1st & 2nd Screen iTV Advertising Is Potent Mix for Programmers

Michael Collette, CEO, Cognitive Networks

Michael Collette, CEO, Cognitive Networks

February 5, 2013 – As established cable and broadcast programming networks take the lead in bringing interactive TV to consumers, collectively they’re entering into a grand experiment that could say a lot about how the traditional premium service model evolves in the years ahead.
In essence, no matter what strategies in terms of types of apps, roles of second screens and modes of technological support programmers might be pursuing at this early phase, it all adds up to an exploration of ways to build direct relationships with consumers that could open new paths to monetization as IP-based access to their content through smart TVs, IP set-tops and other devices grows ever more prevalent. “It’s a real money-making opportunity,” says Rick Liebling, who holds the unique title of creative culturalist at Young & Rubicam.

As previously reported, 2013 is shaping up as a year of wide participation by programming networks in the search for app models that translate into the levels of engagement that are required to drive new ad revenues. “Everything is coming together where you’re going to see more and more examples,” Liebling confirms, noting that the biggest force behind this activity is the proliferation of tablets as second-screen engagement platforms. “That’s why I think second screen is a huge opportunity for agencies,” he says.

But if second screen, utilizing automatic content recognition (ACR) tied to electronic identifiers embedded in the content stream, is the initial path to mass market engagement, interactivity that starts with the first screen is where the tipping point for programmers’ willingness to go over the top with their highest value live content may appear. Indeed, the need to bring the first screen into play via smart TVs or IP set-tops that can leverage ACR to deliver interactivity prompts as an integral part of the viewing experience is viewed by many insiders as the top priority in the push to finally bring iTV into the mainstream.

“We think the foundation for this evolution is the smart TV where the focus will be on developing first-screen apps, with second screen as a complementary space for expanding on those apps rather than the starting point,” says Michael Collette, who recently became CEO of Cognitive Networks, formerly TV Interactive Systems. “It’s getting apps developed and running in the first-screen space that will inspire developers and advertisers to augment those for the second screen.”

So far, amid surging smart TV sales worldwide penetration of the U.S. market has lagged other countries, including, most notably, China, where penetration is now 41 percent versus about 19 percent in the U.S., according to the latest findings from NPD Group’s DisplaySearch unit. But, given the use of devices like IP set-tops and game consoles that connect traditional TVs to the Internet, U.S. consumers’ consumption of Internet content on their TVs is actually much greater than smart TV penetration numbers suggest, with close to 25 percent of households now accessing Internet video on their TV sets at least once a month, according to researcher eMarketer.

eMarketer projects that number to rise to 30 percent by year’s end. Longer term, the research firm projects smart TV penetration will rise from 15.2 million households at yearend 2012 to 40.2 million in 2016. Meanwhile, the volume of smart TVs shipping with some form of ACR technology built in is skyrocketing with virtually all major manufacturers including such capabilities in at least some of their brands, according to various research reports.

Of course, until the tablet came along, the past two decades of iTV initiatives were focused on the first screen, most notably through the cable industry’s efforts to leverage the set-top-box as the staging ground. Ironically, with those cable-centric efforts petering out with the near collapse of the industry’s EBIF (Enhanced TV Binary Interchange Format) agenda, programmers have taken the lead in pushing first-screen possibilities via IP-based iTV on smart TVs, especially in the case of OTT content suppliers like YouTube, Hulu and others who are looking to build an audience for live original long-form programming.

Consequently, with a growing volume of smart TV models entering the market with various modes of ACR built in, the question is how long established TV programmers will concede the first-screen interactive advertising market to their upstart competitors on the OTT side, especially if participants begin to systematize their approaches. This is starting to happen, Collette says.

“Cognitive Networks’ exclusive focus on an advanced ACR platform for Smart TVs has resulted in a solution designed to meet strict industry requirements, including usability, scale and performance targets critical for success,” he notes. Without naming customers he says about half the smart TVs shipping with ACR built in this year will be using Cognitive’s platform.

Cognitive, unlike most other ACR-based players in iTV, doesn’t rely on forensic watermarking or fingerprinting. Instead the company employs what it calls “Video Signaturing,” which pulls together various tidbits of information in the audio and video stream for reference against its vast database of content information to come up with a precise identification of what the viewer is watching.

Free Stream Media Corp.’s Flingo, a leading supplier of apps in the smart TV space, is another player who has recognized the growing importance of first-screen ACR-based iTV. In January the app supplier introduced its own fingerprint-based ACR platform, Samba, as a means to drive interactive advertising and other apps into the programs viewers are watching.

“We saw a surge of smart TV and tablet adoption in 2012, but realized that a seamless TV experience across all screens was missing,” says Ashwin Navin, CEO and co-founder of Flingo. “Samba will blur the lines between linear television and the Web in a way that empowers the viewers, giving them an unprecedented viewing experience.”

