Targeted Television Advertising

Mr. Doug Ross
Vice President, Business Development
Scientific Atlanta, Inc.
One Technology Parkway South
Norcross GA 30092 - 2967

This paper is about the tremendous potential for Targeted Television Advertising and how to make it become a reality. 

In this paper we first examine the economic case for targeted television advertising for those who may remain skeptical. And secondly, we describe an actionable scenario for how targeted television advertising might actually be implemented by broadcasters, advertisers and cable television operators.

The paper has six sections which can be summarized as follows:

  1. The Market - Television Advertising Is A Small Piece Of A Big Pie

    Total marketing and advertising spending is a very large pie of which television advertising is only a small piece. Even a very small shift in promotional spending in this large pie could make targeted television advertising a tremendous growth and profit opportunity for those in a position to exploit it.

  2. The Forces - Driving Targeted Television Advertising

    Three forces are driving targeted television advertising and will eventually make it pervasive; the general shifting of advertising dollars to targeted media, the win-win scenario that the efficiency of targeted media makes possible, and the digital technology currently being deployed by cable operators which makes it possible to individually address and target every household passed by cable.

  3. The Scenario - For Targeted Television Advertising

    We believe there is a scenario (with six key ingredients) which would quickly make targeted television advertising work. We summarize the scenario in this section.

  4. The Six Key Ingredients - To Make Targeted TV Advertising Work

    Next, we take the six key ingredients necessary to make targeted television advertising work, and look at each of them more closely.

  5. Technology - How Targeted Advertising Can Be Accomplished

    We take a realistic look at what technology is required for targeted television advertising, where that technology stands and what we can expect. We examine both the digital cable network aspects and the software systems.

  6. The Action Plan - A Proposed Set of Next Steps

Finally, we outline a set of actions proposed as a way to "get the ball rolling" on the benefits of targeted television advertising.

The Market - Television Advertising Is A Small Slice Of A Big Pie

It is helpful to put targeted television advertising in the perspective of total marketing, advertising and promotional spending of $300 billion in the United States each year aimed at the 98 million television households.

Another useful perspective is the current distribution of television advertising revenues between the players who compete for current broadcast television advertising dollars and those who will compete for future revenues from targeted television advertising.




Total Ads









Total Ad Rev $ Mil








TVH H's Reached Mil







$/T VHH Reached/Yr







CPM $ (24 Hour Average)








The key implications are that:

  • Total marketing and promotion spending in the USA is a very big "pie"

  • Television advertising captures only a small (~14%) share of that total spending pie

  • Television broadcasters of all kinds, in cooperation with cable operators, can dramatically increase their share of the total promotional spending pie by providing advertisers with a more effective targeted television advertising medium.

The chart below illustrates the impact that targeted television advertising could have on the overall television advertising industry longer-term. Historic television advertising trends already clearly indicate a shift in advertising dollars. Cable networks & local cable spots have captured the bulk of the growth in television advertising spending over the past decade and are projected to continue doing so.

We assume that when targeted television advertising is added to the media mix, at least 5-10% of the total $300 billion marketing spending pie will be shifted to targeted television advertising. The result is a potential $15-$30 billion per year in advertising revenues gradually shifting to cable networks from other, mainly non-targeted, media. 

Kagan’s widely quoted projections as shown above are that combined cable network and local spot cable advertising per household will triple from current ~$10/sub/month to ~$30/sub/month by the year 2007. Targeted television advertising via cable has the potential to nearly double that again, raising total potential cable advertising revenues to ~$55/sub/mo by adding targeted advertising to the advertising mix and not significantly cannibalizing existing broadcast advertising revenues.

The Forces - Driving Targeted Television Advertising

Three fundamental forces are driving the opportunity for Targeted Television Advertising.

1. Marketing Dollars Shifting From Television Advertising To More Targeted Mediums In the USA, it is estimated that more than $300 billion is spent annually on marketing, promotion and advertising of consumer products. Although the total pie is growing slowly, even small shifts can cause dramatic changes in specific segments. For example, the shift in recent years to more targeted advertising and promotion media, such as specialty catalogues, direct mail and telemarketing, has retarded the potential growth of the broadcast television advertising industry.

2. The Efficiency of Targeted Advertising Is A "Win-Win" Scenario For Key Players Advertisers are concerned because as much as 80% of broadcast TV advertising is routinely wasted on non-targeted audiences. At that rate, average $10 CPMs for network television ads actually cost $50 per "true target" reached.

