Platform operators are well aware of the widely diverse demographics of the users of their set-top boxes with DVR capability. For example, one box is in the home of a young professional couple with two children. Another box is in the home of a wealthy retired couple. While they may all watch the same channel, they represent different consumer types to different advertisers. Operators may present an ad that is relevant to one of the homes but not the other. This mismatch between the target consumer for an ad and the viewer type actually viewing it is called wastage.

NDS is developing a way to reduce wastage while making the most of the 30 second advertising spot. xADs™, the NDS solution that delivers different ads to different boxes is based on ad substitution. The way it works is that ads stored on the disk of each subscriber’s DVR are shown to the appropriate viewer when there is an advertising break in a particular program. The display of these ads is personalized based on bit settings in the viewers’ smart cards.

What is ad substitution?    

Ad substitution uses business rules to target ads to individual subscriber homes in a pay TV network. Instead of all viewers receiving the same live channel ads, each subscriber can now be shown targeted ads that have been stored on their DVR disk.

The fact is that all players in the advertising world - platform operators, networks, advertisers, and agencies -- face the challenge of halting the revenue loss resulting from ad skipping. NDS xADs ad substitution is a DVR interactive advertising solution that aims to reverse this trend by showing subscribers only the ads allocated specifically to their household’s geographic, demographic and personal profile.

“Today’s intelligent consumers have built-in authenticity meters to help them navigate between genuine and hyped communications, offers, and promo­tions. The converse is equally true: A really great initiative, website, campaign, or community will spread like wildfire when a connection is made between sender and receiver.”

                                     

Joseph Jaffee in Life After the 30-Second Spot

With xADs, NDS aims to present different ads to different TVs within a population that is viewing the same channels, based on the original concept of targeting which is an integral part of XTV™, NDS' DVR. The major innovation is granting the set-top box the ability to change the ads displayed when ad breaks occur. That is, sequences of ads are presented according to tangible business criteria. The result is maximizing the viewer experience by presenting ads based on the anticipated business benefit which they impart on the viewers who are actually watching those ads. 

Why is NDS in advertising?

The question arises how did NDS, whose core business is content security, get into advertising? According to David Whittaker, NDS Director of Business Development and Advertising Technologies, NDS is entering the advertising space because for many platform custom­ers, a significant portion of their revenue is attained by being involved in the delivery of ads on pay TV channels, and even free-to-air channels.

Whittaker says that for those platforms where advertising comprises a significant portion of revenue, “the executives responsible for advert activity have a corresponding influ­ence in managing operations of those platforms.” The upshot is that the percentage of revenue these execs generate affords them a proportional impact within those organizations.

Strengthening NDS’ position

NDS recognizes that through its position in the advertising business, its customers and operators can deploy technical solutions that can improve their business efficiency. Currently, NDS solutions are used in four major aspects of TV advertising:

• VideoGuard® - CA, through geographical delivery management, ensures that the right local market version of a channel is delivered to the right homes
• iTV applications – enable platform operators to enrich their ads
• AMS™ (Audience Measurement System) – provides accurate gauging of actual viewing within a home
• xADs – enables use of the DVR disk to present managed ad subsets within XTV-enabled homes

“With XTV, NDS has a uniquely strong position because CA provides the ability to identify and characterize each individual subscrip­tion,” Whittaker says. The smart card, which indicates who the subscriber is, and the disk, which stores the content, are both enabled by NDS.

“As a result, XTV operators have a much deeper understanding of the subscriber in NDS platforms than the CE manufacturers who sell set-tops to a wide variety of retail outlets,” Whittaker says.

xADs explained

Until DVRs started becoming popular, xADs was a good idea in search of a market. “At first the concept of serving specific ads to specific homes was rather revolutionary,” Whittaker says. That was back when NDS was exploring new ways to use DVRs – beyond their storage capabilities. “That was the past,” Whitaker says. “DVR technology has now reached a critical mass worldwide so that applying XTV to advertising is a viable business opportunity for our customers.”

The primary economic model of TV advertising is when those providing the means of delivering ads to consumers - the platform operators or channels - are paid by those who wish to communicate their message to those consumers, meaning the advertisers. This model is based on a measurement of how many consumers in a particular target group actually see a specific ad.

