As broadcasters and operators migrate to digital networks in an effort to cater for growing demand for digital content, in particular high definition and video-on-demand (VOD) services, new advertising opportunities are emerging in the form of dynamic ad insertion (DAI).
In fact, Frost & Sullivan said in its Global Video and Ad Insertion Server Market report that the adoption of ad insertion servers is set to escalate going forward—a trend that will help to monetize continued investments in interactive and on-demand services, which can only be good for consumers.
The DAI is already rather robust: the market earned revenues of $1.32 billion in 2013. But F&S expects this figure to reach $2.33 billion in 2019 as major events, such as the Olympics and the FIFA World Cup, are increasingly recorded in HD and UltraHD. The consequent shortening of the sales cycles for digital media technology is fuelling the uptake of digital equipment, including video server systems.
Cloud and DVR Trends
One of the largest drivers for DAI is time-shifted content—a phenomenon that is gaining big wings with consumers as DVR services move to the cloud and pay-TV operators roll out more VOD options.
"Personalized and interactive services such as VOD have further transformed the way consumers watch television," commented Frost & Sullivan digital media research analyst Aravindh Vanchesan. "The advent of advanced capabilities such as pausing live TV and catching up TV, networked personal video recorders and interactive advertising is widening this global market scope."
It’s a snowballing trend: More than 45 percent of US pay-TV subscribers are interested in cloud DVR technology, according to research from Parks Associates. In particular, consumers are interested in unlimited storage space and two-week catch-up services for video.
With the Supreme Court omitting cloud DVR in its 2014 Aereo ruling, pay-TV providers can experiment with these cloud services as strategies to build subscriber loyalty and increase revenues, the company said.
"The Aereo case left licensing for cloud DVR rights largely unaffected, allowing pay-TV providers to move forward with cloud DVR development and implementation," said Glenn Hower, research analyst at Parks Associates. "For example, Comcast recently launched in Atlanta its X1 DVR service, which allows, among other capabilities, subscribers to access DVR recordings on their mobile devices. As content owners and providers experiment with cloud technology, the consumers reap the benefits through access to these innovative offerings."
Already, more than 40 percent of broadband households in the United States and United Kingdom and over 30 percent of broadband households in Belgium and France have some kind of DVR. Consumer demand for DVR capabilities remains strong; however, the industry is still grappling with contentious content issues such as storage capacity and duration.
"Acquiring the rights for cloud DVR systems has been a complicated and arduous process," Hower said. "Many European providers have been extremely diligent in negotiating with content rights owners on cloud DVR, but in the US, there is a much greater reliance on statutory and case law. Companies are relying on legislatures and courts to decide the status of rights."
The US Court of Appeals for the Second Circuit, in its opinion in Cartoon Network v. Cablevision, ruled that cloud DVR technology falls within the scope of fair use under copyright law, effectively allowing cloud DVR to legally exist. It was feared that ABC v. Aereo might overturn the Second Circuit's ruling, but the Court intentionally excluded cloud DVR technology from its opinion.
"One of the largest concerns with content owners is the possibility of lost advertising revenue that comes with time-shifting content," Hower said. "These new systems impact almost all aspects of traditional video services, including marketing, licensing, product, and technological strategies. Companies in this ecosystem need to explore new methods to leverage increased viewership from on-demand programming."
Vendors and Operators Step Up
DAI is gaining wings via ecosystem activity as well. For instance, Verizon Digital Media Services and thePlatform white-label video publishing company have announced a new strategic alliance to accelerate major media and pay-TV operators' plans for multiscreen video delivery.
The integration aims to streamline features like DAI, closed captioning and analytics. Customers will be able to manage files and metadata; set business and monetization policies; enforce content viewing rights; provision video players; and distribute videos to their own Websites, third-party sites, smartphones, tablets, game consoles and other connected devices.
The companies have integrated the VDMS suite of video services and thePlatform's mpx video-management system to form a complete solution, which the companies will jointly sell. The alliance brings to market a streamlined workflow for online video streaming, from content management through delivery to consumers on multiple screens.
The combined solution will also allow customers to manage a complete IP-video solution from a single Web-based console. thePlatform's cloud-based video publishing and management platform and Verizon's video workflow solution -- which includes single-format media processing – are essentially one integrated platform.
"We've worked with EdgeCast Networks for many years, and our customers have benefitted from the world-class performance, availability, scalability and security that its delivery network provides,” said Marty Roberts, co-CEO of thePlatform. “The combination of EdgeCast Networks with Verizon Digital Media Services video solutions complements our cloud-based online video platform. We're broadening our relationship with Verizon Digital Media Services to enable joint customers to create better tailored solutions, reduce operational complexity and expand their video businesses.”
Meanwhile Bright House Networks, the sixth largest US-based owner and operator of cable systems, has selected BlackArrow's centralized, real-time advertising platform to manage the execution of DAI in its on-demand and multiscreen TV products for affiliate programmers.
The BlackArrow Advanced Advertising System enables Bright House Networks to unify campaign management, advertising reports and advertising execution across all their TV platforms. Bright House will also be able to use BlackArrow solutions to increase the availability of advertising inventory for local and regional markets in the future. And, by leveraging a relationship and product integration established between BlackArrow and Canoe, Bright House Networks can now give Canoe-enabled programmers access to a larger footprint of DAI-enabled households.
"Bright House Networks is pleased to begin working with BlackArrow's next-generation advertising platform to help manage and simplify our advertising operations," said Nomi Bergman, president of Bright House. "BlackArrow's products will also enable us to expand our advanced advertising solutions to multiple screens and distribution platforms."
However, as with everything, there are potential downsides to the "immense" potential that the firm sees in the market: specifically, cannibalization of existing revenue streams. Companies are continuing to shift advertising dollars from traditional broadcast buckets into digital offerings. The latter costs less overall and in turn could affect programmers’ ability to budget for technology.
Another possible monkey wrench in the ecosystem is the M&A activity that is continuing apace. "As vendors look for opportunities in this intensely competitive space, mergers and acquisitions will gain pace," F&S’ Vanchesan added. "While the video server market witnessed significant consolidation among vendors over the last five years, the highly fragmented ad cable segment, as well as the telecommunication and broadcast segments will witness strong M&A activity during the forecast period."
That said there are solutions to this: VOD and time-shifting are creating a loyal, binge-viewing customer base that, according to Annalect, Omnicom Media Group’s marketing technology platform, is more tolerant of advertising when paired with VOS’s convenience.
And, ads make more of an impression on binge-viewers, which could and should lead to higher advertising rates. Annalect found that 20 percent of binge watchers discuss ads with peers compared to 10 percent of non-binge viewers. 15 percent of binge viewers share ads on social media versus only 7 percent for non-binge viewers. The study also found that 21 percent of binge viewers say they remember the ads, compared to 10 percent of non-binge viewers.
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