SureWest, which has an agreement with broadband advertising provider ViaMedia, is looking at two main models for ad insertion, according to Haavard Sterri, executive director of marketing. One is pre-roll or post-roll interstitial ad insertion, which will work primarily with on-demand content and programming. The second is selling ad space on its video-on-demand platform for long-form advertising, telescoping ads and other means of content overlays.

“Right now, it is a nice little revenue stream we get from our ad insertion model,” Sterri said. “We do feel it is important, and we will spend our dollars and resources to make sure we are successful in that.”

For SureWest, the challenges are two-fold, said Eric Freund, director of business innovation and development. First is getting the technology in place to use ads in a cost-effective manner, and second is coming up with a business model and means to sell inventory at a rate that justifies the expense of installing the equipment.

In the short term, SureWest's subscriber-based business model won't be changing dramatically. “It may get tweaked slightly, but for the most part a lot of the content providers are just as anxious to work with us as the advertisers to figure this out,” Freund said.

Service providers and broadcasters typically define the value of an ad by the audience size, but IPTV's business plan essentially throws out this logic. Instead of placing ads based on audience size, advertisers would have the potential to obtain the most granular information possible about viewers to target them with specific ads. Freund said that how to move away from the Nielsen standard of measuring audience size to a true picture of the viewer is a key inhibitor to getting targeted advertising off the ground.

“We as the service providers are very fragmented in terms of the approaches we are taking and the methods we can [use to] deliver the advertisements,” he said. “My perspective is that the reason Nielsen is so prevalent is not because everyone believes it is the best means of delivering the effectiveness of ads, but because it gives these advertisers a true apple-to-apple comparison of what is working and what is not.

“Until we get a little more of a standard out there in terms of how to deliver and then measure the effectiveness of these advertisements across all the service providers, especially smaller regional players like ourselves, we are going to continue to see this thing move more slowly than we want to,” Freund added.

IPTV technology providers also are moving slowly in determining a standard by which to deliver advertisements. Middleware vendor Orca Interactive is one company actively looking at several ad models to establish its platform. No particular model stands out as the clear-cut winner yet, said Ofer Weintraub, chief technology officer for Orca. He anticipates large-scale deployments happening in 2010, with the time leading up to then being used mainly for trials and experimentation. Weintraub said the reasoning is three-fold: IPTV operators are still creating the network and simply making it work; most IPTV operators are not big enough to appeal to advertisers; and the perfect advertising model is not there yet.

“You need to add value even with advertising,” Weintraub said. “It has to be targeted, interesting and of high value. We need to do it in a non-obtrusive way. I believe ad revenues will be very important, but first operators need to establish their IPTV offerings. … We, as the industry, need to come up with a working model to add value through advertising and not to interfere and not to downgrade the TV user experience of our customers.”

As operators develop their ad platforms, the slow transition from subscription-based business models to more ad-centric models can be boiled down to the fact that IPTV providers in general have simply not been in the business of advertising before.

“There are realities of putting in place the sales organization and some of the supporting infrastructure to really be in the ad market place,” said Jonathan Bokor, vice president of business development for Tandberg Television. “I don't think that those are particularly long-term obstacles. There are ways to short-cut that … but advertising is just a big part of the TV business. If you are going to be in the TV business, you need to be in the advertising business.”

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