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IPTV to Gain Next-Generation TV Advertising

Telcos that have invested heavily in infrastructure upgrades to deliver IPTV services will now have to invest further -- in next-generation advertising technologies -- according to a market study by Heavy Reading.

As the last-to-market player in the pay-TV sector, telecom network operators don't have the business processes and relationships in place to compete directly with incumbent cable and satellite pay-TV providers for advertising dollars, notes Aditya Kishore, senior analyst with Heavy Reading and author of the report.

"Telcos need to use that lack of history to their advantage. Advertisers and programmers are exploring new approaches to make TV advertising more measurable and effective," Kishore explains.

The existing mass-market advertising model was developed in an analog world and is increasingly becoming unpopular. The deployment of digital TV infrastructure enables a wide variety of new advertising approaches, many of which are dependent on the provider's network.

A two-way digital network enables many of the capabilities that distinguish Internet marketing by allowing for targeted advertising and on-demand delivery of ads. It also allows for Interactive TV (ITV), which lets viewers of TV programming use their remote controls to interact with the television screen.

Based on conservative assumptions, telcos could earn in the region of $65 per subscriber per year from TV advertising -- once they achieve a critical mass of IPTV subscribers. Almost half of this revenue will come from next-generation TV advertising approaches, such as addressable and interactive ads.

This figure is likely to grow steadily as telco penetration of TV households grows further and the business models for next-generation advertising develop.

On-demand and targeted advertising will both be led by the U.S. market. Video on Demand (VOD) deployments are ramping up in other parts of the world, and some operators like FastWeb in Italy and PCCW in Hong Kong are extremely innovative with their VOD services. Still, U.S. cable operators continue to lead with revenue model innovation and advertising trials on VOD.

The growth in usage of free VOD has helped develop an audience. This will drive programmers and operators to try and monetize VOD rapidly, making it the most likely area of development. Targeted and addressable advertising is also very much a U.S. phenomenon, driven by key cable operators and strong interest from advertising agencies.

Western Europe will continue to lead with interactive advertising. ITV is particularly well established in the UK, and the business models and technologies are mature. Other Western European countries and providers also have moved forward with ITV services and advertising, while in the U.S. ITV is largely limited to homes with satellite pay-TV.

Heavy Reading believes that telcos should actively seek out partnerships with local broadcasters and national programmers to enable next-generation ads for their content.

Despite their current small IPTV subscriber base, telcos can help broadcast and cable programmers prove the model for such services, and generate revenue while the model evolves. This should also be attractive to national networks, which will be offered an opportunity to grow their revenues through next-generation advertising.

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