Bear in mind that the business objective of a platform is to optimize a particular channel’s placement of ads with an anticipated audience demographic. You don’t get paid for just transmitting the ad. Compensation is based on how many viewers in the target group actually viewed the ad.

How does ad substitution work?

A successful ad substitution mechanism must be seamless. This means no time gaps, visual cues, or disruptions in viewing. The idea is not to “trick” the viewer, but rather to harmonize the presentational style of the channel, advertiser, and broadcaster. These essential requirements raise some challenging technical questions. How does the NDS technology in the set-top determine what ad to display? How does it use that technology to place a particular ad into the subscriber’s home, present it, and ensure that it is watched? How does NDS do this in a manner that avoids any disruption to the TV viewing experience? And finally, how does NDS handle delivery and presentation of the ads in a secure manner?

NDS XTV offers a dual approach that aims to maximize the number of viewers reached by platform operators, while extending the amount of time these viewers remain tuned in. First, the DVR disk offers economy of band­width and scalability because it can be deployed in millions of units. Additionally, NDS CA technology facilitates the secure addressing of subscribers in a manner that is highly accurate. This enables platform operators to target down to a specific group of subscriber homes sharing common demographics or interests. The NDS approach also provides security, since the CA components are extremely robust. This is essential in the advertising business because targeted ads are predicated on trusted delivery and the capability to audit viewing.

The challenge ahead

According to Whittaker, the future of xADs is linked to the anticipated growth of XTV penetration. That is, opportunities for xADs deployment will progress along with the growth in adoption of DVRs. “As with other solutions, in order to succeed in advertising NDS needs to identify the business community that wants an ad substitution product. Once the deployment of XTV DVRs on relevant platforms reaches a critical volume, NDS xADs should be a logical choice,” he says.

For more information:

XTV DVR

According to Screen Digest, the UK-based media analysts, at the end of 2005 China had 368 million TV households including 126 million cable households. This makes it the world’s largest TV market.

While it may be the largest market, it is not necessarily the most advanced. Nor is it the easiest place to do business. But with next year’s Olympic Games in Beijing and Expo 2010 in Shanghai in the offing, major infrastructure investment is required. Communications network upgrades are an integral part of the expected growth. By 2015 the country’s analog TV systems are already scheduled to be switched off. Analog cable operators are subject to the "Ping Yi" program for the switch off.

Analog v. cable

China’s analog TV system began with CCTV (China Central Television). A national monopoly, CCTV represents the centralized, top-down approach that characterizes business in China.

“Interestingly, the cable infrastructure started from the bottom up,” says Luke Chen, Chief Operating Officer, NDS China. “Originally there were several thousand small cable TV operators all around the country, but the government encouraged them to merge so that today there are about 300 operators,” he says. NDS works with some of the largest operators, some with a million subscribers or more.

The effect of central control in the pay TV sphere makes the Chinese business environment unique. “We have to work very closely with the government,” Chen says, “because television stations and content providers all report to the State Administration of Radio Film and Television (SARFT).”

For pay-TV operators, the effect of government intervention is that ARPU is incredibly low, he continues. The average monthly fee – which is also set by SARFT – is under $2. “Despite the restrictions there is still serious competition between operators in China today,” he says.

NDS’ Solutions for China

“What NDS can supply to the Chinese market is low-cost end-to-end systems,” Chen continues. “A key milestone for NDS is that we recently shipped our 3 millionth smart card to China.”

“As soon as Chinese operators can offer more valuable content – especially from abroad -- this will no doubt attract hackers and then local pay-TV operators will have to implement a better secured CA system. That is why NDS is in China now.”

“While regulators don’t feel comfortable with CA platforms that are exclusively supplied by foreign vendors, they realize that local CA providers don’t have sufficient proven experience. As a result almost all operators have simulcrypt – a combination of local and foreign CA systems,” he says. “NDS not only provides a solution that is mature and robust but also a solution that is an important factor in reducing costs.”

There are currently an estimated 14 million digital pay-TV subscribers in China, Chen says. “Even the migration to digital TV is mandated by the government,” he explains. “Unlike in other countries, in China the municipal or provincial authorities are involved in pricing set-top boxes and smart cards. They also discuss with the operators how much they are allowed to increase their monthly fees to subscribers. This puts a serious financial burden on the operators,” he says. “But the local authorities don’t want the population to complain about either the increase in monthly fees or the cost of equipment.”