However, with targeted television advertising everyone benefits. Sellers increase CPM$ while buyers reduce their cost per true target reached and increase the frequency and recency of impressions at no additional cost. Targeted television advertising has the potential to double or even triple broadcast and cable television advertising’s current share of the marketing pie, with the loser being other less-targeted media. 

3. Broadband Cable & Digital Technology Make Targeted TV Advertising Possible With the speed, capacity and intelligence to individually address cable households, broadband digital cable networks will allow advertisers for the first time to target their television advertising spending. The question now is how to take advantage of this?

The Scenario - For Targeted Television Advertising

Targeted television advertising will not be optimum until it reaches the entire universe of households. However, equipping every household with digital settops requires significant funding. In other words, there is a chicken-and-egg problem. What’s needed is a practical arrangement that gets the ball rolling. This proposal is meant to be that catalyst. Scientific-Atlanta’s only vested interest is in selling digital systems to cable television operators. It is logical for us to be a catalyst because targeted television advertising is an excellent application that is uniquely enabled by our digital system. Therefore, we tackled two fundamental questions; "who wants what" from targeted television advertising, and, how can an arrangement be made to satisfy the various parties? 

We imagine a scenario that goes like this

  1. Top advertisers would make advanced, long-term, targeted advertising commitments to cable operators in exchange for targeted advertising exclusivity in their category

  2. This funding would subsidize the up-front cost of digital set top boxes enough to enable cable operators to justify ubiquitous deployment

  3. Exclusivity, ubiquitous deployment & targeting will increase advertising effectiveness and result in market share gains for exclusive advertisers that justify the up-front investment.

  4. Despite higher overall CPMs for the sellers of targeted advertising, the cost per true target reached for advertisers will actually be lower.

  5. Broadcast networks & affiliates as well as cable program networks will adopt targeted advertising and will either pay for bandwidth on cable or provide new advertising avails to cable operators.

  6. Advertising agencies will benefit from more effective advertising measurement schemes and will profit from the results oriented incentive compensation made possible by digital technology & targeting.

Graphically it looks like this… Six key steps would make such an arrangement work. The steps are circled below and described in more detail on the pages that follow:

The Six Key Ingredients - To Make Targeted TV Advertising Work

  1. Category Exclusivity – Exclusive access to addressable commercials will be a powerful tool for advertisers who secure those rights for their brand in a specific geographic area. Category exclusivity might play out as follows:

    1. Category exclusivity would be acquired by one advertiser per product category. Category exclusivity means the exclusive right in a major product category to use the "targeted advertising system" of the cable operator on all television channels carried by that cable operator.

    1. The price of category exclusivity would be a matter of negotiation between buyer and seller and would reflect, among other things, the advertiser’s margin per unit, purchase cycle, share of market, number of brands and overall volume of advertising dollars, i.e. the variables which the buyers and sellers will each analyze in order to determine the business case from their own point of view.

    1. A five year exclusive rights period is proposed to allow advertisers enough time to cement the competitive advantages of exclusivity and to defray their costs.

    1. In practice, category exclusivity also means geographic exclusivity because cable systems typically cover large, contiguous geographic areas in which the cable operator is virtually exclusive

  1. Ubiquitous Digital Settop Deployment - The amount advertisers would be asked to pay for category exclusivity would be used to subsidize ubiquitous deployment of digital settops. The proposed approach is as follows:

    1. Advertisers would make prepaid advertising commitments that would subsidize ubiquitous digital settop box deployment. These advance payments would be the price of exclusivity and would be negotiated between the parties. If, for example, such advances were worth $1.00 / subscriber / year / product category on average, then a typical cable operator would receive digital settop box subsidies (in the form of advertising advances) from all advertisers of ~$150-$200 per subscriber, as follows:

$1.00/category/yr x 5 yrs exclusivity x 30-40 categories = $150-$200/sub

    • The cable operator’s ubiquitous deployment obligation would be to invest this advance commitment subsidy exclusively on the deployment of digital settops and to achieve ubiquitous digital deployment within a reasonable implementation period (e.g. 18 months). Ubiquitous deployment means a digital settop box eventually in the hands of at least every paying cable subscriber, and could potentially mean even more, perhaps even every home passed by cable. The targeted advertising possibility, combined with other new digital service offerings such as VOD or "Internet-via-TV" could prove to be a reasonably painless way for both cable operators and targeted advertisers to reach the 35% of homes who do not presently subscribe to cable.

    • Advertisers would pay their advance commitments in cash in amounts and at periods which would be proportional to cable operators progress in deployment of digital settop boxes and implementation of targeted advertising systems and infrastructure.

