It sounds like a marketer's dream: Send a specific TV commercial to an individual household. But it's actually real -- just with plenty of caveats. You've surely heard of addressable advertising, but here's what you need to know.

THE BASICS

Reach: Addressable ads are currently available in up to 42 million households through live TV and video-on-demand. The pool is expected to reach 50 million households by the end of this year.

How it works: Marketers pinpoint their target audiences and create a household profile using data such as income, ethnicity, children in the household and car leases set to expire. They then work with cable operators to determine the number of addressable-enabled households that fit their target and serve commercials to just those homes.

Inventory available: Two minutes per hour of local commercial time in cable programming sold by the pay-TV provider.

Measurement: Nielsen is not the currency. Operators typically use Rentrak or Kantar Media for audience measurement.

Cost: Operators charge a premium because the ads target a specific consumer. The scarcer or more desirable the target -- say, households with income of $300,000 or more -- the higher the premium.

WHO'S DOING WHAT

Cablevision: About 3 million households can be targeted.

DirecTV: About 12 million households can be targeted.

Dish Network: About 8 million households can be targeted.

Comcast: Does not offer addressability in live TV, but marketers can insert ads on a household basis through video-on-demand, a capability available across about 20 million households. Comcast is currently testing linear household addressability with plans to start rollout in 2014.

Time Warner Cable: Does not offer household addressability. Currently, marketers can reach audiences with ZIP code targeting and other data-driven planning. Time Warner is preparing to launch household addressability on VOD and in live streaming and on-demand content on mobile devices. Comcast's planned acquisition of Time Warner Cable is poised to accelerate the expansion of addressable ads as the two companies' systems are eventually integrated.

AT&T U-Verse: Does not offer household addressability. Its audience-targeting solution, AdWorks Blueprint, lets marketers determine what their target audience is watching and predict what they will watch in the future. Advertisers can build a media plan around those patterns. AT&T plans to introduce household addressability over the next two years.

THE CHALLENGES

No standardization: It's complicated and time consuming to run an addressable campaign across multiple operators because the technology can vary by company. Cablevision uses Visible World technology, for example, while Comcast uses BlackArrow. Marketers need to collect potential reach from each operator, determine the optimum frequency and then combine it all. DirecTV and Dish Networks are working to simplify the process by combining their sales efforts for addressable TV advertising for political campaigns.

Rollout: Cable operators need to deploy technology on a market-by-market basis to enable addressability. Satellite operators and Cablevision can change the technology at one master facility.

Inventory: Adding more addressable-enabled inventory requires networks to work with operators to slice up inventory. For example, NBC Universal and Comcast are partnering to make NBC-controlled inventory addressable-enabled on Comcast VOD.

IS IT RIGHT FOR MY BRAND?
For brands selling products used by a broad audience, like toilet paper, there's still value in mass marketing. But if you're targeting a very specific consumer, addressable may be a good option.
Ask yourself: Are there enough addressable-enabled households that match your target to make it worthwhile? Are there other options that can more efficiently deliver?

In general, addressable is most exciting for marketers that don't normally advertise on TV due to budget constraints or because there's no efficient way to reach their niche audience, said Michael Bologna, head of GroupM's Modi, a division created last month to focus on addressable advertising. Allstate, for example, ran an addressable campaign for its renters insurance, a product it had never promoted on TV because the universe of renters was too small to make a mass campaign worth the cost.

CMO TO-DO LIST
Determine who you really want to reach. This is harder than it sounds because marketers have spent years limited by Nielsen's age and gender demographics, said Tracey Scheppach, exec VP-innovations at Publicis Groupe's SMGX. "You'd be surprised that many brands don't know or understand their true target."

Get your data in order. This includes organizing internal customer databases and matching that with data from third-party providers like Experian and Acxiom.

Change the creative process. Mr. Bologna predicts in the back half of the year more marketers will start creating specific ads tailored to target households. But that will require budgeting for additional creative.