Cable TV Ad Insertion

Problem:
The leading provider of Cable TV Advertising Insertion Equipment was concerned that local cable spot advertising was not getting its "fair share” of advertising revenue dollars as compared to cable television's share of the audience.  The client wanted to understand why this was the case, and what could be done to change the situation.

Process and Findings: 
The process involved main two phases: 
 
Phase 1 — Data Collection and Analysis
 
To determine whether the facts supported the client’s supposition, we analyzed network television, syndicate, local broadcast and local cable advertising revenues and available advertising slots. We also looked at  the number of cable television operators (MSOs) that were using advertising insertion equipment, and on which cable channels they were employed.
 
Our analysis indicated that, contrary to the client’s supposition, local cable advertising was getting its "fair share” of cable advertising dollars. The analysis revealed that the rate of local cable spots, as measured by viewership, was greater than that of local broadcast rates.  The data also showed that the majority of cable "avails" were sold.
 
The analysis revealed that the reason the overall amount spent on local cable spot advertising was low relative to cable’s overall viewership was that the cable operators were not installing equipment to insert local advertising beyond the top five to seven cable channels.  This was due to the diminishing return on advertising on lesser-watched channels against the fixed cost of the advertising insertion equipment and cost of distributing the advertising material.

Phase II —  Examining Economics and Potential for Change

We conducted research to understand the economics of the cable operator’s advertising activity and determine whether alternate technologies were available to change the economic equation. We found that it was necessary to dramatically reduce the distribution cost of the ads, which at the time required the manual transportation of videotape.

Unfortunately, at the time, the technology for digital compression and broadband distribution did not exist, and there was no near-term opportunity to change the economic equation.

Result:
Based on the results, the company lowered its view of the market potential for its current video tape product line and adjust its investment plans accordingly. Subsequently, the company also determined that it did not possess the engineering expertise to participate in digital-based video distribution, and decided to milk its tape-based product line rather than invest in new technology development.