First, Impressions

Capsule:  How much scale will a profitable deployment of interactive advertising require?  At the CTAM Summit's "Future of Advertising" Panel, Starcom Mediavest Group CEO Laura Desmond shared a view:  "We need to have (the addressable advertising) platform rolled out (to) encompass all of the TV world, not just cable and a few networks." (Broadcasting & Cable.) While this may be true of targeted one-way advertising, two-way interactive advertising may use impressions math as a scaling alchemy for gradually phased deployments that turn TV, broadband and mobile avails into solid gold. 

Broadcasting & Cable


In the last two weeks, AT&T and Verizon announced earnings, the centerpiece of which were the counts of their wireless subscriber additions.  AT&T added 2 million wireless subscribers during 2009's third quarter, bringing its full count to 81.6 million.  Verizon added 1.2 million wireless subscribers for a total of 89 million.

The force behind AT&T's highest wireless additions count in company history was Apple's iPhone; it was the device of choice for over half of all new customers.  Of 3.2 million new iPhone activations in the period, 40% were new AT&T customers, translating into 1.28 million new AT&T wireless additions out of 2 million total brought by the iPhone.  

Despite the seeming marital harmony between AT&T and Apple, the iPhone is a purveyor of Big Love, intending more marriages in the near future.  In an anticipatory moment, AT&T's Mobility & Consumer Markets CEO Ralph de la Vega addressed the issue during his earnings call: "We have a legacy of having a great portfolio...that will continue after the iPhone is no longer exclusive to us." 

The portfolio may be great, as is the aggregated scale and history of its owner.  But the voice business is morphing into something new, increasingly more wholesale in orientation than retail.  In staking so significant a share of its growth and profit-making on Apple's stellar device, AT&T is moving from a transport business that runs the tables to a transport wholesale partnership company, dependant on devices, distribution and content partners that are media-rich, complex and out of the former phone company's control.

At the same time, Verizon has turned for partnership to a star big enough to rival the sun.  Google and its Android mobile operating system will be featured in several new Verizon mobile phones, promising to give the iPhone something to think about as it opens its AT&T marriage en route to polygamy.  Verizon has introduced competitive advertising that pounds on the message of the reliability and superior coverage of its network, gently mocking the iPhone and its 85,000 "apps" as being less important than Verizon's coverage "maps." Verizon's message is right on its core strategy of binding customers through superior wireless service.  It also keeps the focus on Verizon itself, rather than sharing advertising and marketing benefits with its Google operating system partner. 

What is the AT&T/Apple versus Verizon/Google competition bringing the market?  Some good wireless advertising: Verizon's maps are a visual relief in a sea of wireless minutes, monthly prices and "G"'s that blur the meaning of numbers and numb comprehension.  

A bigger result: the beginning of the end of the wireless voice-and-text business as we know it.  The numbers inside both AT&T's and Verizon's earnings reveal continued losses in the wired voice businesses--the parts of the business that are entirely controlled by telecom distribution with government participation.  The growth business continues to be consumer wireless; but in order to grow that business to the detriment of each other, AT&T and Verizon have changed the nature of their economics by changing the products they sell. 

As the new economics of each customer addition reflect new allies demanding their share of the bounty in the wireless wars, a new wireless product definition has begun to colonialize the voice business as if it were an extension of the internet. This is a very different result from the "You Will" strategic intention AT&T expressed in the early 1990's.  During its famous ad campaign, AT&T convinced its audience and itself that it would lead the course of innovation in consumer, business and public markets.  Having grown horizontally but not appreciably vertically, AT&T and Verizon now use their tremendous scale to court friends of similar comparable size but more obvious future prospects.

In order to strengthen their prospects, AT&T and Verizon should think seriously about the share of advertising revenue they'll keep once the definition of wireless voice morphs into wireless media.  In order to protect their future economics, telecom distribution should imagine the healthy growth of the advertising trees in their own backyards and all of their nourishing fruit.  Because both companies moved into TV via wired distribution, with AT&T's U-verse and Verizon's Fios, they may have inherited the view of advertising coming from their fierce wired distribution forebears and rivals: cable and satellite.  They should do more. 

