PROVEN INTERACTIVE TELEVISION REVENUES THROUGH INTERACTIVE ADVERTISING & DIRECT MARKETING

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1 PROVEN INTERACTIVE TELEVISION REVENUES THROUGH INTERACTIVE ADVERTISING & DIRECT MARKETING Jeffrey N. Brown OpenTV, Japan ABSTRACT As home to half the world s television households some 500 million the Asia Pacific region is emerging as the next great interactive television market with the largest growth potential. The region is also home to some of the largest advertising markets in the world. As the region will continue to be in the state of migrating it s analogue platforms to digital during the next 5 years, fantastic opportunities lie in being able to leverage interactive technology for advertising and direct marketing on television. These applications have already proven successful in North America and Europe, and the application of this technology makes even more sense into the Asian markets. The relationships between advertisers, programmers, broadcast networks and pay TV operators have been defined for a mutually beneficial model. International case studies of how this implementation works will be reviewed, as well as successful campaigns utilizing this technology. Examples of simple direct marketing, advertising, lead generation and t-commerce will all be considered. Exciting parallels can be drawn for the Asia Pacific region as its pay TV networks emerge with the tools to offer these types of applications utilizing digital technology. INTRODUCTION Television advertising is transforming. The proliferation of channels and the advent of interactive television are creating a new landscape for advertisers. Many advertisers point to itv advertising as a key tool to reach audiences in this changing environment. The interactive and personalized nature of itv lends itself well to targeted advertising and lead generation. This new era of television marketing combines the power of direct marketing with the emotional and visual impact of TV advertising. In addition, it opens the door to numerous technological and business opportunities for network operators, advertisers, broadcasters and television content providers. Network operators are seeing new revenue streams; content developers are benefiting from a new distribution outlet; advertisers are delivering targeted, interactive ads with higher returns; retailers are discovering a new sales channel; and viewers are realizing itv is simply better TV.

2 COMPONENTS REQUIRED FOR AN EFFECTIVE INTERACTIVE ADVERTISING PLATFORM Three key pieces of technology are used in a successful interactive advertising platform. First is an advertising management platform that can coordinate all advertising campaigns and schedule them at the right time. Second is the ability to measure the response for each advertisement and to be able to produce helpful analytical data to be used in future campaigns. Third is a response network that has the ability to process the transaction, collate them into reports and provide them back to the advertising community. Advertising Management Platform An advertising management platform is a fundamental component of the system. Typically this system resides in or near the head end facilities (or uplink facility). This system is used to manage all of the interactive advertisements that are running on the pay TV platform s interactive system. It should be able to allow network operators, broadcasters and content providers to manage, schedule and broadcast banner ads and promotions to interactive applications, whether developed in house or by third parties. The entire process of managing and delivering multiple advertising campaigns is controlled from a simple to use, web-based interface. This system has the capability of providing inventory forecasting, dynamic and instant insertion of advertisements into ad-enabled applications, storage of ad assets and reporting. Example Enhanced Advertisement

3 Measurement Platform This measurement platform is also a critical component of the overall system. It typically sits in as a backend component along side the advertising management platform. Quite simply, the measurement platform tracks what a consumer is doing, how they interact, how long they interact and what their preferences are for certain products and/or services. With this type of platform is it important to have the ability to measure the duration of the interaction, the interactions, the takes and response rates of individual consumers. It is only with this information that the most targeted campaigns can be delivered. Response Servers The final components are the servers that actually collect all of the transactions and interactions from every set-top box across all of an advertising networks platform. These servers are independent of any CATV network or DTH network. When transactions are made by any consumer across any CATV or DTH network that has access to the OpenTV interactive advertising response network, they are collected by the response servers. The function of the response servers after collection is to collate similar transactions for certain products or services and send those orders, leads, requests for information, etc. to the appropriate advertisers, retailer or content provider with a corresponding report. Further micro and macro analysis is performed to continue to better understand the demographics of the consumer base that the advertising response network covers. This is ultimately even more beneficial for advertisers, content providers and retailers as the attempt to increase sales and leverage the information at hand.

4 HOW THE END TO END SYSTEM WORKS While there is a lot of technology required in the background to make an advertising response network actually work, to the consumer it is a very simple process. Simplicity allows a much wider range of consumers interact easily with this form of technology and ultimately produces better advertising and direct marketing results. While a viewer is watching television a bug appears on the screen that indicates that there is something interactive about the program or advertisement. By the simple press of a button, the consumer engages with the program or advertisement and views a screen overlay. Most importantly, the consumer is not pulled away from the programming or advertising, but is able to continue watching while also interacting. After the offer is displayed, the consumer is then prompted with a call to action. Again this takes place with a simple press of a button. After the transaction has occurred, the data is saved and then sent back to OpenTV s Response network where the information across the network is collated into reports and provided back to the advertisers. Below you can see a graphic depiction of this system.

