How Ad Tech Just Might Save TV

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tv wants to reverse its ad creep
Commercial minutes per primetime hour have been edging up for years on cable and broadcast.
Source: GroupM. Reflects the fourth quarter of each year and excludes sports.

It's rare that a small startup acquired by a media behemoth is ever heard from again, let alone shapes the strategy at its new parent. But two years into TrueX's acquisition by 21st Century Fox, the ad tech company is more relevant than ever as Fox and others aggressively seek ways to reinvent TV advertising.

Fox bought TrueX for $200 million in February 2015, when ad-skipping DVRs were already an institution, ad-free rivals like Netflix were growing fast, traditional TV ratings were falling and online video was beset by ad blocking and ad fraud. TrueX's engagement ads, which let streaming-video viewers interact with a commercial in exchange for fewer or zero ads after that, weren't necessarily revolutionary on their own. But the company brought to Fox a group of people and a culture that is jump-starting efforts to fix TV advertising. Fox subsequently tapped several TrueX executives to help usher in ad innovation, including TrueX co-founder Joe Marchese, who was quickly named to the newly created role of president of advanced advertising products.

"This is a unique moment in the ad industry," Mr. Marchese said. "If we don't work together, ad-free models will continue to proliferate."

TrueX "brought a whole new mindset to Fox and helped us change more quickly at how we look at the ad experience," said Randy Freer, president and chief operating officer, Fox Networks Group.

Similar explorations are unfolding across TV at varying intensity. "In general, there is probably too much commercial interruption in television," Disney CEO Bob Iger said on a call to discuss quarterly earnings earlier this month, promising a new look at the issue. Roger Goodell, who leads TV's most popular product as NFL commissioner, said before the Super Bowl that the league is "leaning very heavily" toward rethinking commercial breaks next season. And network groups including NBC Universal, Turner and Viacom are already experimenting with lowering ad loads and filling breaks with content that more closely resembles the program in which it is running.

The TrueX idea of interactive ads has been floating around for decades, with little success. What makes TrueX's efforts a bit different than the clunky attempts of the past is the clear value proposition to viewers: the exchange of a minute or so of attention for a subsequently less cluttered experience. Now as more TV content is delivered via IP-enabled devices instead of set-top boxes, what TrueX is crafting on desktop and mobile could have important implications for larger screens. In December, TrueX brought its engagement ad model to the living-room TV with the introduction of sponsored streams on Roku in the FX app.

"Our goal is to go from a linear TV ad model of 18 to 20 minutes of commercials per hour to around 60 seconds in digital and on-demand," said David Levy, a TrueX co-founder who became exec VP-nonlinear revenue at Fox Networks Group in September. "We are trying to figure out how to create new models that transfer attention more efficiently."

For advertisers, one of the biggest hurdles to reduced ad loads has been cost: Less inventory has meant higher prices for the ad time that remains. But more have realized the importance of the approach over the past couple of years. Mondelez, the massive marketer of products from Nabisco and Oreo, struck a deal with Fox Networks Group in July to help establish a more consumer-friendly commercial experience, and became the first customer for engagement ads on Roku.

Agencies share the interest. "We know there is a need to lower the ad load because we inundated consumers and they are now tuning out and blocking," said Helen Lin, president-digital investment and partnership, Publicis Media U.S. "When you increase the number of ads, your lift potential is reduced. We know we have to do something before consumers completely block out."

Ms. Lin said extending the TrueX approach to "traditional" TV was especially exciting. "With Fox's acquisition of TrueX, and Joe speaking on behalf of the organization, it shows us a strong commitment to bring the model into TV," she said.

The first place that will happen will be video on demand, where networks aren't selling ads very well and the consumer experience has suffered as a result, plagued by the repetition of the same ads throughout an episode and lots of network promos.

Fox is testing a VOD ad product that alerts consumers at the top of the program that the episode is being brought to them with limited commercials by a brand. They are then shown a 60-second ad for that marketer. The rest of the episode airs with just two-second spots for the marketer running in place of traditional commercial breaks. That lets Fox reduce both the ads and the repetition in VOD.

Because Fox allows TrueX to operate largely independently, it can work with other major broadcasters and cable programmers. TrueX will also spend 2017 investing in data and analytics to help marketers get smarter about how they message people and better track results such as brand lift, Mr. Levy said. "It's not only about getting attention, but how we use that attention to deliver the right message on the right platform and at the right time that will move them to action," he said.

Fox is seeking an ad sales leader to succeed Toby Byrne, who left in September. It remains to be seen whether it will name someone with a proven sales record or a leader with a more diverse background who can serve as an evangelist for innovation. For now, Mr. Marchese has emerged as somewhat of a spokesman for Fox, indicating the company's willingness to shake up the stagnant TV ad model.

What TrueX is doing is just one possible solution to a very complicated challenge for the TV industry. But that the company hasn't been lost within Fox certainly indicates that the industry is serious about a solution.

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