    • Advertisers & cable operators would individually negotiate terms for amortizing these advanced commitment dollars against future targeted advertising spending. These amortization credits would reduce the cable operators future CPMs for targeted advertising and would be made available to the advertiser in some proportional way over the period of exclusivity. For example;

      • Advertisers might pay $30 CPM or more for targeted ads when 100% of the audience is true targets.

      • Cable operators might credit advertisers with perhaps half ($15) of these higher overall $30 CPMs, in effect amortizing pre-paid advertising dollars by temporarily reducing targeted advertising CPMs until all up-front subsidies are credited.

  1. Improved Brand Share From Targeting, Exclusivity & Increased Ad Exposures

  2. Assuming that the key objective of advertisers is brand share improvement, cable operators are in a unique position to deliver it. They offer advertisers three targeted advertising related benefits that help increase brand share, as follows:

    1. Targeting Specific Consumer Market Segments - A typical brand is purchased by only a small segment of total households. Current television technology dictates that TV commercials be designed for the general audience despite the fact that typical TV ads have their effect on only 6% of that audience.

    2. It has been shown in other direct advertising mediums that targeting specific consumer segments more frequently and with more specific advertising messages improves effectiveness (as measured by loyalty, recall, retention, etc.), increases cost effectiveness (by elimination of non-targeted waste), and increases market share. As advertisers enlarge their direct marketing experience base they are bringing that experience back to the analysis of television. They are prepared to use a battery of tools to slice and dice scanner sales data and other information sources to find truly responsive segments for specific brand advertising campaigns. And, with new digital television technology combined with targeted advertising systems, it will now be possible to reach those most responsive segments.

    3. Eliminating Waste and Increasing Adverting Exposures To True Targets Elimination of non-targeted "advertising waste" allows the same amount of advertising dollars to be allocated more efficiently to a larger number of exposures for a targeted audience. Increased exposures has two main benefits:

      • Repetition & Reinforcement of The Message - There is a cumulative effect from repetition and reinforcement of the advertising message. This known effect is enhanced by targeted television advertising.

      • Recency - The greatest chance of advertising having an effect on a sale comes when the advertising is received most recently before the shopping occasion. Increasing exposures, increases the probability of recency as follows:

        1. If the 80% of TV advertising that is wasted were eliminated, five times more true target exposures would be possible. With five times more potential exposures, a frequency target approaching one exposure per day would be feasible, leading to the best recency available.

        2. In addition, with digital cable networks it would be possible to measure clickstreams to verify that the target was reached, including verification by ISCI code that the right commercial actually played at the right time in each home.

    4. Exclusivity & Ubiquitous Coverage By Cable - Since there is no real alternative to cable as a way to deliver targeted television advertising, and since cable operators tend to have virtually exclusive franchises in the areas they serve, it is therefore possible for cable operators to provide targeted advertising services to advertisers on an exclusive basis.

      • The Exclusive Cable Environment - Being the only advertiser in a particular category to have access to the efficiency of targeted television advertising, and to have this position for a sustained period of years has a competitive advantage that is intuitively clear although not easily quantified.

      • Ubiquitous Digital Settop Deployment - Ubiquitous deployment of digital settops is the chicken-and-egg problem that cable operators and advertisers together can solve.

        1. Risk Sharing Between Cable Operators & Advertisers - Ubiquitous deployment of digital settops is desirable both for advertisers, and for cable operators in order to reach the entire mass market and to compete effectively with other targeted, but more expensive, advertising mediums such as direct mail, telemarketing and specialty catalogues.

        2. Risk Sharing With Others Besides Advertisers - Targeted advertising alone probably has enough value to support and fund ubiquitous deployment of digital settops. However, there are many other potential applications (e.g. e-commerce, home-banking, etc.) that will benefit from the presence of digital settops in every subscriber home. Key players (such as banks) in some of these applications could also be candidates to subsidize the digital settop box, in which case the up-front cost to advertisers could be made even lower.

  1. Higher CPMs for Broadcast Networks, Network Affiliates, Cable Nets and MSOs - The vehicle for content providers to participate in targeted advertising is higher CPMs for the advertising time on their channels carried on cable networks and enhanced with targeted advertising.

