Google Cable Conquesting Begins In Kansas City; Newfront Vs Old Upfront

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February 27, 2012 – 12:03 am

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Conquering Cable Through KC

Speculation that Google was building a pay TV service began circulating last fall, when the WSJ's Sam Schechner and Amir Efrati reported that the search giant to going to test a pay TV service in Kansas City, Mo., effectively putting MSOs on notice and inviting networks run by Walt Disney, Time Warner and Discovery Communications in to talk.

The pilot program appears ready to begin, as indicated by Google’s filing for a video franchise license with the Missouri Public Service Commission, which would enable the search king to deliver content to TVs there, according the NY Post’s Garett Sloane, who cited public records.

The area where Google is laying the groundwork for what appears to be its most ambitious incursion into the pay TV business is currently served by Time Warner Cable. While even Google would be hard-pressed to quickly roll out a service that could immediately diminish the strength of the existing cable business, it does represent the latest in a series of threats to the existing model.

In addition to the advancements of satellite TV providers DirecTV and Dish Network, telcos like Verizon FiOS and AT&T’s U-Verse have begun to chip away at cable’s near-monolithic hold on pay TV. And although "cord-cutting" appears to be a small phenomenon primarily centered around younger, tech-savvy consumers, over-the-top providers including Netflix, Roku, Boxee and even Google TV and Apple TV, find the cable companies being challenged from all quarters.

The prospect of yet another Google venture in the video space, alongside the more professional-looking YouTube, Google TV and Google TV Ads, is sure to pique curiosity. A number of media buyers have already expressed high hopes for Google Android’s mobile operating system being deployed from smartphones and tablets to TVs made by Samsung and others, allowing seamless cross-platform campaign management opportunities that are unlike anything else on the horizon. (Separately, Google TV continues to make steady progress on the content and hardware front, as The Verge’s Dante D'Orazio reports.)

Now, before we get too carried away, Google hasn’t said too much about what its plans specifically are. In an analyst note this past week, BernsteinResearch’s Craig Moffett offered some thoughts on what to expect – or rather, how little to expect -- from the search giant’s Kansas City activities.

For one thing, KC is not a large market that is also home to U-Verse in addition to TWC.

Secondly, Moffett says that “Google will find out that the upside from operating the second or third pipe to the home is not attractive enough.”

And that includes factoring in the advantages of not having to worry about legacy cable systems – something that has hampered MSO’s addressable TV efforts, for one thing. Furthermore, even adding in the incremental value of targeted TV advertising and expanded online ad opportunities would do little to provide greater revenue to make the tremendous expense.

But all that is pretty much short term. It pays to remember that there were many who doubted Google’s expansion into display after dominating search advertising for many years. And it just so happens, that Google hit nearly $2 billion in display ad sales last year – and as eMarketer predicts, Google is poised to surpass Facebook next year.

That doesn’t mean that Google can simply enter a market and dominate it. But it does mean that those who discount Google’s abilities to make its presence felt quickly and determinedly are often left to backtrack their forecasts.

The ‘New’ Newfront Takes Aim At The Old Upfront

The arguments in favor of creating an industry-wide marketplace to lock in online advertising sales rates for future placements like the TV upfront have been around ever since the web ad dollars first hit $1 billion. But just as soon as those proposals have been made, reasons against it have buried the idea until the next year, when the same points and counter-points are cycled through once again.

Over the past four years, companies like Microsoft and Yahoo have held counter-Upfront events to highlight their inventory to marketers and media buyers who were otherwise being entertained and feted at broadcast and cable network extravaganzas. One of the most well-attended of these online ad events has been Publicis Groupe interactive shop Digitas’ NewFront, which have gotten more lavish every year for the past three years.

Now, Digitas has signed agreements with AOL, Google/YouTube, Hulu, Microsoft Advertising and Yahoo to open up the Digital Content NewFronts (#DCNF) as wider industry (as opposed to company-specific) function. Read the release here.

Now, U.S. online ad spending still has a ways to catch up to the $70 billion TV market, not to mention the $9 billion committed during the last upfront season. Online ad spend is expected to grow 23 percent in 2012 to $39.5 billion in the U.S., while U.S. online video ad spending grew by 52.1 percent in 2011 to about $2 billion. By 2015, video ad spending will reach $7.1 billion, up from $2.16 billion in 2011, according to eMarketer figures cited by Digitas in making the NewFront announcement.

So can these several companies constitute an upfront market? And will the simultaneous pitches for advertisers’ money dilute the traditional ad spending? Or will it perhaps lead to more cross-platform plays, giving both online and traditional media a win-win?

While traditional ad dollars have been shifting to digital for a while, this year’s NewFront will probably remain mostly symbolic and therefore will not dent TV ad spending. (For one thing, most of the traditional ad dollars have been moving out of print, not TV.

But there will be changes felt to the upfront process over the next few years. Surely, digital will be the reason behind the coming shifts in how buying ad inventory in advance will change.

The upfront was always an artificial marketplace intended to force buying during a specific period of time. Because marketers were more engaged in reach and frequency strategy, as opposed to the kind of efficiency strategies that’s generally associated with the web, the idea that there are “must-buys” has becoming less and less relevant. There’s no brand marketer screaming at their buyer that they’re going to be shut out. In general, there are a nearly infinite set of options for advertisers right now. Therefore, the worry of not getting your message out doesn’t exist, and that will continue to degrade the value of an upfront – for both TV and online.

Lastly, as on-demand has a greater impact on viewers’ media consumption in general, the notion of buying specific periods will also have to undergo some evolution, as the idea of “primetime” is refined in the minds of marketers, buyers and, yes, viewers.

Paradoxically, the idea of packaging inventory together, even as the advertising world becomes more “real-time” oriented may still become even more crucial, as all parties need to establish a period for figuring out what “premium” content and advertising is and how to plan to get it front of large numbers of consumers. So we’re not saying the upfront – or NewFront – concept isn’t dead or dying. But the process which has operated pretty much the same for the last 30 years will become less recognizable to veterans. And it’s about time.

But Wait. There’s More!

By David Kaplan

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February 27, 2012 – 12:03 am

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