5 BENEFITS TO PARTIES IN THE VALUE CHAIN Network Operators This technology can be best utilized over large-scale pay TV networks. Typically this means cable TV or DTH (direct to home) satellite networks. Network operators are able to benefit by increasing their ARPU (average revenue per unit/subscriber). Using this technology allows for revenue sharing opportunities for the network operator with the content providers, retailers and advertisers. The pay TV operator has something of value to these parties eyeballs and bandwidth. Via their pay TV network they have the ability to deliver interactive advertising and direct marketing that provides for transactions whether they be lead generation, contests, commerce etc. Advertisers Advertisers now have the ability to delivery targeted interactive advertisements to the television, a medium that has traditionally been non-interactive and a simple point to multi-point distribution. Using this technology, advertisers can target specific groups for their interactive advertisements, such as ethnicity, geographical areas, affluent homes, homes with children, etc. This leads to not only higher response rates; but also ultimately more revenue generated for the advertiser. Furthermore, leveraging a medium like this in many cases is the lowest cost form of lead generation or customer acquisition. Advertisers will typical have some form of revenue sharing agreement with the pay TV operator. Retailers Retailers now have a new medium to sell their products on a large scale, as well as a highly targeted approach. The benefit of creating impulse buying opportunities in the comfort of the consumers home with an emotional medium that the consumer trusts the television speaks for itself. The applications for retailers are virtually limitless. Regardless of whether the product is dog food, financial services, automobiles or CD s; they can all be sold in this manner. Retailers typically will share a portion of their sales or profits with the network operator. Content Providers Content providers now have this completely new medium for production and development. No longer is their programming simply linear in fashion. On screen overlays can be produced for either targeted or non-targeted advertising and direct marketing. In show sponsorships are also quite common allowing the content producer to provide additional information, statistics or opportunities that are designed to enhance the linear programming. Content providers typically have an arrangement either with the pay TV network, advertiser or retailer for part of the revenue generated with this medium.

6 Viewers Viewers can simply sit back and enjoy all of the added benefits of this new medium. For those who do not want to interact, there is simply no obligation, for those who do it takes the simple press of a button. This allows the viewer to interact with products, services and content this is interesting to them and their lives in the most convenient way in the comfort of their own home watching television. PRIMARY USES OF ITV ADVERTISING TECHNOLOGY There are indeed four primary uses of this interactive advertising technology that are worth examination. Branding Ultimately, as content providers, retailers or advertisers use this technology, they are effectively extending their brands presence and messaging through another medium. Interactive advertising is never meant to replace other forms of advertising; but to provide yet another channel for messaging and marketing. Interactive advertising is naturally an excellent way to further engage the consumers by prompting them to interact with the programming and information that is already of interest to them. Furthermore, there is always some form of call to action that requests the customer to enter into a contest, request a brochure, accept some free product or purchase something via their remote control. Direct Marketing Due to the level of granularity that comes from having and advertising response network, this form of advertising is perfectly suited for direct marketing. It allows the direct targeting of customers, which ultimately leads to higher than average response rates to generate leads or sell products and services via this medium. It further allows for better CRM (Customer Relationship Management), which in turn provides for even more leverage by the advertiser, content provider or retailer. Ad Research One of the very unique features of using the interactive advertising medium is the cost effectiveness of this medium not only for direct marketing; but also for testing copy. With little effort, time and money spent, and advertiser can quickly assess whether or not copy is successful and if it should be rolled out to a larger population. Ad lifecycle and ad recall can be quickly assessed so that better decisions can be made about whether or not to continue with a certain campaign. The goal is clearly to leverage what works effectively and terminate what doesn t very quickly. Marketing Research As a direct result of extending our CRM capabilities using a platform such as this, we have a much better ability to understand our consumer s behavior. A well-designed response network has the ability to compile and produce accurate and insightful report from which clear direction can be understood. Additionally, surveys can be conducted quite easily on this type of platform either to again test the market or collect information that might be helpful in future campaigns.

7 INTERNATIONAL CASE STUDY NORTH AMERICAN MARKET Interactive Advertising Reach in North American {include networks using technology} OpenTV s interactive advertising response network in North America now reaches nearly 14 million digital CATV and satellite household. It is far and above the largest network of it s kind and it is capable of collecting an unprecedented amount of data concerning consumer behavior, preferences and viewing habits. On this platform today, there are over 20 million interactions every month and growing dramatically month-to-month. Geographic Distribution The OpenTV Advertising Response Network represents an incredible indicative cross section of what North American demographics are today. The chart below represents exactly how propagated this interactive advertising platform is in this market. The second column identifies the percentage of North American households that reside within each DMA (Direct Marketing Area) category. The third column represents the percentage of column 2 that is actually part of the OpenTV advertising response network. For example, the Top 50 DMA s contain 67.09% of all North American TV household % of those households in the top 50 DMAs have access to OpenTV advertising response network. These are very powerful numbers for advertisers to have access to such a high percentage of households in the most important markets across North America.