50 different STBs

Chen explains that one of the complications is that Chinese operators want to offer set-top boxes from multiple vendors. “They have a preference for local vendors,” he says. “This means our testing and integration procedures are very challenging. Our customers are working with more than 20 STB vendors. Because they want to lower the cost and increase functionality, we are testing about 50 different STB models for the Chinese market,” he says. Most of the testing is conducted locally.

While the TV operator still supplies STBs to subscribers, when the market sees the introduction of DVRs, operators will have to subsidize them as well. “This means either squeezing the manufacturers to lower costs or offering low-end DVR boxes,” Chen says. “This is definitely different from Western markets where operators can offer a wide variety of functions. In China, the price will have to be very carefully set in order for them to be accepted.”

Next steps

What’s the next step? “Operators in China – like elsewhere – want to increase their subscriber bases and their revenue. They are looking ahead to when China goes digital,” he says. “They’re already looking for value added applications including VOD, interactivity and games. There are a lot of opportunities in China, but to take advantage of them, NDS recognized the commercial and cultural differences that require adaptation to the Chinese market. We know that just because a solution has worked in another market doesn’t necessarily mean it will succeed in China.”

Chen expects to see major changes in programming and pay TV platforms within the next 10 years. “NDS is in an advantageous position,” he says, “because we have a sound financial base so that we can react to changes. In addition, we have established an excellent reputation with our security solutions.”

“When the market opens up we expect that the larger operators will be attracted to NDS because they prefer market leading products that provide the best security. What is important to operators in China is that NDS can help increase their revenue. As long as we can do that, we are in a good position.”

Chen explains that because of the requirements of local regulators, operators have heavy financial burdens. “But this is a very large market with a lot of competition so anything that will help operators achieve ROI sooner interests them.”

Looking further ahead, Chen says that as operators require more advanced applications, NDS can provide end-to-end solutions that help them offer more in the future.

By 2015, when analog signals in China are switched off, Chen expects the television market to begin opening up “gradually but not completely.”

“It may take a while for the triple play to come to China, but it will definitely come. Even when this happens, the government will still want to keep an eye on what type of content is offered to subscribers. Competition between operators may increase but the government will continue to regulate.”

Where does this place NDS China in the next decade? “We can build our business based on the large operators who are going to need and want the solutions that protect their content best.” Bottom line: NDS has attractive propositions that can help Chinese digital pay-TV operators make the next great leap forward.

For more information:

NDS China (Chinese)

Social media are beginning to impact on broadcasters who are now working out how best to respond to the likes of MySpace, Facebook and YouTube (see The Challenge from Social Media, World Vision No. 37).

While they are still wrestling with this problem, along comes another “disruptive technology” whose potential impact seems even harder to gauge: the brave new virtual world of Second Life.

According to some, it will mean the end of television as we know it. According to others, it’s an exciting new environment full of opportunity for the savvy broadcaster or content producer. Others still dismiss it as a fad that will die out within a few months.

But the very fact that media groups such as the BBC, Comcast and Sky are establishing a presence in Second Life – along with blue-chip players like IBM, Dell and Toyota – suggests that something important just might be going on here.

Avatars in a virtual world

It is far easier to get a feel for Second Life by playing with it than by reading a text description. It is essentially a computer-simulated environment modelled on the real world in which users can interact via “avatars” (a persona they create). Participants then use keyboard and mouse to navigate around the space and to communicate with others.

Within the virtual world, all kinds of activities take place, many of which are simulations of real-world activity – such as concerts, conferences and casinos. Users (known as “residents”) buy virtual real estate and create their own homes, offices, malls and other spaces in which they use a range of tools – including video – to relate to others.

There are two key reasons why Second Life (known as SL to its eight million –and rising – members) should be taken seriously by broadcasters.

First, it has the potential to take viewers away from the TV set into an environment that can be “sticky” to the point of addictive. For advertisers and broadcasters, time spent in a virtual world on the PC means precious eyeballs lost to television.