Unlike second-screen-specific ACR systems that rely on the microphones in smartphones, tablets and laptops to pick up the forensic signals that allow the device to sync with what viewers are watching on the big screen, Samba, like platforms offered by Cognitive Networks, Zeitera and many others, relies on embedding its content recognition technology in a chipset’s operating system to identify what’s playing on the TV. Navin says Flingo’s technology can identify related content within a few seconds of the user’s changing channels, whereupon it can make the context available to applications running on the TV, set-top box or any other IP-connected device in the home.

Flingo has already gained a beachhead for its ACR platform through deals with two Chinese consumer electronics manufacturers, Haier and Hisense, and one U.S.-based chipmaker, Entropic, the supplier of semiconductor solutions supporting the MoCA (Multimedia over Cable Alliance) connected home standard. By embedding Samba in its set-top chipsets, Entropic will be extending the first-screen iTV capabilities to players in the traditional premium service space, notes Anton Monk, co-founder and vice president of technology at Entropic.

“Entropic’s set-top box system-on-a-chip solution is a high performance platform and leverages the intelligence of Flingo’s video content detection algorithm to drive new opportunities for service providers and advertisers,” Monk says. “Our partnership with Flingo enables operators and advertisers to monetize the set-top box by obtaining higher ARPU and finer granularity and insight into viewership trends.”

Meanwhile, with the market for first-screen iTV still forming on the strength of various connected TV strategies, second-screen iTV apps associated with ACR signals built into programming streams can be seen as the proving ground for established programmers to use in shaping their long-term business models.

At this point, the challenge is to find out what resonates with consumers in terms of drawing greater engagement with programming and advertising, says Y&R’s Liebling. “Now it’s time for the advertising agencies to really dive in and say, Let’s get creative, let’s get smart about this,” he asserts. “Let’s create engagements, let’s create new creative that people really want to participate in.”

There are no set models, Liebling stresses. “It really comes down to what is the brand, what are their goals, who is the consumer, and what type of content are we talking about,” he says. “If you’re watching a baseball game, the level of interactive activity you may be looking for or the level of brand engagement you may be willing to receive is far different than if you were, say, watching Mad Men or some other program that requires more rapt attention.

“So it really comes down to understanding what the brand is trying to accomplish, but also thinking user first. What is the user experience, what are they willing to accept? What do they want to do when it comes to that second-screen activity?

Liebling, as the advertising chair for the Second Screen Society, has a unique perspective on Madison Avenue’s view of the emerging iTV environment. “My role is to work with all agencies, whether it’s my agency or other traditional ad agencies, digital agencies, social agencies, and with the technology vendors who are making these great second screen apps and to bring them together so that each side can understand the needs of the other,” he explains.

As his title, creative culturalist, implies, Y&R has recognized the new advertising environment will require a rethinking of ads at a fundamental level to ensure the advantages of addressability, interactivity and other enhancements are fully realized. “I think once those conversations start happening more frequently, then the creatives at ad agencies or other agencies are going to say, Oh, I get it. I need to incorporate this earlier,” Liebling says.

“I think you’ll start to see commercials evolve slightly so that they have that kind of platform where a second-screen creative can really fit,” he continues. “Creatives will start to say, this isn’t just a quick little toss at the end. I’ve really got to plan for this. I’ve really got to be thinking about this from the very beginning of my creative process, because, quite frankly, it will be better and easier to do something if you think about it from the very beginning, rather than trying to shoehorn a concept in at the last minute.”

But, first, there needs to be better understanding of what is likely to work best for any given campaign with respect to any given demographic. “We need to do the research to understand if we’re trying to reach a certain type of demographic whether it’s 18 year-old boys or 40-plus moms, understanding what they want to do if they’re using their mobile device,” Liebling says. “Do they want to talk to friends? Do they want to be able to search imaging quickly? Those are the things you have to understand, and then from there you can say, Okay, this is who we want to reach, this is what they like doing, These are the types of shows they watch.”

One of the factors not often cited but which could move the market in the direction of first- and second-screen interactivity in a major way is e-commerce that operates independently of commercial breaks, which is to say, the ability of viewers to click on products that are part of the show they’re watching to get information and make purchases. “I wouldn’t be surprised if at some point in 2013 you’re going to start to see it,” Liebling says. “You’re going to be watching a show. You have your tablet open. And, boom, you can buy an item in that show right off eBay, right off Amazon or other retailers.”

Such capabilities tie in with the increasing use of funding from brands to support programming in exchange for prominent display of their products in a show. And they harken back to things that were talked about in the ‘90s with first wave of hype around iTV.

“That was always the dream scenario,” Liebling notes. “You were going to buy that coffee cup or that sweater or whatever it was in the show, and it was kind of a dream that was out of reach. But I think we’re getting close to that now.”