      • From The Buyers Point Of View - the metric "CPM Households" increases, while at the same time the metric "CPM Targets" decreases for every advertiser using addressable commercials

      • From The Sellers Point Of View - total revenue from advertising sales (combined across multiple advertisers) increases for each advertising slot

  2. Facilitation Of Targeted Advertising On All Broadcast Channels By The Cable Operator - If we assume that…

      • most broadcasters (including the Broadcast TV Networks, Local Stations, Cable Networks, and MSOs) will eventually participate in targeted advertising, and

      • cable operators will provide the network infrastructure and the systems that act as the gateway to targeted television advertising, and

      • no matter what the source of program content, cable operators will direct the allocation of channel capacity and other system resources needed for the delivery of targeted advertising,

then……we should also assume that Cable operators will be compensated by broadcasters and program providers for facilitating targeted advertising. This compensation is likely to be by means of either: negotiated revenue sharing arrangements, or cable advertising avails from broadcast television networks and from local television stations.

The chart below shows the tremendous potential effect of a conservative scenario in which targeted television advertising captures merely 5% of the total advertising and promotional spending pie, and redistributes that to the various players.


  1. Accountability & Measurement of Results - Advertisers are demanding more accountability for results from ad agencies and linking compensation to results instead of commissions on ad dollar volume. Real-time, two-way interactive digital cable systems from Scientific-Atlanta, which are in constant communication with subscribers, provide highly accurate measurements of behavior and results from advertising programs. Next Century Media extends this by means of advanced measurements techniques in areas such as people presence in the room, non-switch-away from commercial, and links to scanner sales.

Technology - How Targeted Advertising Can Be Accomplished

  1. Initially A "Brute Force" Approach Will Be Used -

    1. Multiple digital ads will be broadcast simultaneously on multiple digital channels (called feeder channels) with these channels using ~1 MHz of bandwidth each.

      1. There are two key assumptions. First, that enough digital bandwidth is available. And secondly, that MSOs will be willing to use significant amounts of digital bandwidth for targeted advertising even though the feeder channels for targeted advertising are used for only ~1/5th of the time (~12 minutes/hour) at commercial breaks. This implies that the value of targeted advertising will prove to be greater than the value of incremental video programming that MSOs might obtain for that same bandwidth.

      2. Consumers are "switched" to the optimum ad being broadcast on one of the feeder channels during the standard ad time slot (and switched back after the ad is completed). This ad switching is immediately overridden by subscriber channel surfing and is essentially transparent to the subscriber.

      3. The optimum ad to switch a given subscriber to at a given time on a given channel is determined, in the case of the NCM system, by consideration of all advertisers’ segmentation criteria, reach/frequency goals, media environment factors, and other factors.

      4. In this process, information about individual cable subscribers is matched with targeting criteria from advertiser optimization models. (The information on subscribers is maintained in secure databases.)

  1. No Insurmountable Technical Problems

    1. Switching - The key technical problem is switching the viewer to a different ad channel and back to the original program channel fast enough so that the switching isn’t perceptible to the viewer. This appears to be relatively straightforward in the same digital multiplex and only slightly more problematic when switching between multiplexes.

    2. Control System - The control system for targeted advertising must be integrated with other systems.

      1. First, it must be integrated with S-A’s existing DNCS (Digital Network Control System) or comparable systems of competitors.

      2. It could also be integrated with third party program traffic and billing systems or other "back-end" transaction management systems and linked to S-A’s DNCS via these systems.

      3. NCM has its own traffic & billing system as a self-contained standalone function apart from the cable operator’s system. The NCM system appears to be the preference of some MSOs and is believed by NCM to be a simpler and more immediate solution.

      4. Although this control system integration effort is not trivial, Scientific-Atlanta has done other comparable system integration efforts successfully, and this one is not anticipated to be a problem.

  2. Testing Targeted Advertising In A Digital Interactive Cable Network

    1. Trials

      1. Previous Trials - In 1996, NCM played a key role in early targeted advertising related analysis efforts in the Bell South digital trial in Chamblee, GA. using second generation Scientific-Atlanta technology.

      2. MediaOne - The first end-to-end test of such a targeted advertising system is scheduled to be done by MediaOne in Detroit in the spring of 1999 using the targeted advertising system of Next Century Media. Numerous advertisers have made advance commitments to this trial and will benefit from the extensive consumer behavior data this trial will provide beginning in the fall of 1999 and continuing for ~12 months.

      3. Other Trials - It is possible that a limited number of other similar trials, possibly one or two, could be managed simultaneously and could expand the knowledge base on targeted advertising.

    2. Simulations - Next Century Media has not had the time nor the funding to do large scale physical trials or computer simulations on the scaleability of their approach, however, there is no reason to believe that the system will not scale adequately.

  3. System Design & Development Efforts In Progress

    1. NCM’s database design is layered in order to get more and more specific about a given subscriber. The technical problems are in designing a database that is scaleable, fast and easy to use, and in integrating and automating the data capture process.

