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Nets Find New Ways to Squeeze More Money Out of VOD

Dynamic ad insertion allows networks to swap in new commercials for shows available on demand

If TV networks have their way, advertisers will soon see fewer differences between placing their spots on a show viewers watch live at 9 p.m. on a Tuesday night and that same show viewed via video-on-demand a week later.

Starting in 2014, Fox intends to offer sponsors the chance to swap out stale promotions accompanying VOD selections and replace them with something fresh. Think of it as Starbucks retiring generic slices of three-day-old carrot cake in the display case for a fresh pastry-of-the-day.

Together with Comcast and approximately a dozen advertisers, Fox has been testing a technology known as “dynamic ad insertion” that allows sponsors to keep the ads that run alongside the video content current, said Toby Byrne, president of sales for Fox. For years, ads were loaded onto VOD and more or less abandoned. The commercials could end up being weeks old — and completely irrelevant. Fox expects to offer the service on Comcast in January and then roll it out to other video distributors.

With more people using VOD to catch up on programming and to binge view, the networks see an opportunity to corral some of the money that floats out the door every time a viewer watches a favorite program in a way that is not measured by the current standard. “We have quite a bit of viewing that takes place in online video, and now increasingly on VOD — and if anything, VOD is trending upward,” Byrne said. “Naturally, we want that audience to be counted.”

VOD has other allures. In many dynaminstances, viewers can’t forward past the commercials like they can with a DVR. With that in mind, it’s no wonder the TV nets are moving to make the on-demand environment more hospitable to those who pay for their shows to stay on the air.

Other networks, too, are moving to embrace dynamic ad insertion. A spokeswoman for NBCUniversal said the company has already sold sponsors the opportunity to update ads in VOD content. “We’re headed toward a place where eventually all ads viewed at any time are current, and therefore have maximum value,” CBS said in a statement. “This is a big opportunity for the entire industry, and we are working with clients, agencies and distribution partners toward this goal.”

The technology could help TV networks snare more dollars from Madison Avenue. At present, the nets get paid only for “C3” viewership — audiences who watch the ads that support a program within three days of an episode’s airing. After three days, the theory goes, ad messages can go stale: Why would a movie studio promoting a movie opening on Friday pay for viewers to see that blurb on the Tuesday after the weekend? The ad-insertion technology would let networks monetize some part of that long-tail audience.

Better still, marketers can update their ads in nearly every venue where video commercials are run, whether it be regular TV or online streaming, said Kris Magel, exec veep and director of national broadcast at ad buyer Initiative.

And the on-demand crowd is growing. According to media-research firm Magna Global, 56% of U.S. homes have access to video-on-demand. By 2017, the company estimates, that figure should reach 66.1% — far more than the percentage of people who will have DVRs (48%) by the same point in time. Indeed, VOD viewing of TV shows has become so commonplace that many TV networks make sure the on-demand programs have the exact same ads as they did when they ran live on TV, then use the views as part of their ratings guarantees to advertisers.

Marketers who might once have shunned the new tech are warming to it, noted Steve Kalb, senior veep and director of video investment at Boston ad agency Mullen. And why not, given changing viewer habits.

“The percentage of growth each year of consumers adapting to VOD and having it as part of their viewing toolbox has been pretty astronomical,” Kalb said, “and the growth is going to continue.”

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