Targeted Advertising the Key to Video on Demand

• Posted: Friday, April 04, 2008
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• Author: pradhana
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• Filed under: Advertising, Digital Content

Although video-on-demand (VOD) has enjoyed only limited consumer success since its introduction around the turn of this century, improving techniques for the insertion of targeted advertising, combined with a viewer population more accustomed to acquiring media content online, suggest that VOD’s time may be approaching.

The key factor, according to ABI Research analyst Paulhwa Lee, is “monetization”: service providers continue to seek the grail of higher profitability from each title accessed. And that grail increasingly appears to be found in the bundling of customized, tightly targeted advertising with the program content.

“VOD providers have two sources of revenue,” says Lee. “End-users pay for a la carte and subscription fees, while sponsors pay for advertising. The goal is to tailor interactive advertising to the individual viewer. Progress has been made towards that goal, but it is by no means perfected yet.”

Reflecting the increasing division of consumers into ever-smaller niches, VOD can offer providers another level of customization and differentiation: targeted verticals. Rogers in Canada, for instance, offers content specifically for Bollywood movie fans and films aimed at speakers of Cantonese and other multicultural groups.

To achieve critical market mass for targeted advertising, the VOD delivery system must be able to scale up to meet demand, and “concurrency rates” – the number of subscribing households that can watch on-demand at any given time – are a crucial metric.

In the United States, providers are adding video servers at a rapid rate, ultimately aiming for a concurrency rate of 100%. “US operators are trying to reach critical mass by offering the majority of VOD content for free,” says Lee. “They are hoping that once they get the broad subscriber base, they can cash in on the advertising.”

Regional differences affect VOD’s global success too. While targeted advertising is the common goal, it is closer to becoming a common part of VOD offerings in North America than in the less developed markets in Europe and elsewhere. [ABI Research]

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