Telecom service providers are entering the ad game just as this multibillion-dollar market appears to be coming apart at the seams

Thanks to digital TV, the Internet and mobility, it's easier today to describe what the TV advertising market isn't. That would be a staid, safe place where advertisers buy 30- and 60-second commercial spots that their agencies cleverly fill with brand-reinforcing content and place on network shows, where they are seen by a quantifiable number of potential customers.

“There is no question that the traditional ad model is changing and that the advertising industry in the States is undergoing a structural transition,” said George Shababb, chief operating officer for TNS Media Research. “This change is being brought about by the digital technologies.”

He and others point to three key factors that are driving change. First, there is the growing popularity of time-shifting via digital video recorders (DVRs), which enables consumers to easily view content at a later time and fast-forward through commercials. Second, more traditional TV content is now available on the Internet, both as streaming video and as episode downloads. And third, there is the emergence of mobile media.

“With these changes, there is a tremendous amount of fragmentation going on in terms of the number of channels, in terms of the different ways in which ads can be formatted and the different ways in which they can be delivered,” Shababb said.

Telecom service providers are moving into this brave new world of advertising, hoping to generate new revenue streams to help replace the money that is draining out of their traditional voice business. They are bringing some of the changes with them via their IPTV and mobile TV platforms, but they also are going to have to cope with the constant change already roiling a multibillion-dollar advertising industry in search of new business models. To complicate the picture even further, IPTV is promising a new age of targeted ads that could deliver on a long-sought desire of the advertising industry to better focus its message.

Given all the uncertainty and chaos around business models, however, many industry analysts remain skeptical that advertising revenues will amount to anything significant for IPTV players in the near-term.

“It continues to perplex me,” said Dan Taylor, analyst for Yankee Group. “Telcos talk about getting into the media business, and the two businesses they talk about are neither big nor as significant as their core business. Those two businesses are advertising, which for them is selling local spot ads — which was a $5.7 billion business last year — and selling personal subscriber data, which means they will be competing against 12 or so established companies that do nothing but external data today. Neither of these businesses approaches the volume of what telcos do today.”

Next page: THE DVR SHIFT