Cable giants join forces to capture advertising

In an effort to slow Google's siphoning of advertising dollars away from television, the nation's six largest cable companies plan to create a jointly owned company that would allow national advertisers to buy customized and interactive ads across the companies' systems.

For the last six months, executives from Comcast, Time Warner Cable, Cablevision, Cox Communications, Charter Communications and Bright House Networks have been meeting monthly, alternating between New York and Philadelphia.

Quarterbacking the initiative — code-named Project Canoe to emphasize the companies must all work together — has been Stephen Burke, president of Comcast, and Landel Hobbs, the chief operating officer of Time Warner Cable.

Getting the right advertisement to the right person, based on that individual's own tastes and lifestyle, has been the promise of cable television for years and the reality of the Internet.

The allure of online advertising is that it can be directed to individuals and that advertisers can quickly measure its effectiveness.

After all, a bachelor in a Manhattan high-rise surely does not need a pickup truck or a box of diapers. And a retiree in Florida probably does not drink much Red Bull or venture online to find a date.

Cable companies and even Google — which has a deal with the satellite-TV company EchoStar to sell television ads — see customized features in television as a potential gold mine.

But such newfangled advertising models are something the cable industry has promised for years. Until they see those models on a large scale, advertisers and investors will remain cautious.

That is why the industry has not made a more public splash about the initiative and why executives involved with the project asked not to be identified.

Collectively, the cable companies will initially put about $150 million behind the effort to build a national service that can sell targeted advertising across all six cable systems.

Cable companies have the ability to compile better data on users than Internet companies can glean, which could make focused ads on television more effective, said Craig Moffett, a senior analyst at Sanford C. Bernstein & Co. It also makes the data Project Canoe will collect from set-top boxes a valuable asset.

"Addressable advertising on television is in many ways the holy grail, because it can offer ever more targeting ability than Google," Moffett said. Addressable is the industry term for targeted ads.

While much ink has been spilled over the rise of Internet video and the decline of television, about 90 percent of all video consumed in the United States last year was done the old-fashioned way — watching shows as they came on TV — according to Starcom USA, whose clients include General Motors and Procter & Gamble.

About 7 percent was via digital video recorder, 2 percent was online, and 1 percent was through video-on-demand services.

Here is what is at stake: Combined, the nation's cable operators generate about $5 billion in revenue from selling local ads in markets where they own the infrastructure to people's homes, a small slice of the $70 billion television advertising pot. They largely compete with local newspapers and radio stations.

But Project Canoe will allow the industry to sell ads on a nationwide basis through a joint platform.

For each hour of programming on a cable network, the cable operator owns about two minutes that it can sell to advertisers. The network, say ESPN or TNT, owns about 15 minutes that it can sell.

Because the only way to deliver custom television advertising is through a cable set-top box, Project Canoe is also a way for the cable companies to get a piece of the ad revenue.

This is done by allowing cable networks like ESPN or a broadcast network like CBS to sell ads on Project Canoe's platform and direct those ads using the vast amount of data collected from set-top boxes.

The executives involved in Project Canoe think that, by working together, they can increase the cable industry's take from $5 billion a year to $15 billion a year, according to an executive briefed on research compiled by Project Canoe.

Another component of Project Canoe is interactive advertising, which allows television viewers to use remote controls to, say, request a brochure or call up more information about a product.

"The investment community has been waiting for addressability for a generation," said Moffett. "This has been hoped for the better part of a decade.

"But it was never going to happen without a coalition of the cable operators. This is a critical step forward," Moffett said.

Last spring, industry executives began discussing how they could devise a joint advertising platform to offer up to big national advertisers. But only recently, after prodding from media buyers for GM and Procter & Gamble, did the executives become more serious by deciding to establish a separate company.

"As an advertiser, as an agency, it is so necessary that the cable industry act collectively," said Tracey Scheppach, senior vice president and video and innovations director at Starcom. "Because they didn't have a formal group before, they just threw stuff against the wall, and some stuff stuck."

Scheppach has been involved in consulting with the cable companies on the project.

"Starcom has been working with the cable industry for several years to drive advertising standards," including video-on-demand, tailored ads and interactive advertising, she said.

"To me, this is an outgrowth and a formalization of that."

The group recently hired the recruitment firm Spencer Stuart to search for a chief executive, according to executives briefed on the plans.

"They're trying to figure out, do they want someone from inside the cable industry, or do they want someone from inside the advertising industry," Moffett said.