    2. Data in each layer is acquired in various ways and much of the work of acquiring the higher level databases is done.

      1. NCM has relationships with sources for "zip + four" type demographic databases which provide a layer of general information useful if nothing else specific to a household is available. This information can be inferentially converted to product and brand usage estimates for each household by means known to top advertisers and to NCM.

      2. MSO subscriber management & billing databases would provide very specific subscriber information which would be captured in NCM’s database.

      3. NCM has proven the viability of Installation Questionnaires in the BellSouth digital TV trial. This replaces the inferred product and brand usage data described above with real data for those households cooperating. NCM believes that it will be shown over time that the cable operator will swiftly recoup the cost of free installation when this is given as an incentive for filling out the Installation Questionnaire.

      4. In the same BellSouth trial, NCM showed that direct mail databases such as Donnelley, Polk, MetroMail, NDL, etc. can be matched to cable subscriber lists to provide still more targeting information (demographics, product and brand usage) per household. In that trial, 87% of cable subscribers could be matched to one or more of the latter lists.

      5. Real-time channel tuning patterns would be the ultimate data obtained by monitoring subscriber "click-streams" and making measurements of what subscribers are actually doing. Although these more sophisticated capabilities have been demonstrated by NCM in previous trials (Bell South, Chamblee for example) they are not likely to be deployed until the basic targeted advertising systems are fully implemented and operational.

  4. Optimization Model - The technical problem is developing a reliable (operations research-like) optimization system that takes into account all of the data available and produces an optimized advertising recommendation result. This is a current advertising industry topic and NCM’s Bill Harvey is a well known "expert" in the field. The NCM targeted advertising system is such an optimizer but operating at the level of addressable commercials not just at the daypart or program grouped-audience level as with traditional optimizers.


The Action Plan - A Proposed Set of Next Steps

Form Consensus Group To Champion The Concept Of Targeted Cable Advertising Scientific-Atlanta, a group of major advertising agencies, Next Century Media (the addressable advertising system provider) and other interested parties described below, have come together to champion the concept of targeted cable television advertising and to prove its merit via scientific, real-world trials.


  1. Accommodate Different Points Of View

    1. Advertisers Wishing To Move Now – Certain MSOs and advertisers have expressed interest in moving rapidly to targeted advertising deployment and ubiquitous deployment of digital set top boxes. This is attractive to some because it maximizes the base for targeted advertising as well as revenue streams from applications such as e-commerce, VOD, e-mail, TV-based web access, IP telephony, etc.. Some advertisers have indicated a willingness to make advance commitments even now and the targeted advertising coalition will attempt to bring these MSOs and advertisers together on an ad hoc basis to begin the process.

    2. Those Choosing To Wait For More Trials - Other MSOs and advertisers have chosen to join the targeted advertising coalition in conducting trials, and then waiting for the results of those trials over the next 12-18 months before making full scale commitments.

  2. Complete Technology, Testing & Field Trials Of The Targeted Advertising Concept

  3. NCM has focused interest on addressable commercials, built the necessary optimization systems, and created the first testing opportunities. With the adoption of this proposed approach to targeted television advertising and ubiquitous deployment of digital settops by advertisers and cable operators, Scientific-Atlanta along with the major Ad Agencies and other Targeted Advertising Coalition participants would be prepared to fund NCM for the completion of the remaining steps in technology development, testing, and field trials.

  4. Development of Further Plans To Share The Risk/Reward With Other Industries

  5. We also propose a continuing effort to focus on the interactive capabilities of the digital set top box and to seek additional service providers who may benefit not only from target-ability but also from ubiquitous deployment of digital boxes. The objective would be to convince these additional service providers to join this coalition and contribute to wide-spread deployment by providing additional funding in a form similar to the advance advertising commitments of the advertising industry. We imagine that a number of additional service providers would be interested in participating, in areas such as:

    1. Financial Services (Banking, Insurance, Brokerage/Investments)

    2. E-commerce (books, music, videos, computers, software, travel, etc.)

    3. Real Estate

    4. Legal Services (surprisingly large category on the Net)

In Summary – Targeted advertising and addressable commercials represent a win/win scenario and a huge opportunity for MSOs, broadcasters and cable networks, advertisers, agencies, manufacturers, cable reps, system/data suppliers and consumers. There are many potentially interested parties who might work together to bring about the rapid deployment of this new medium of targeted advertising. However, therein lies both the opportunity and the challenge: how to facilitate cooperation among a group of such diverse parties so that the opportunity does not slip away when the benefits are clearly so great and technologically within our grasp.