The money-making distribution leaders of the cable and satellite business view their relationship with content as their primary economic driver, leaving advertising for cable networks, broadcasters and print content/distribution hybrids to figure out.  Retail is one off of advertising and it's the rare media distributor, outside of print, that gives the actual buying and selling of goods as well as services a second thought.

Adding complexity, the future of TV advertising is likely to be a brand promotion, direct marketing, direct sales and fulfillment hybrid.  Adding opportunity, each distribution business will have a strong influence over how much of each revenue component drives their profits as that future develops.

TV advertising today is still an impressions business.  In the dreamy haze of setting advertising rates mating vague client expectations with rough viewership estimates, impressions are the currency.  Impressions mean the number of times an ad campaign can be seen according to network ratings multiplied by available viewers multiplied by viewing opportunities determined by available ad inventory.  As more inventory opens up with more available channels to be viewed, as well as alternative TV distribution forms (like wireless,) individual network ratings fall pressured by the possibilities.

TV content companies struggle with ratings accuracy but the broad realities of audience measurement persist.  The more types of incumbent TV content available to US viewers, the lower the audience numbers will be for each incumbent type.  The force that can smash this reality is the emergence of a new medium.  Cable TV smashed the ratings realities of the broadcast networks, sharing advertising impressions and taking a serious and growing bite out of broadcast TV ad revenue.  Mobile TV and IPTV, whatever they come to mean, will add inventory and impressions to the incumbent TV universe.  They'll divide audiences and change the revenue model again. 

Even if content incumbents expand their viewership seamlessly from broadcast and cable to wireless and IPTV, they will, at best, hold onto their current revenue in the aggregate by spreading it over larger and smaller bits of advertising inventory.  These new TV ad forms, according to their small size and complexity, will require greater and more costly oversight.  In other words, keeping revenue up in a complex distribution environment where total TV viewership is not increasing significantly is a profit-shrinking task.

How can the media raise advertising profits?  By making the increased availability of advertising inventory into something more than one-way impressions or passive viewing opportunities.  The value of an impression--the one shot an ad has to grip a viewer into a purchase--will increase when even a small percentage--say 5%--of TV advertising inventory can make a direct sale.  If one-in-20 TV avails holds a spot that can be clicked on with a cell phone or a mouse or a TV remote to activate a real or potential sale, impressions math becomes a beautiful sight to behold.  Smashed into an explosion of commercial opportunity, the TV ratings and impressions currency value will rise on an interactive tide of new buying and selling direct to the consumer.

If click-to-purchase is so worthwhile, why are online advertising rates stagnant?  Because the nature of the internet today precludes a direct purchase more often than enabling one.  We click most often through a search engine to (or on our way to) a commercial website that has buried within it a commerce engine to facilitate our purchase.  There are too many steps. 

Most important, the first step, the identification of a seller via search, presents the seller and his products in the most antiseptic of terms--as a Google or Yahoo! uniform search listing.  The advertising magic for search comes from taking a highly motivated comparison shopper and turning him into a potential buyer by showing him the stores.  The advertising magic for interactive TV will be taking a passive viewer (or millions of them) and inspire them to make an impulse purchase or to act on a latent desire that can be linked to the art of advertising and its context inside relevant TV content.  If this experience is portable, the advertiser has that many more opportunities to turn desire into action--on the couch, in the car, while shopping, while bored at a holiday party.

Verizon, AT&T, Comcast, Time Warner Cable and all of their media distribution brethren will inevitably take more control of their platforms by developing interactive advertising on a small practicable scale.  Even a handful of TV impressions can turn into a small goldmine for the distribution platform that connects buyer and seller most powerfully.  There may even be an opportunity to run the new advertising tables by running the models that determine the value of interactive TV fulfillment at home and on the go.  

Surely Google has this ambition in its Android operating system and its Verizon partnership.  Apple has already begun.  It projects it will complete its 10-billionth global iTunes fulfillment at the end of this year.  Now, Apple has a phone that sings and access to a multimedia collection of platforms that can knock the stuffing out of the TV advertising economy.  Let's hope they'll create a high tide, by inspiring competition, along the way.