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Ad Supported Video Creates New Opportunity

As more consumers gravitate to viewing digital video content that's available via the Internet, marketers swiftly reallocate advertising budgets to follow this trend. This shift has spawned yet another business opportunity, which is the topic of my latest video vignette entitled "Digital Video Eruption."

New markets for ad-servers and ad-splicing equipment promise dramatic near-term growth in North America, Western Europe, and Japan. A new study from ABI Research indicates that revenues from these new technologies will total $284 million in 2006, but that the equivalent figure for 2011 will be approximately $1.8 billion.

"Trials have shown that while many consumers don't mind paying a few dollars to download a movie, they are less willing to do so for TV programs," says principal analyst Michael Arden. "So cable companies and content providers want to generate revenue from their video-on-demand (VOD) and other services without having to charge a fee. In some trials, VOD viewer numbers increased dramatically when the service became advertising-based instead of fee-based."

What do these new technologies offer that older ones did not? Traditional ad insertion is a one-size-fits-all affair, while effective advertising is all about customizing the message for specific demographics. That is where the new generation of ad-splicers and VOD servers with ad-server capabilities shine.

In one current example, cable television operator Sunflower Broadband is dynamically placing ads into MTV Networks on-demand programming. Ads for a new MTV movie's theatrical release will be inserted into Comedy Central On Demand programs at the moment that viewers request the free on-demand shows.

"VOD equipment manufacturers are well-positioned for this development," notes Arden. "Established VOD equipment companies such as SeaChange, C-COR (nCUBE), and Concurrent Computer Systems stand to benefit from this new market direction, as well as IPTV-oriented firms such as Bitband and UTStarcom that have on-demand platforms."

Innovations don't stop with passive ads. "The increasing intelligence of ad-servers will mean that providers can insert, for instance, localized 'ticker' ribbons across the bottom of a screen; they will also offer the ability to click onscreen links or objects to find related information on the Internet," adds Arden.

"They claim that eventually they'll be able to identify the demographics of the person currently watching the TV by the choices they make, and deliver suitably targeted ads. That implies, eventually, an ad-splicer per household or even multiple ad-splicers per household, hence the dramatic growth we expect in these markets."

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