Cable is leading the convergence not only by providing content, but by buying up or creating major broadband-enabled Internet properties. Witness Scripps Networks' plans to roll out a number of broadband networks online beginning in the fourth quarter. Or Viacom's TurboNick and Overdrive launches. In the most recent examples of the addition of the Internet to the ranks of mainstream media, Rupert Murdoch's News Corp. bought social networking site MySpace.com, and CBS Digital started up a video-enhanced 24-hour news service.
"That established media companies see the Internet as an alternative way to deliver content to consumers says that it's finally arrived," said Joe Laszlo, research director covering broadband at online-market-research firm Jupiter Research.
Mainstream advertisers have opened their minds to Internet marketing, in part due to the integrated deals with cable channels that were on the table during this year's upfront. During the spring's cable upfront, "almost all of our clients expressed interest in it," said Chris Boothe, group client leader, Starcom USA.
Ad spending online is growing as fast as cable's did during its infancy, and drawing advertisers for the same reasons cable once did. Underlying that growth is the consumers' accelerated adoption of broadband. Brands are following the eyeballs. Consumers are rushing to hook up high-speed broadband connections like it is a vital new utility. And in many ways it is-a sight, sound and motion utility becoming as important to consumers as electricity or as TV. Indeed, 37% of people residing in the U.S. will be on broadband this year, and by 2007, just under half (49%) of Americans will be connected to the big pipe, according to David Hallerman, senior analyst at online-market-research firm eMarketer.
MORE EYEBALLS AT STAKE
As important, online-advertising spending will spike 34% in 2005, which is reminiscent of cable during the late 1980s and early 1990s when ad growth climbed 20% for five years in a row. Over 20% ad growth hasn't happened with newspapers since 1946, or with magazines since the mid-1970s.
But there's more than more eyeballs at stake. "Over the years, cable was a very targeted way to reach an audience," Mr. Boothe said. "Broadband video is even more targeted than cable. It allows you to deliver to a more targeted audience and is more precisely measured."
Web-site tracking not only tells advertisers how many viewers took in their ad and how long they spent there, but in some cases can shadow the consumer's interactivity with the ad. Opt-in registrations help, too. Scripps, for instance, boasts 1.2 million names in its online database. Most important, online advertisers only pay for the number of people who saw the ad. And, unlike the TiVo-ad-skipping world plaguing cable channels, on the Internet you must watch the ad. Video units generally don't contain a skip or fast-forward button.
On average, 59% of Internet visitors view more than half of a video ad, according to a study by video-ad-production house KlipMart. More than 40% watch more than three-quarters of the entire ad unit. Those who click the ad to make it fill their full screen are even more engaged-the view rates climb another 10% for ads with full-screen capability. "What the study shows is that we can now marry the best of TV with the reporting capabilities of the Internet," said Chris Young, CEO, KlipMart.
One of the most notable cable Web plays is from Scripps Networks, which is bolstering its video storehouse by 15% through the broadband networks and on other areas of its existing seven sites. First up is a major overhaul of the kitchen and bath section of HGTV.com on Aug. 1, adding clips that are one to two minutes long. Most of the programming will be original, said Charity Curley, editorial director for HGTV.com, and will include unused footage from the cable programming, new-product reviews, how-to advertorials and an interactive build-your-own kitchen tool that features real products.
Advertisers like the offering because their product ads appear in a manner that is contextually relevant, said Jeff Meyer, senior VP-interactive sales, Scripps Networks. The interactive kitchen tool, for instance, "lets visitors experience using products in an actionable environment," he said. Video inventory is sold out on all the Scripps' sites through the third quarter, Mr. Meyer added.
Viacom's cable networks have unveiled a slew of broadband initiatives-most recently Nickelodeon's TurboNick, which will house 20 hours of weekly programming, including full, 22-minute episodes. General Mills, Kellogg, Activision, Topps and Sony Pictures are charter advertisers. VH1 has also launched a content-rich three-channel broadband network, using it to premiere the latest season of "The Simple Life." Soon, MTVU will play home to a broadband channel targeting college students and giving extra legs to the network, whose closed-circuit distribution is limited to college campuses.
SMALL BASE, HUGE LEAP
MTV kicked off Viacom's initiatives in April, unveiling Overdrive, its six-channel broadband play that lives on MTV.com. Users click on one channel for news, another for music videos, a third for behind-the-scenes MTV footage and so on. An ad runs after a brief promo and just before the short-form program.
Viewers seem to be embracing the network's efforts. Time spent viewing Viacom Web site content is up from eight minutes to 10 minutes, according to the network. And broadband offerings are driving the network's online ad revenue exponentially.
"We believe ad-dollar revenue will grow several hundred percent from 2005 to 2006," said Van Toffler, MTV Networks group president. "Granted it's off a small base, but it's a huge leap." MTV Networks on a whole is expected to grow 14% this year, according to Merrill Lynch.
ESPN in May launched a new version of its ESPN Motion video platform, widening its potential audience from 14% of broadband users to 99%, said Kari Hooper, associate media director for Starcom USA. Also in May CNN eschewed a subscription broadband model in favor of a free ad-supported one. Last week it announced CNN Pipeline, a premium subscription-based broadband application, featuring live news feeds.
And America Online, as it pushes out AOL.com beyond AOL members, has already made a splash with the multiple-concert Live 8 event this month, presenting a better show than long-standing programmers like MTV, critics said. AOL is in talks with sibling cable channels HBO and Turner for content, but has not worked out a set strategy yet. "Live 8 remade the AOL brand in the eyes of the ad community and consumers as well," said Jeff Lanctot, VP-media and client services, Avenue A/ Razorfish.
Analysts and media buyers believe broadband properties will quickly become viable networks in their own right. "Even if one of these sites only pulls in a couple million in revenue right now, if a company develops and grows 10 or 15 niche broadband networks, the collective growth is significant," said Lauren Rich Fine, a Merrill Lynch media analyst. "Over time there will be convergence between broadcast and online ... these things become fungible very quickly," she said.