TARGETING ADS

The good news for IPTV providers is that they appear to have a near-term opportunity to do something cable has been promising but has yet to fully deliver: targeted advertising.

“The service providers have good reason to be excited about targeted ads, especially on platforms like IPTV,” Taylor said. “It's a really wonderful thing. The overall promise from a user perspective is to get fewer ads and for them to be more effective. People say they don't want to watch any ads, but the thinking is that if you show people the right ad, it's not the same thing as seeing ads as an interruption.”

Verizon has showcased technology that targets ads based on its customers' behavior and found the advertising community is very interested, said Joanne Lacourse, director of user-centered design. Although the service isn't available yet, the technology exists to let viewers watching a show hit a button on their remote to see related content such as recipes being used in a cooking show, books on related topics or DVDs featuring the actors on screen; they can even buy items and have them added to a FiOS bill. Speaking at a Verizon demo day for media last fall, Lacourse said the only stumbling block is the business plan.

There is another “gotcha” with targeted advertising, however, and that is consumer privacy. As Facebook learned in late 2007, consumers aren't that crazy about having their habits watched and recorded. Industry analysts agree this is a problem, but they also think it will be solvable.

“There will be privacy experts who will develop privacy guidelines for advertisers,” said Peter Krasilovsky of Krasilovsky Consulting. “Consumers will need to have a good opt-out policy.”

What telecom service providers need to avoid, however, is the delay that has kept interactive and targeted advertising from being part of the cable play, said Derek Baine, analyst for SNL Kagan.

“The cable operators have been saying for years that this is a high-growth area — targeted ads — but if you look at what has actually happened, it has been very little; it has been very disappointing,” he said. The industry's Canoe initiative, which will be tested this year, will create a common interface and systems for advanced advertising services, including targeted and interactive ads, that should speed deployment at the national level but won't help with local ad insertion, Baine said.

“The ironic thing is that what AT&T and Verizon are now saying they are going to do — target local ads — is what cable operators said they were going to do five years ago,” Baine said. “The problem with delaying is that you can already buy targeted ads on the Internet, and that is growing phenomenally. If [cable] drags on, they could miss the boat entirely if all the national advertisers are so enthralled with their Internet campaigns.”

There are, no doubt, pitfalls ahead, Yankee Group's Taylor agreed, but he believes major telecom service providers are girding themselves for the task by hiring the necessary talent.

“None of this is easy,” Taylor said. “I think what the telcos are doing around IPTV is fascinating. Something is going to stick. The open question right now is which set of technologies — the Internet, IPTV, [multiple systems operators], portable devices, satellite — is going to take hold with consumers and with advertisers. I don't think we know that yet.”

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