Backchannelmedia

Growth Strategies

US advertising spending will set another record this year, reaching $279 billion, up 5.7% from 2004- But ad expenditures are down or flat on network TV, in magazines, and in newspapers. Advertising on the Internet will grow 15% this year to $8 billion, and is projected to grow to $ 12 billion by 2010, but would still represent a relatively modest amount in the total advertising universe.

What might the future of advertising look like? According to David Freedman, writing in Inc. Magazine (August 2005), within five years new high-tech media will enable companies to routinely and inexpensively reach their best prospects - and hardly anyone else - with entertaining, hard-to-ignore messages that reach them whatever they're doing, at any time, wherever they are. But in a world where two-thirds of people already feel "constantly bombarded" by advertising (Yankelovich Partners), more advertising (in cars, offices, living rooms, bedrooms, cabs, elevators, stores or on mobile phones), even if precisely targeted, is not necessarily better or more effective advertising.

Another possibility is user-initiated TV advertising. According to TiVo, the DVR company, from 5% to 15% of its 3.3 million subscribers volunteer to watch infomercials during a typical one- week promotion. To take another example, Comcast Cable subscribers in the Philadelphia market can volunteer to view long-form ads to learn more about products from companies like General Motors, Reebok and Wachovia Bank.

And they're doing so in surprising numbers, according to Rentrak, the software company that developed the system. Over a recent 12- month period, for instance, long-form ads for GM cars, including the Cadillac Escalade and Hummer, were viewed 125,000 times, for an average duration of 3.4 minutes (there are 745,000 digital cable subscribers on the system). The number of long-form ad viewers is expected to quadruple over the next five years, as the ads are made available to a growing share of the growing number of US households (currently 10 million) that use video-on-demand services.

But perhaps the most promising future for advertising is IPTV (Internet Protocol television). After all, according to the most recent American Time Use Survey (conducted by the Bureau of Labor Statistics), even with the explosion of Internet usage and overchoice of leisure-time activities, consumers still spend half their leisure time watching television.

Haven't TV viewers become adept at avoiding, skipping, zapping or otherwise ignoring TV advertising:1 Yes, but IPTV has the potential to direct advertisers to best prospects, and to direct interested viewers to the long-form ads they want to watch.

IPTV marries TV to the Internet. It transforms video content - movies, sitcoms, commercials into digital files stored on hard drives. The technology thus delivers to consumers just the content they want, when they want it. It also delivers to advertisers the capability to target different advertisements to different viewers, based on their preferences and viewing habits.

IPTV is a point-to-point service, not a broadcast. Thus, every home - even every TV within a home - could potentially receive a different advertisement, based on each viewer's preferences and characteristics. According to Forrester Research, many companies would be willing to pay 10 or 12 times what they spend now to reach each consumer if assured they were reaching their intended audience.

Although the interactive nature of IPTV presents opportunities for electronic shopping, most marketers see IPTV as a way to direct viewers to longer-form ads. Early versions of IPTV are in a handful of homes in the US. All TV service providers - cable companies, satellite companies and telephone companies - have plans to offer the service.

Growth Strategies Implications

Advertising is not dead but it is undergoing a transformation. Instead of a bothersome, intrusive annoyance, successful advertising in the future will be welcomed or requested communication, a convenient way for potential consumers to access information from producers of goods and providers of services.

Copyright FutureScan Aug 2005