Sony, Dish Network and Verizon are gearing up to roll out Internet-based TV services by the end of the year and early next year. While these companies have remained quiet on the logistics of the platforms, including how advertising will live in such a universe, for marketers these over-the-top systems could create both a new model for advertising and a way to reach viewers who may not be watching traditional pay-TV.
Internet-based TV services will allow subscribers to watch live and on-demand content from select TV networks streamed via the internet instead of through set-top boxes. These services are expected to be slimmed-down versions of TV packages that are cheaper than the average $75 per month a typical cable or satellite subscriber pays.
"This environment can have a far lighter ad load than traditional TV," said Richard Greenfield, media and technology analyst, BTIG Research. "That's the potential of the web."
Mr. Greenfield said the TV ad model is in desperate need of an overhaul and OTT services may help push progress. In an OTT universe, advertisers do not have to be pigeonholed into a traditional 30-second spot. "These can be replaced with shorter, interactive ads," he said.
Mr. Greenfield points to interactive ads that are currently running on Fox's TV Everywhere platform as an example of what could be possible on OTT services. Viewers are prompted to either watch the full unskippable load of traditional pre-roll ads that total 2 minutes and 30 seconds, or can chose to watch just one interactive 30-second ad instead.
These services will offer a much clearer picture over who is watching and what they are watching, allowing advertisers to send messaging that's more targeted, Mr. Greenfield said.
Of course, these highly targeted ads will come with a higher price tag. "[Advertising] is a huge part of why Dish is allured by an over-the-top service," Mr. Greenfield said. "While the programming bundles might be smaller and it might be a cheaper package, the ad revenue potential is more robust."
OTT services are also an opportunity for advertisers to reach an audience that may not currently be subscribed to a traditional pay-TV service from the likes of Comcast or Dish Network, and is more prone to skip commercials, said Jed Meyer, global research director, Ominicom Media Group.
"It's a new way to find hard-to-reach consumers who aren't watching traditional TV," he said.
While there seems to be little downside to such services, much is dependent on just how big of a subscriber base they are able to attract.
Ideally, these platforms are being marketed to consumers who don't currently subscribe to a pay-TV package. But of course, there's also the potential they could end up wooing current subscribers of traditional cable and satellite services.
In this case, the question of fragmentation becomes a concern for advertisers, who are already grappling with how to reach consumers on a multitude of platforms and services like Hulu, Netflix and TV Everywhere apps.
"The bottom line for advertisers is being able to reach their target audience," said David Campanelli, senior VP-director of national broadcast, Horizon Media. "Fragmentation is making that harder and harder. This just adds to more fragmentation."
Dish and Sony intend to make their services available before the end of the year. Dish announced on Tuesday that it has signed a deal with Scripps Networks that will make channels like Food Network and HGTV available on its OTT platform. It has previously signed similar deals with Walt Disney and A&E Networks.
And last week Sony struck its first major carriage agreement with Viacom. At launch, Sony's service will be available via PlayStation as well as other Sony devices.
Verizon says it's on track to roll out its platform mid-2015.