more efficiently, at a time when all networks are facing ratings declines." For example, he said, TiVo helps increase the probability that individuals exposed to a broadcaster's advertising will be more receptive to its advertisements by analyzing anonymized data sets achieved through blind matching techniques.
Along these lines, Viacom has signed an agreement to integrate TiVo data into Viacom Vantage, the media conglomerate's data tool that allows advertisers to target their buys based on consumer habits.
Meanwhile, in addition to working with programmers, Tatta said Cablevision is partnering with national brands and their ad agencies, allowing them to mix and match in-house and third-party data with analytics from pay-TV set-tops.
For example, Tatta said an automaker can blend Cablevision's "addressable" set-top info with data on auto registrations and other third-party sources in order to advertise high-end SUVs only to affluent customers who are facing expiring automotive leasing deals.
In April, Cablevision announced the deployment of a new addressable advertising product, Total Audience Application (TAPP), that provides viewer data on campaigns delivered over its set-tops. That product is under trial by major ad-buying shops, including GroupM, Horizon Media and Starcom MediaVest Group.
Tatta calls TAPP an addressable advertising service that's very close to being "programmatic" -- a term that refers to the kind of fully automated, computer-driven advertising marketplaces used by digital companies to advertise on the Internet.
For example, Verizon uses the programmatic ad tech it acquired in its $4.4 billion purchase of AOL earlier this year to sell time on its new Go90 mobile video service. And Dish Network (NASDAQ: DISH), which has been monetizing its set-top data since 2012, just launched a programmatic marketplace in October, allowing advertisers the ability to purchase TV ad time in the same algorithmically-driven, impression-by-impression way they buy it on the Internet.
Adam Gaynor, VP of Dish Media Sales, said he hopes the satellite operator's programmatic market will steal advertisers away from digital in the same way digital has been poaching marketers who are native to linear TV.
"Instead of being on a banner or somewhere below the fold, [advertisers] can now watch their ad play out on a 60-inch screen in the living room," Gaynor he said.
Set-top data fuels the explosive VOD DAI business
While they're figuring how to monetize their set-top data by giving programmers and brands new insights into how TV -- and its ads -- is being watched, cable operators are also using the information to create all-new TV advertising businesses.
Most notable is dynamic ad insertion into VOD, which according to Canoe's Pizzurro, is a new revenue stream that is now netting programmers alone around $300 million a year.
As viewership has steadily migrated to the VOD platforms of pay-TV operators, it remained largely un-monetized, since VOD viewing often occurs after the first-three-days window of Nielsen's C3 audience metric. With the VOD DAI system developed by Canoe, programmers and marketers are now able to capture VOD audience data weeks -- or even months -- after a show first airs.
And ad impressions captured by VOD DAI keep skyrocketing -- Canoe reported another 40 percent increase for the third quarter.
Since Canoe enables the selling of national commercial time for programmers, Pizzurro said he doesn't know exactly how much money cable operators are making by selling their local allotment. But since these operators are able to offer targeted, addressable impressions through their networks of advanced set-tops, each impression sells for a lot more money.
"They could be getting a $200 CPM (cost per thousand impressions), where my guys are only getting $25 or $30."
Operators aren't yet breaking this revenue out, Pizzurro added. "But they're out there testing the market. That's for sure," he said.