MEDIA CHANNELS: Hurry Up and Wait

By Published on .

Over the next year, every four seconds somebody in this country will decide it's time to ante up an extra $25 to $35 a month to convert to a high-speed broadband service from a dial-up connection to the Internet. At this rate, about half the households in the U.S. will be broadband subscribers in the next five years a total of more than 70 million homes.

In 2003, broadband will surpass the 20-million user mark, having already won over early adopters several years ago. Newton, Mass.-based research firm Strategy Analytics, Inc. estimates that 27 percent of homes with Internet access in the U.S. go online through broadband connections. The firm expects that figure to increase by 40 percent in 2003, and to exceed 70 percent by 2008.

Consumers are clearly willing to subsidize their craving for high-speed Internet access. Still, those interested in advertising through broadband services face a business challenge that looms large despite the impressive rate of consumer adoption. At issue is the question of whether broadband and its content will make it as a dual advertising and subscription revenue-driven medium or dwell in the pay-as-you-play mode of premium channels and video on demand. Despite sign-ups reaching heights that traditionally signal advertising base legitimacy, some industry experts and advertisers remain skeptical.

For advertisers and their agencies, broadband's impressive penetration may not be enough. Granted, the significant number of subscribers should lead to more marketing messages cropping up within broadband programming and services. Combined with the alluring demographics of broadband users and their propensity to go online more often and to stay online for longer periods than average Web surfers, advertising on the Internet could become more feasible. However, those same user characteristics may mean broadband advertising will suffer from the dilemma plaguing the dial-up world: Subscribers hooked on speed may continue to click past online ads rather than click through them. According to estimates from Kagan World Media, U.S. advertising billings for the Internet as a whole dial-up and broadband are projected at $6.7 billion for 2003 and should reach $11 billion in 2008. (Note: Kagan World Media and American Demographics are both owned by Primedia, Inc.) Compare those investment levels with an estimated $16.2 billion for advertising on cable TV this year and an expected $29.8 billion by 2008. As proponents suggest, broadband could follow the revenue model of cable television, with its combination of subscription and ad revenue, or it may fall into the same unprofitable trap that doomed so many dot-coms.

There will probably be some form of advertising on broadband, says Lee Rainey, director of the Pew Internet & American Life Project. But users will also have to pay for content somehow. What will be interesting is if broadband providers get into the content subscription market, and how advertising will fit into that.

Supporters of broadband advertising, many of whom are vested in selling in broadband as a marketing medium, believe a significant level of advertising will come. Twenty million is considered to be the critical benchmark in terms of audience, and that's where broadband is, says Dan Schwartz, vice president of worldwide advertising sales for Seattle-based Real Networks, which provides software and content geared toward broadband users. We've now got the critical mass where it becomes an interesting proposition for advertisers.

The expansion of broadband from the early adopter to the mass market will likely transform the way in which the service is used. While most current subscribers cite speed as their primary motive for signing on, industry experts expect that as broadband becomes more of a mass phenomenon, content will become increasingly important to users a development that could alter the landscape for online advertisers. Right now, most people convert because of speed, says James Penhune, an analyst at Strategy Analytics. Going into 2005, in order to attract more consumers, companies will have to offer something more than just a faster version of the Internet better audio and video, premium services. The market will be driven by content rather than just speed.

Yet a workable future for broadband's advertiser validation hinges on program content and values that are still in the embryonic stage. As a first step, content providers are pointing to new broadband-only features. On, broadbanders can now view excerpts of interviews and game highlights through a high-quality video system, ESPN Motion, that's supported by advertising and category-exclusive sponsorships. In March, ABC News announced plans to offer a 24-hour news service, ABC News Live, exclusively for broadband users. It will be made available to those who already pay $4.95 per month for ABC News on Demand broadband service, and to subscribers of RealOne SuperPass, a service of Real Networks, whose entertainment and information video content is available to broadband users for a $9.95 monthly subscription fee. (Real Networks' range of broadband packages currently attracts more than 900,000 paying subscribers.) Yahoo! launched a subscription service, Yahoo! Platinum, for $9.95 per month, and a $16.95 service, SportsPak, to deliver audio and video content online. Such services Webcast content ranging from episodes of Survivor to the latest financial updates.

