Canoe Ventures' David Verklin Seeks to Ignite a Recalcitrant TV Industry and Fire-Up Interactive TV

Can Canoe Ventures overcome years of failed ITV investments and fulfill a 35-year old quest to bring interactivity to the television industry?

Interactive television advertising expenditures are projected to grow from a miniscule $50 million in 2010 to a robust $9.65 billion in 2020, according to exclusive Jack Myers Media Business Report data. (See our detailed 2010-2020 growth data chart below.) However, that growth does not achieve "hockey stick" proportions until 2017, when it increases from less than $2 billion in 2016 to $3.5 billion. The key question confronting the industry during the next several months will be whether Canoe Ventures will be the organization designated to lead that growth through this decade. And, if Canoe does not survive and succeed, will the growth rate of ITV advertising slow dramatically?

Canoe was funded three years ago by six leading cable multi-system operators (MSOs): Comcast, Time Warner, Cablevision, Cox, Charter and Brighthouse. Led by advertising veteran David Verklin, http://www.canoe-ventures.com/leadership.php Canoe has focused its substantial economic resources on engineering in an attempt to build an interoperable industry digital infrastructure and create a universal TV industry interactive backbone that can enable immediate consumer response to advertisers' offerings across a large national footprint.

Verklin's task of building an economically and technologically viable national ITV platform has been daunting. Not only has he had to "herd the cats" (as one industry observer commented on MSO incompatibility), overcome a community that doubts the sincerity of the cable industry's commitment, and manage his own innate enthusiasm, but to date Canoe has been successful only in enabling a request-for-information (RFI) platform and (coming soon) polling, voting and trivia. While generating significant publicity, Canoe has failed to achieve the ambitious goals outlined by Verklin early in his tenure. While he continues to be an advocate for both TV interactivity and Canoe, his enthusiasm is tempered by reality, and even industry supporters for Canoe's initiatives are reluctant to speak on the record.

Jacqueline Corbelli, founder and CEO of eight-year old BrightLine, an agency specializing in ITV by using set-top box data to inform, develop, implement and measure interactive ad campaigns, points out that marketers are active advocates for ITV campaigns once they understand the opportunities to build return-on-investment into their TV campaigns. But Corbelli, who employs 40 ITV developers, agrees with Verklin that adoption is slow as current business models and embedded industry relationships discourage innovation. However, as digital media expand, she believes marketers will increasingly expect consumer-response opportunities to be available from all their media options.

While investing in and supporting Canoe, Cablevision has been independently building interactive advertising tools in its New York cable systems under the guidance of Barry Frey, who reports significant success among a limited but growing group of advertisers.

Verklin outlines the Canoe mission as an investment "to determine whether ITV is one of the ways for programming networks to generate significant incremental revenues." He acknowledges that his mission has been a challenging one. While he believes ITV "could be the next big moneymaker if the networks embrace it," he wonders if networks and agencies will "squander the opportunity by not dealing with the complexity" of the required development effort. "This is a sedentary and reluctant market," he points out.

"If Myers' economic projections of nearly $10 billion in 2020 are right or even half right, and the economic split is 50-50 among programmers and operators, it is significant coin," Verklin observes. "The challenge for networks is to make the investment as we ramp up. What does TV look like in 2015 and 2020, and how much of a threat is the Internet? If you are in a business that is growing in low single digits, you want to pay attention to advanced TV, which is one of few growth opportunities out there. Selling linear 30-second commercials without advances is a recipe for serious challenge on Wall Street and Madison Avenue. The linear :30 has to evolve on TV."

Funding for Canoe is reported to have been renewed for another three years and Verklin's contract is up for renewal this summer.

As of today Canoe's footprint of EBIF (Enhanced TV Binary Interchange Format) enabled households is about the same as the subscriber base of Netflix, at nearly 20 million. Of course, Netflix consumers pay an incremental monthly fee, while Canoe is dependent on continuing strategic investments from a cable industry that is struggling with "over-the-top" competition and resulting subscriber declines. Verklin anticipates growth to 30 million homes by the end of this year and he argues that interactivity is a key value proposition for cable and satellite operators.

Currently, three programming networks, E!, Style and AMC, are actively involved in selling Canoe-enabled ITV campaigns. By the end of this month, says Verklin, there will be seven networks selling ITV applications as Discovery, History, Bravo and USA ramp up their offerings. He hopes Canoe-enabled interactivity will be available from 15 to 20 cable networks by the end of the year. Such growth will most likely be spurred by Comcast's NBCU networks. By 2015, Verklin believes broadcast networks will also be enabled.