8 Examples of Content Providers, National Advertisers and Leading Brands It s very important to provide an example of the types of broadcasters and content providers that find this to be an effective medium for advertising. It can be seen that included are the big names in the business. This is very much a mass market medium for advertising and sales. Furthermore, the advertising network supports over 75 national advertisers and well over 130 leading brands. Some of which can be evidenced below. As you can see, there is a broad range of consumer products, financial services, telecommunications, healthcare products, technology and brands that leverage this medium to

9 increase their brand awareness, increase sales leads, better understand their customers and ultimately drive sales of their products or services. Advertising Demographics Surprisingly, the advertising network has the ability to target customers and a very granular level. We often refer to the ability to target to ZIP + 4. In North America, there are 5 digit zip codes (or postal codes) with an additional 4 digits that provide targeting down to 50 homes per every specific 4 extra digits. Therefore we are able to target effectively down to any given group of 50 homes. With this data, groups of consumers can be targeted by ethnicity, household income, household size, and houses with children, by state, by DMA, etc. When specific transactions have actually taken place by a given household, consumers can be targeted at a per household level based on past preferences. Below, is a chart that shows the advertising demographics of OpenTV s advertising response network. In the left column you will see very important segments in the consumer economy, for example based on gender and age range, as well as income levels. In the second column you will see the national household average. In the third column you will find the OpenTV household average as compared to the national household average. Column 4 shows the variance between the OpenTV average and the national average. Summarized simply, the OpenTV average in all cases represents a more significant cross-section of the most important demographic categories than the national average. This is very compelling for advertisers, content providers and companies with products or services to offer. This is an even more effective way to target the consumers who are much more likely to be interested in their products.

10 ADVERTISING CASE STUDIES It is also helpful to provide some case studies as a point of reference for advertising campaigns. Following are three different campaigns executed in the past with some specific information about results derived from those campaigns. Additionally, in the chart below is an example of the types of response rates that were generated by running a few airings (in some cases only one) of some programming. Note the impression column, which identifies the number of people who actually engaged the interactive advertisement and used it and the interaction column that identifies how many people actually accepted the offer for a product, service, contest, etc. As you can see, the percentage take rates are very positive and typically increase the more popular the content/programming is. Network Program Airings Impressions Interactions Ford TBS Ford Motor Company's agency, J. Walter Thompson (JWT), is an innovator in the interactive space and was one of the first agency's to work with OpenTV s Wink on behalf of Ford. JWT enlisted OpenTV s Wink to help drive brand awareness as well as car sales. Early interactive efforts with OpenTV s Wink included the following brands: Explorer, Expedition, Excursion, Escape and Focus. The largest interactive campaign powered by OpenTV s Wink was in conjunction with the launch of the new Explorer 2002 model. OpenTV s Wink developed an interactive enhancement for the commercial that would serve as a lead generator for the car brochure. Ford's marketing objective was simply to test this exciting new medium and to determine how it could positively impact their campaign. This campaign had one of the highest Interaction and Take rates for all of OpenTV s Wink automotive campaigns. 2.3% of viewers launched the interactive application and 64% of viewers requested a brochure. Most compelling was the fact that this campaign turned out to be the most cost-effective method for Ford to reach those prospects most interested in their offer; the campaign also generated more leads than any of their other advertising programs. Additional media vehicles included multi-dimensional tactics such as YAHOO front-page rich media campaigns, direct mail, and other elements. This program was so successful that Ford signed an agency-wide contract for all Ford brands and is expanding what they can do with itv.

11 L Oreal Garnier L Oreal Garnier ran a contest in the Toronto region by enhancing ads on just three networks. The ads generated 40% of the total contest entries across all the promotional vehicles the advertiser used to promote their contest. L Oreal Garnier gained valuable learnings about their media schedule and had determined how to best engage and reach their youth-oriented target market. Carnation Good Start

12 Carnation s goal was to leverage existing direct marketing efforts with an interactive overlay to gather the names and address of families with pregnant women or newborn children. Carnation offered a free New Baby magazine as part of this promotion. This campaign delivered over 1 million impressions, 8000 interactions and over 3000 takes of the promotion. This provided Carnation with a very low cost way to generate extremely qualified sales leads for their products. CONCLUSION While in most global markets interactive advertising is still in very nascent stages, it is thriving in other markets around the world. In those developed markets, interactive advertising is becoming an important part of the advertising mix along side traditional methods of print, television, radio, etc. Not only has interactive advertising proven to provide a higher, more effective number of takes and transactions, it is also capable of generating this business in a very cost effective manner. Interactive advertising technology is a medium in which all of the players in the value chain benefit. Today, itv advertising is already delivering new revenue streams for the television industry in the US and in Europe and will extend throughout the world in the years to come.