The pairing of local ad sales with the new technology known as switched digital video has a long way to go before it reaches the status of duos like bread and butter or Laurel and Hardy, but some ad sales execs insist the day will come. LAS and digital switching have definite connections, they say. The believers argue that digital switching will increase advertisers’ flexibility for zoned advertising. Rather than hewing to geographic regions determined by where an operator’s plant is located, switching will let advertisers target so-called virtual zones. In theory these virtual zones should better reflect an advertiser’s actual retail selling area. You can think of digital switching as VOD for the node rather than the home. It places lightly viewed networks on a digital switch. Instead of being streamed continuously, they are streamed to a node only when someone requests to watch that channel. While switched digital video is still in its nascent stages, it’s gradually gaining believers. Switching "is an area that basically all our customers are looking at," Scientific-Atlanta’s president for transmission network systems Dwight Duke told analysts in February. Indeed, Time Warner Cable is deploying it in Austin, Texas, and in another undisclosed market. It expects to ramp up additional deployments next year. Other operators, including Cox, are exploring it, mainly because it can be used to conserve valuable bandwidth. As it becomes more widely deployed, the technology could give cable an edge—or at least a stronger pitch—as it steps up competition with broadcast for local advertising dollars and as advertisers question the effectiveness of the broadcast model. In that respect, switched video could be another dagger in the digital arsenal. "The beauty [of] this switched digital world" is that since "data can exist in the local head-end and stream outward, it could be a virtual network," says Ken Little, EVP, technology and operations, at NCC, the MSO-owned spot cable rep firm. "It really creates a huge amount of flexibility for the advertiser." Flexibility for advertisers is one of the things that’s exciting about the technology, says Mike Miller, VP of Cox Media’s Western region. Instead of advertising in a market’s predetermined geographic zones, advertisers can tell the operator exactly where they want to run, and the operator can then design "custom" zones on a buy-by-buy basis. In some cases, these new virtual zones might make more sense for local advertisers, whose selling areas don’t match the zones that operators offered previously. "We’re not restricted by the physical layout of the system anymore," Miller explains. "There are cases where a hub does not define a retail [selling] area." An Edge Is an Edge In a fiercely competitive environment, cable operators need every sales weapon they can get. Local ad sales typically accounts for 6-8% of an operator’s revenue. While that’s a relatively small percentage compared with video and high-speed data, this year advertising gains have been hard to come by. Slumping car sales and the decline in political ad spending has made for tough year-over-year comparisons. Comcast, for example, posted a sluggish 2.9% gain in local ad sales in the third quarter. (It saw a larger increase in national advertising.) Moving into 2006, operators will be looking to not only add advertisers to their rosters but to deepen existing relationships. Switching and other digital technologies will help them on both counts. A Numbers Game First, as operators have upgraded their plants to 750-MHz, two-way digital platforms, they’ve gained the ability to insert ads on more networks. About two years ago, Time Warner Cable of N.Y./N.J. has added ad-insertion capability on about a dozen digital networks in Manhattan, Queens, Brooklyn and Bergen County, N.J., bringing the total number of ad-insertable networks to 52. "When we began considering [digital ad insertion], the [digital penetration] numbers were in the 30s," says Larry Fischer, president of Time Warner Cable Media Sales, "roughly half of what we have now in New York. That’s why we weren’t in any hurry to launch digital ad insertion." Now the numbers are becoming "meaningful," he says. Cox, which has digital ad insertion in virtually all its markets, has three where it can insert ads on 57 or 58 networks, far more than the industry average of about 40. "Targeted advertising, addressability and video on demand are stirring up enormous amounts of interest," says Andrew Capone, SVP, marketing and business development, at NCC. A Small Audience With Potential But digital network advertising is not a booming business yet. Diginet viewership ranges from small to very small, and ads are priced accordingly. What intrigues Fischer and others is the prospect of using the digital platform not only for on-demand and interactive advertising, but also for hi-def advertising. In Charlotte, N.C., Time Warner Cable is running a test inserting ads on ESPN HD for an advertiser that’s never run spots on TV. The ability to sell HD channels separately will be added ammunition that local sales reps can use to pitch very high-end advertisers, Fischer says. Open Dialogue In order for local ad sales departments to benefit from digital technologies, they must be involved in product development discussions at the highest levels. Miller had a scare when he heard plans for expanding Cox’s broadband service would have eliminated Cox Media’s zone advertising capabilities. "We have a good piece of our ad revenue that’s built on zoning," he says. Fortunately, that disaster was averted. Miller and Fischer stress that it’s important to keep an open dialog between ad sales, technology and new product development divisions. Time Warner knew it had to accommodate all its businesses when transitioning from analog to digital, Fischer says. And as the plant morphs to switched digital video over the next year or two, it’s even more important that ad sales participates in the discussions about how the technology will develop, its capabilities and what influence it (and other new technologies) will have on local ad sales. "I’ve got to make sure we have a seat at that table, so they at least can answer the questions that advertisers are posing," Fischer says. Video on demand wasn’t designed for advertising, he adds, but that’s all advertisers want to talk about. To that end, he speaks regularly with Time Warner Cable’s new product development and interactive TV executives. Likewise, executives at Cox Media are paying attention to switched video deployments throughout the industry, even though Cox itself has yet to roll it out. But, as Cox CTO Chris Bowick has said, switched digital video is going to be one of Cox’s most important tech initiatives over the next five years, since it provides efficiency for bandwidth and an almost unlimited capacity for content. It might not be too bad for advertising either.

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