• Where Does Advertising Fit In with Broadband-Enabled TVs?

    If you haven't noticed, the theme at VideoNuze this week has been broadband-enabled TVs, since this has been one of the main themes of this week's CES. On Monday, when the dust has settled, I'll recap some of the key deals. For today though, I want to inject a small dose of reality into the hype that's starting to build up around broadband-enabled TVs.

    First off, I'm thrilled to see an ecosystem of technology leaders, TV set manufacturers, content providers and aggregators taking shape around broadband-enabled TVs. It's looking increasingly inevitable that broadband access is going to be a staple feature of HDTVs in the years to come. Just as you wouldn't consider buying an HDTV without multiple HDMI ports today, at some point in the future you'll be unlikely to buy one without broadband capability. That's pretty cool.

    Still, what's missing from the flurry of this week's announcements is how the exciting new broadband path to the TV will actually be monetized by video content providers. I know that mundane questions like this aren't what people tend to focus on at glitzy CES, but they are critical nonetheless. With services like Netflix or Amazon VOD - which have been in the middle of several announcements - it's obvious enough how they'll benefit. The more pertinent question is how video that is ad-supported is going to work, especially since ad-supported video will always represent the lion's share of the average consumer's viewership time.

    The broadband video ad model itself is still nascent, and this week's J.P. Morgan report shows that there's no shortage of lingering skepticism still overhanging it. Nonetheless, I'd argue we're at least at a point now where most market participants have a pretty good handle on broadband video advertising's basics - serving technologies/vendors, formats, expected delivery quality, CPMs, user preferences, click-throughs, etc. In short, I believe the foundation is pretty well in place for a strong ramp up of spending (notwithstanding the larger economic issues) as the broadband video world exists today.

    But how much of that foundation will still be valid for broadband-enabled TVs vs. how much will need to be re-built (as is the case with mobile video)? Many of the answers are driven by the chips from Intel, Broadcom and others that are going into these TVs. Understanding their respective capabilities and how they'll support broadband video advertising's existing ecosystem is key.

    Here's why: in the broadband world to date, the computer's vast processing capabilities (along with the supporting cast of browser, media players, plug-ins, cookies and of course robust broadband access) has played an incredibly important, yet largely unsung role in raising the user experience bar to a point where broadband video has been massively adopted. Of course, this massive adoption has been THE key ingredient for the broadband video ad model to take off. And client-side capabilities only become more important in the highly syndicated broadband video world that I envision in the future. Ad servers need to know which site is playing the video so the right ad is dynamically served and everyone gets compensated properly. The new broadband TV chips need to support all of this and more.

    One needs look no further than cable's VOD experience to date to recognize how important the building blocks for an effective advertising model are. While billions of VOD streams are now consumed, very little of it is monetized due to still-inadequate ad capabilities. Years after VOD's launch, these monetization constraints are curtail content providers' interest in participating in VOD. In fact, I'd argue that broadband has actually been a beneficiary of VOD's deficiencies: faced with a choice of where to allocate resources, many content providers have shifted attention to broadband because its monetization mechanisms are so robust.

    Anyway, you get the point. Broadband-enabled TVs are very exciting. But to reach their potential, they must deliver a robust user experience and allow advertising to work effectively. In these penny-pinching, resource-constrained times, something that's cool is no longer enough to gain interest. People need to understand how they'll make money from it.

    What do you think? Post a comment now.