Second, SL is already establishing itself as a parallel economy and has its own system for micropayments. This is used largely by residents to buy and sell virtual goods and services (real estate, furniture, clothes for their avatars) but it provides broadcasters with opportunities for pay-per-view and other transactions.

Second Life has its own currency – the Linden dollar (named after creator Linden Labs) – which is convertible into real money (at a rate of around L$265 to $1). Exchanges between virtual and real dollars are now worth about $7 million per month and more than $2 million of real money changes hands every day between residents.

A sign of the potential importance of all this is that the US Congress is already looking at how to tax virtual-world income.

Threat or opportunity?

PA Consulting based in the UK was an early adopter of Second Life, where it has established a virtual office and conference center. Visitors are guided by an avatar (controlled by an outsourced person who is paid $1 an hour) and given presentations – in PowerPoint and video formats – about the company’s work. Virtual conferences have been held which participants say are often more effective and more interactive than the conventional sort (and which reduce travel time and costs, not to mention carbon emissions).

PA consultant Claus Nehmzow, who heads PA’s application of participatory media and virtual worlds, says that SL can offer two kinds of opportunity to broadcasters.

First, it is a new means of distributing content, reaching the viewers who are turning away from the television set. Second, it is a source of new content that can feed back into more traditional broadcast media.

Most importantly, he argues: “You should not see it as a standalone product. Virtual worlds,and participatory media in general, have to be seen as an integrated, linked part of a multichannel strategy.”

Media companies are so far only just beginning to dabble in Second Life. Comcast, the US cable operator, recently opened a theme park – cringingly named “Comcastic Island” – where users can visit a race track, jet ski or go to a concert.

Hangout for the tech-savvy young

The company sees SL as a place where “young tech-savvy consumers” hang out and believes that it needs to connect with this audience in the virtual world in order to reach them in the real one.

Nehmzow also says that the virtual world offers a shared, social and real-time environment where content can be consumed in new ways. For instance, people watching a concert on Comcastic Island can chat to their virtual neighbors about it in a way that is more intuitive and more like real life than, say, by combining a MySpace video with instant messaging.

The BBC, and its interactive arm BBCi, ever with an eye on the future, has launched a Second Life service for children and staged a concert which had an audience of 30,000 in real life in Dundee (Scotland) and, over a weekend, 6,000 visitors in Second Life.

News operations were among the first media companies to enter Second Life. Reuters offers news and live video streaming and Sky News has set up a virtual news room which shows how a television news room works and offers a platform for user-generated content.

The Second Life environment can also provide content producers with a test-bed for new program concepts.

With minimal investment, broadcasters can try out program ideas by using video within the site and engaging in real-time conversation with those who are watching. In this way, virtual worlds can provide useful focus groups.

Even if radically different forms of content consumption do not emerge within SL, there may still be brand-building value for companies to have a presence there.

A recent conference in Oxford held by the Economic and Social Research Council looked at how this technology might develop. Among the futurological visions outlined was one where markets within virtual worlds became more efficient than real markets and the Linden Dollar became a global exchange currency.

But it could equally turn out that Second Life is just a gimmicky flash in the pan that will have been forgotten as the Internet and media consumption evolve in a different way. “Some say it will be a nine-month wonder,” says Victor Keegan, technology columnist for The Guardian (London). “Others [say] that it will gradually take over much of the time we spend watching television and eventually become a major economy in its own right, generating jobs and income for millions.”

In that context, it would be a foolish broadcaster who does not put some time and investment into virtual worlds in order to gain a position should the format prove to be where the Internet is really headed.

Where have all the eyeballs gone?

Whether they are hanging out in Second Life, YouTube or MySpace, younger viewers are certainly deserting conventional broadcast television at an alarming rate.

Research by Ofcom, the UK communications regulator, shows that Internet-using 16- to 24-year-olds watch, on average, more than seven hours less television per week than the overall audience: 18 hours and 21 minutes per week, compared with 25 hours and 34 minutes.

Other research shows that people born between 1980 and 1985 watch four hours less television per week than those born earlier. And those born after 1985 watch eight hours less.

“The signs are that there is definitely a big shift from television to other devices and that there is a difference by generation,” says Rahul Chakkara, controller of BBCi. “The younger generation are consuming less television on the big television screen.”

For more information:

Second Life