Old-style Internet providers are right on their heels. AOL Time Warner has introduced a $14.95 per month service for AOL users with broadband. With a commercial campaign launched during the Academy Awards, Welcome to the World Wide Wow, the new service offers add-on features for broadband users, including parental and advertising controls and virus protection. Microsoft's MSN has a similar program in the works, expected to launch this year.

With broadband, Internet commercials can be aired either during program downloads or as pop-ups. These are commercials not static banner ads, emphasizes Bill Rose, vice president and general manager of New York-based Arbitron Internet Broadcast Services. The technology is much better, and there's greater exposure. In particular, the gateway or start-up commercial that you see or hear before you can access content is far more likely to be viewed or heard because consumers are waiting for the content they clicked on. According to Rose, the fact that many users access broadband from their offices means that advertisers will be able to tap in to the workplace as never before.

At Real Networks, advertising from McDonald's, Absolut, Mercedes-Benz and others accompanies a standard-level content service, while the paid subscription service is still mostly ad-free. (The exception is Major League Baseball, whose online programming is sponsored by MasterCard.) Both services, however, target broadband users, which means that the ads are of a much higher quality than you would see on a dial-up Internet service.

Broadband advertising proponents seek to delineate online behavioral differences between broadband and dial-up users that could signal different responses to advertising as well. Rainey describes what he calls the emerging broadband lifestyle as a complete change in the character of online life one that cannot simply be explained by the early adopter characteristics of the users. The technology itself transforms behavior, he says: They're the most active searchers, the most fervid transactors, the most sold on the Internet overall. They download more, upload more, buy more, trade more and auction more.

Broadband users are more likely to allocate a larger share of their media consumption to the Internet, giving it 27 percent of their time versus the 17 percent that people who connect through dial-up modems do, according to Arbitron. They also happen to spend more time overall reading or watching various media, allocating 7 hours and 50 minutes per day to TV, radio, newspapers and the Internet, about 20 minutes more than the average dial-up user.

A significant challenge lies in whether broadbanders will be more receptive to advertising messages online than dial-up consumers. On that point, preliminary data is encouraging. Arbitron's new study found that 36 percent of broadbanders have clicked on an online advertisement, compared with 29 percent of other users; 23 percent said they had clicked on an ad in the prior month (compared with 15 percent of other users), and 14 percent said they had clicked on an ad in the prior week (versus 9 percent of other Internet users). Nearly half of broadbanders 45 percent have heard an audio commercial online (compared with 32 percent of dial-up users), and a quarter of them have seen a video commercial online (versus 14 percent for dial-up users).

The broadband possibility for advertisers is incredible, says Greg Bloom, senior media analyst at Nielsen//NetRatings. With broadband, you can implement advertising that's just like what you see on TV on computers.

Others are less optimistic. Michael Goodman, senior analyst for media and entertainment with the Boston-based Yankee Group, questions whether broadband will transform online advertising's dismal record. Consumers don't like online advertising, period, he says. Sure, it's a new medium for advertisers, but whether that medium will prove effective with consumers is debatable.

The key, believes Bruce Leichtman, president and principal analyst for Durham, N.H.-based broadband research firm Leichtman Research Group, will be to find an economic model that makes financial sense to service and content providers whether advertising becomes a realistic part of that mix or not.

What, exactly, is broadband?

