Though advertising has long been a money-maker for cable, the growth of ad sales has not been particularly quick, despite the urgency operators feel to increase revenues. The positioning of new and existing technologies promises to help operators expand this business relatively quickly.

Operator ad revenue today is primarily generated from digital program insertion (DPI) ad splicing, in which a local ad replaces the primary video content during specific, pre-designated availability spots (avails) during a typical hour of TV programming. Of the many advanced advertising capabilities being developed, ad content based on digital overlays has the unique potential to reduce ad costs while simultaneously increasing the value of each national and local ad that an operator carries – essentially doubling the number of ad avails. Overlays’ applicability in targeted advertising is also expected to raise CPM (cost per thousand), resulting in greater revenue potential per ad.

The value of overlaying text, graphics and images and full-motion video has been proven by broadcasters, who for years have used overlays for various applications, such as branding content with their logos, providing real-time supplemental information such as stock market tickers and local weather updates, as well as schedule-based supplemental advertising information. Challenges Though proven in broadcast, the large-scale implementation of overlays is inherently more challenging in the more complex cable environment. However, as operators must expand their revenues, the benefits of digital overlays far outweigh the costs. The revenue potential is substantial, and new approaches promise to streamline the process and make it comparatively easy to deploy overlays across an entire cable channel lineup.

Because broadcasters typically produce only a handful of channels at most, they have traditionally used a very conventional decode-and-re-encode process to ad overlays. While this works in the broadcast environment, it clearly isn’t suitable for cable operators with 100 or more channels. Beyond the prohibitive cost for encoders and decoders, degrading picture quality is a very real concern any time an MPEG program is taken down to baseband and then re-encoded.

Fortunately, the cable industry has pioneered the use of all-digital solutions in which compressed MPEG programs are manipulated without any decoding or re-encoding. Proven for years in grooming channel lineups, adjusting program bit rates and DPI, all-digital methods can also be used to implement overlays. This approach preserves optimal picture quality and is vastly easier to accomplish in systems with hundreds of channels.

Not only do digital overlays leverage much of the all-digital technology developed for DPI-based local ads, overlays also complement spliced ads, and operators can combine both to increase their advertising revenues. Localization Local advertising is big business for U.S. cable operators, who earned more than $4.7 billion in 2007 carrying ads for local companies, as well as ads from nationwide advertisers who had their ads "localized" for specific geographies.

National advertisers seeking local audiences are particularly valued customers, but the traditional high cost to localize an ad has been a limiter. A typical ad from a nationwide company is customized in post-production to include addresses, phone numbers and other locally relevant information. This results in one ad being turned into literally hundreds of ads to ensure nationwide coverage, which is an extremely costly effort.

By using overlays, however, cable operators can handle the localization effort themselves, with each operator overlaying addresses and other information to the ads in real time. Because the advertiser has to produce only one ad, it has more money to spend on airing the ad more often and in more places.

Furthermore, because the localized content is added in real time, it can easily be updated to note sales events, new locations and other important or timely information. This ability to continually update an ad enables savvy advertisers to build "buzz" in ways they could not previously. For instance, prior to opening night of a major new movie, the advertiser could run a "countdown" ad that is updated daily with a new message, such as "only four days left" or "one of these characters dies." (See Figure 1.) While certainly possible to produce using current methods, such ads are costly and require weeks of production; with overlay, ads can be updated at virtually a moment’s notice for a minimal cost. Complementing the ability to easily update an ad as part of a promotional effort, overlays enable an ad to remain "evergreen," which can greatly extend its relevancy for the advertiser, which in turn should result in more insertions for the operator. This capacity for real-time updating is particularly relevant for smaller, local businesses that cannot afford to produce a series of ads and which may drop TV advertising when faced with the high post-production costs to edit an existing ad that is out of date for one reason or another. CPM and avails Based on their advantages, including the ability to be targeted, overlay ads are expected to have a higher CPM potential than current local cable ads. Overlay ads can be expected to be in the same $15-$20 CPM range that Google projects for its InVideo overlay-based ad service for YouTube, which is significantly higher than the current average cable operators earn (calculated over a 24 hour programming period).

The increase that digital overlay CPM rates is expected to command is even greater than the top 10 CPMs of the current top earners, which are dominated by sports channels such as ESPN.

Beyond earning more per ad, overlays can be used to increase the virtual number of ad availability slots. While adding new ad avails is not feasible, using overlays to place new ad spots on top of the current ads is a reasonable proposal. An example would be using overlays to insert a local car dealership name, address, and phone number (as a graphic or text) into the national car ad from that dealership’s affiliated manufacturer.

The result is a potential doubling of the total ad spots being run today. Given the call for more revenue, operators would need especially strong, countervailing reasons to ignore this approach. Overlay types When customizing an ad, operators and advertisers can mix and match from multiple different types of overlays. The currently available overlays are:

• Static text – Basic text display
• Motion text – Text that scrolls across the screen (aka: ticker)
• Static graphics – Logos/"bugs" for branding
• Motion graphics – Banners, ads, real-time info, local announcements
• Motion video – Ads, picture-in-picture (PIP) supplements

Current approaches allow for one or more of these to be simultaneously added to a program for maximum effect. (See Figure 2.) Beyond ads Though the obvious revenue opportunity for digital overlays is advertising, operators can use overlays for a variety of applications, most notably emergency alert system (EAS) messages.

Leveraging the real-time nature of this new generation of overlays, operators can provide much more up-to-the-minute information to subscribers, and operators also have the option to go beyond the traditional "text crawl" used in EAS alerts. For instance, operators can overlay maps or pre-recorded video messages from local, state or national agencies.

Delivering EAS alerts with more relevant information may not generate new revenues, but it is a significant value-added capability that is straightforward to implement and which can utilize an ad-related overlay system with minimal additional effort. Factors When planning an overlay solution, operators should take a number of factors into account, including cost and scalability.

Key components of an overlay solution include a suitable statistical multiplexer and a character generator. There are several excellent products on the market to choose from, but operators should view this as a system solution and evaluate against the requirements they have for the system as a whole. In this regard, it is vital to look at the cost to scale overlays across as many channels as possible to generate the maximum revenue to recoup costs and begin generating profits quickly.

Generating profits is, of course, the primary driver for the use of digital overlays in advertising. The much greater ability for overlays to enable the delivery of targeted ads at minimal cost should attract advertisers and allow for increased CPMs on the order of $15-$20 – a significant jump over what operators typically earn today.

In addition to driving higher CPMs, overlays have the potential to virtually double the number of local ad avails by overlaying ads that would otherwise be untouched. Complementing these revenue advantages, overlays can also reduce the cost of producing and maintaining ads, which can help bring in new advertisers and encourage existing advertisers to increase their ad spending.

Through the combination of ad revenue increase and operational cost decrease, digital overlays represent a significant business opportunity for cable.

Jeff Tyre is director of product marketing for RGB Networks. Reach him at jtyre@rgbnetworks.com.

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