Advertising on IPTV – A Necessity

Implications: Carriers like Verizon cannot sustain their converged media and telecom model on a long term basis.  To ensure that quality content continues coming Verizon’s or AT&T’s way, advertising revenue is a necessary component.  The key is the revenue model that the carriers need to deploy to satisfy content creators and owners.

Analysis: Not too long ago, pundits claimed that advertising on IPTV or even mobile media was not only nonessential it was unworkable.

In my past analyses I have stated just the opposite and have gone even further by stating that without advertising, the carriers had no hope of maintaining any kind of content business in the long run.  Telecom people disagreed with me but the content people agreed with me.

Here is the bottom line; without an active participation from the content creators and owners like Disney, the wireless and wireline carriers like Verizon and AT&T will be simply be forced to show either re-purposed content or amateur content.  In other words, Verizon and AT&T will be nothing more than a place for repeats and free low brow comedy bits.

If Verizon and AT&T hope to ever grow beyond being a place for repeats and amateur filmmakers then it will need to be able to pay the professional content creators real dollars and not the pennies.  The carriers cannot charge their users more money for subscription fees.  Content owners want to be paid a lot of money.  Advertising is the only way to make that kind of money.

For a moment think cable TV.  Not too long ago, The American Movie Classics (AMC) channel showed programming for free.  The AMC channel got its money from a percentage (a small slice) of the basic subscription fee the cable TV company charged the customer.  The same can be said of The Movie Channel.  Today both channels are filled with commercials.  Think about this; an advertiser pays tens of thousands of dollars for a single 30 second spot in a specific locale.  Imagine many companies doing the same thing throughout a single region.  That is a lot of money and more than subscription fees in the same local can generate on a prorated hourly basis.

The problem the carriers will be facing is that they need to be able to generate valuable demographic information for the advertisers.  The reality is that advertisers are in the driver’s seat.  Advertisers now have a plethora of places to go peddle their wares.  Carriers need to compete with billboards, broadcast television, cable TV, radio, digital radio, satellite radio, satellite TV, newspapers, magazines, online newspapers, online magazines, Internet companies like AOL and Yahoo, and the list goes on and on.

To get the attention of an advertiser you need to add value.  That value is targeted advertising supported by detailed demographic information.  If you are a wireless carrier you can couple advertising with location based technology and you could then in real time target ads, sales, and discount coupons to users based on their user profile.  If you are a wireline carrier you could do the same for anyone logging onto their computer while at the office and home.  There is technology out there that can support such transactions but it needs to be implemented.  Carriers need to do all of this without degrading the viewing experience.