Broadband, often referred to as high-speed access, is the fastest route to the Internet. Whereas dial-up services travel at speeds of up to 56 kilobytes per second (Kbps), broadband moves at speeds 4 to 100 times faster. Service is primarily provided via two channels: Phone companies offer DSL (digital subscriber line) services over regular telephone lines, and cable TV operators provide cable-modem connections via high-capacity fiber-optic cables, which work in conjunction with digital cable service. More Americans get their broadband access from cable companies than phone companies, by a margin of 2 to 1. Cable access is slightly less expensive, more widely available and considered easier to install than the DSL services provided by phone companies.

A third system, power-line communications service, set to launch this summer by electric utilities and Internet companies, will deliver broadband service over electrical wires. This new service, which will be delivered over electrical wires, is expected to be cheaper and easier to deploy, and it may extend broadband to an even wider audience than previously projected. Several other technologies fixed-wireless services, two-way satellite links and fiber-to-the-home are available on a smaller scale.


Broadband by the demos

Broadband's potential appeal to advertisers is twofold. First, the system's technological advantages provide a platform that allows advertisers to track interests, transactions and consumer behavior. Second, the attractive demographics and characteristics of its subscribers can compensate for its still relatively small audience base. Broadband users tend to be educated, urban and upscale. A survey by the Pew Internet & American Life Project reveals that 59 percent of them are college graduates, compared with 35 percent of dial-up users. Broadband users skew white, with half as many blacks and Hispanics accessing via high-speed connections as through dial-up. Broadbanders are also tech-savvy and experienced twice as likely to be on the Internet for six years or more (42 percent, versus 20 percent of dial-up users). A January 2003 Nielsen//NetRatings study shows that narrowband skews slightly female (53 percent), while broadband skews slightly male (52 percent).

As with the Internet, broadband isn't exclusively a phenomenon among the young: Usage and growth are strongest among Baby Boomers. According to the Nielsen//NetRatings study, the highest rate of broadband growth is among 50- to 54-year-olds, with 3 million people in that age bracket using broadband, compared with 4 million 12- to 17-year-olds. The number of seniors ages 65 to 69 using broadband grew 67 percent in 2002, to 1.3 million people, nearly identical to the growth rate among teens.

Broadband subscribers overwhelmingly cite speed and convenience as their primary motives for agreeing to fork over the extra cash each month. A 2002 Claritas survey of broadbanders found that nearly 6 in 10 (57 percent) use it for convenience, 17 percent use it to download large files and 10 percent use it for the unlimited online hours. Its speed comes in handy, particularly at the workplace: 81 percent of all broadband users surveyed have access at work, according to the survey by the Pew Internet & American Life Project. Forty-three percent say high-speed linkups at the office influenced their decision to upgrade at home; one-third say they are also occasional telecommuters.

Broadband enables consumers to download and play music, view streaming video programs, play online games and employ certain software applications for the Internet all of which becomes much easier with faster access. Fully 69 percent of broadband users say they download files more frequently because of their high-speed connection, and 72 percent stream audio and video content more often, according to the 2002 Pew survey. An October 2002 telephone survey of 351 online news users, conducted by Market Facts (now Synovate) for, found that broadband users watch streaming video an average of 5.1 times per month, versus 1.5 times per month for those who dial up.

Broadbanders spend more time a lot more time online than their dial-up counterparts. According to a February 2003 Arbitron/Edison Media Research study, the average broadband user spends 13 hours online per week, compared with 8 hours for people with dial-up connections. Similarly, the Nielsen//NetRatings study of at-home and at-work Internet usage found that broadbanders spent an average of 17 hours and 20 minutes online in December 2002, compared with an average of fewer than 10 hours by those who had to dial up. They also viewed an average of 1,300 Web pages, more than twice the number viewed by dial-up users.

Broadband subscribers index higher in terms of satisfaction with their Internet access and loyalty to its provider than their dial-up counterparts. The Arbitron/Edison study found that people who have broadband are more than twice as happy with their service as dial-up users: 73 percent of those with a cable modem at home, and 71 percent of people with a DSL at home, say they are very satisfied, versus 31 percent of those using a dial-up connection at home.


Most Popular
In this article: