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Wall Street Journal

November 9th, 2005

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TV On-Demand May Make Ads More Targeted

New Media?

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AFTER HALF a century of sharing in the stunningly lucrative partnership between advertisers and broadcast television, two networks appeared to break ranks.

NBC and CBS said on Monday they would make some of their prime-time shows available for viewing on demand at a cost of 99 cents, starting just hours after the shows' regular on-air time slots. The networks' embrace of this world -- where viewers can watch programs whenever they want, skipping commercials at will -- should have left ad people furious.

Instead, advertising executives seemed unruffled by the news. They themselves recognize the same set of forces driving CBS and NBC: Technology is giving rise to a multitude of new ways to target consumers with entertainment and with commercial messages.

Advertising was once a simple mass-market media buy; now it is a dialogue between a seller of soup, sneakers or cellphones and a particular media outlet's narrow audience. That media outlet is just as likely to be a computer screen or a mobile device as a television set, media buyers say. As a result, advertisers are starting to treat TV more and more as just one conversation among many.

"It used to be that almost anybody could create a splash with TV, and today, those splashes are fewer and fewer and usually are the domain of the megabrands," says Richard Notarianni, executive creative director, media, at the New York office of Havas SA's Euro RSCG.

That doesn't mean advertisers are advertising less. Companies are spending more money than ever on media to reach their customers, and advertising agencies are helping them find new ways to do it. The difference is that the slices of the pie are getting thinner -- especially television's slice. During the first six months of 2005, 38% of advertisers' media spending went to cable, local and network TV, down 13 percentage points from 2000, according to TNS Media Intelligence.

"I think everyone has to get ready for a multiplatform strategy," adds Tim Spengler, executive vice president and director of national broadcast for Interpublic Group's Initiative, an ad-placement firm.

The financial model for ads in on-demand programming hasn't yet emerged, Mr. Spengler says. There are a host of issues to be resolved, including finding an acceptable measurement of consumer response and figuring out whether advertisers would negotiate with the network, the on-demand distributor -- or both. "This is still a very nascent area," Mr. Spengler says. CBS says it is looking at ways to determine prices for ads appearing in on-demand programs.

Advertisers might have been slow to embrace the Internet and other new technologies. But the spread of digital-video recorders and online-subscription services for them, such as TiVo Inc., has caught their attention for the simple reason that DVRs make it easy to skip commercials entirely.

Now, CBS's plans call for making "CSI" available via Comcast Corp.'s cable lines, and NBC plans to provide "Law & Order SVU" to customers of News Corp.'s DirecTV. Taken with ABC's release in October of "Desperate Housewives" to Apple video iPod users, television is moving from "a dumb mass reach and frequency vehicle" to an on-demand medium, and one "that is going to be much more targeted and relevant," says Tim Hanlon, who studies emerging media technology for Publicis Groupe SA's Starcom MediaVest, an ad-buying firm.

John Wren, president and chief executive of Omnicom Group Inc., told investors on an October conference call that he expects clients to direct an increasing amount of ad dollars into Internet-based efforts. "As clients use it and use it effectively, they gain more confidence in it and they continue to expand their growth," he said.

The nation's biggest advertiser, Procter & Gamble Co., which spent roughly $2.5 billion on TV ads last year, indicated it would cut its broadcast upfront commitments for the current prime-time season by about 5% and its upfront commitments on cable by as much as 25%.

This year, ad-spending commitments to the six broadcast networks during the upfront selling season dropped to approximately $9.4 billion from $9.5 billion, the first dip since the 2001 ad recession. Media buyers say advertisers, faced with more options and splintering audiences, want to experiment with new forms of promotion that are often cheaper than TV.

Some are finding new ways to advertise on TV that are more efficient than the traditional 30-second spot. They are sponsoring entire episodes, or embedding their products within shows as product placement. Last month, Philips Electronics NV said it paid about $2 million to be the sole national sponsor of "60 Minutes" on CBS. Aside from spots promoting CBS's programs, and local ads sold by CBS stations, only Philips ads appeared during the program. As a result, the episode carried fewer commercials and more time for news stories.

Likewise, American Express Co. bought all the ad time during a recent airing of "The West Wing," on NBC. As part of its sponsorship of Sunday's episode, which featured a live debate between two fictional presidential candidates, American Express devoted some ad time to a monologue from comedian and company pitchwoman Ellen DeGeneres.

Some of these techniques could work in programs watched on-demand, says Starcom's Mr. Hanlon. Advertisers could sponsor a program much the same way they do with "commercial-free" shows on PBS, he says. For example, they might run a 15-second ad appearing just after a consumer selects which show to watch. Shows could break for advertising intermissions, or feature a promotion inviting viewers to stick around after the show ends. Currently, some online programming, such as news clips and cartoons, runs 15- and 30-second commercials just before the programming starts.