The vision of Canoe is to expand its base of cable MSOs and then include Verizon's FIOS, ATT's Uverse, DirectTV and Dish Network. "We hope they will get into the canoe," quips Verklin. "Our intent and hope is to convince others to join us. When ITV is available across the entire spectrum of distribution," Verklin envisions, "networks should be able to have a deterministic vote for American Idol or Dancing with the Stars. T-commerce will incorporate an immediate click-to-buy generated by infomercials, direct TV spots, and even merchandise from the programming networks and studios themselves. There will be a suite of ITV products."

Canoe's RFI platform represents a simple product that is sold by existing network sales forces and is purchased by existing agency media buyers. The TV screen overlay is a text box with logo that comes from the bottom of the screen three seconds after the start of a commercial, providing an offer with a "yes," "no," "exit" option. It's activated with the existing remote control, connects to the cable operator database and allows for maildistribution. In the future, an e-mail and SMS return path is anticipated. The current criticisms of Canoe's advertising platform include:

• it is too expensive as an incremental add-on to existing advertising campaigns;
• the audience footprint now and into the foreseeable future does not represent a scalable business;
• TV salespeople are not the best advocates for ITV nor are they trained in the skills required to adequately represent and manage ITV campaigns;
• Agency TV buyers are not the appropriate targets for advancing arguments for ITV campaigns to corporate chief marketing officers and brand managers, who often must be engaged and involved in the decision to approve ITV.

The results for the three networks currently deploying RFI are encouraging however, says Verklin. An online display ad "click-through" averages .15% or less. For ITV, the click-through is reported to be 4 to 6 times that rate, averaging .25 to 1.0%, with some offers generating 1.5% response.

By the second-half of this year Canoe will also offer interactive polling and will also launch "fun to play trivial applications with social networking."

Addressable TV advertising, often bundled with ITV, has also been slow to evolve after more than a decade of investments by Visable World, Invidi , Microsoft's Advertising TV Network (Admira)and others. Canoe has been actively engaged with Visible World and is exploring addressable interactivity, delivered based on household demographic and psychographic and regional profiles.

Verklin argues that "no one is projecting that large screen video devices will not be in your home in 2015 or 2020. Even George Orwell had a large screen in the home. That large screen device will still be referred to as TV. It needs to be imbued with targeting and interactivity that consumers and advertisers expect from other platforms. TV better have the capabilities that online media deliver."

If ITV is to become a meaningful industry revenue stream, expanded industry-wide capabilities and technological compatibility will be essential.

Is Canoe essential to this future? Certainly, cable operators must be committed to interoperability if the ITV industry is to move forward. If Canoe fails to achieve that basic goal, it could represent a significant set-back and would definitely be a PR black mark for the cable industry. But the implications may not be as severe as those resulting from the cable industry's early decisions to slow the introduction of digital set-top boxes. Since the earliest days of the cable industry, MSOs have purposely rejected interoperable set top boxes, thereby preventing subscribers from carrying their boxes from one system to another when moving from town to town. Interactivity was dealt a major set-back when the industry, nearly a decade ago, opted to reject advanced set-top boxes in favor of maintaining so-called "dumb boxes." This decision resulted in the failure of many ITV initiatives that had been showing great promise, including dynamic ad insertion into VOD content, Wink, ICTV, ACTV, OpenTV and Canal Plus.From 1999 to 2001, these companies along with Microsoft and several others funded the Forum for Interactive TV Development, a quarterly gathering of industry executives attended by more than 2,500 executives during that period. (Full disclosure: Jack Myers organized and hosted the Forum.) Interactive TV initiatives date back to Warner Communications' QUBE in the 1970s and Time Warner'sFull Service Network in the 1990s, both of which failed to meet even the most conservative business goals although technologically they exceeded many current ITV achievements.

Verklin defends Canoe as the industry's answer to past ITV failures. "Canoe is the largest collaborative infrastructure ever conducted by the U.S. cable industry. We have achieved a lot." Confronting his critics, he asks, "In the two years it has taken us to get to this point, what opportunities have we missed? Has the electronics marketplace taken off without us? Has Google TV taken off? Has the VOD model evaporated? Has ITV lost an advantage to the Internet and made ITV irrelevant. How about set top box data – has the market evaporated? We have had a two year enormous infrastructure project. We have stuck to our knitting. We are experimenting with addressability. We created a national interoperability program. We are the size of Netflix with far greater growth opportunities. What have we missed by taking so long? What part of the market opportunity has slipped through our fingers? We are in the catbird seat. We are humming along with real interactive products. We have been talking about ITV since QUBE in 1977. It is in the market today and growing."

As Verklin looks to the future his role is clear. "I need to convince a recalcitrant TV business there is a 'there, there'. I'm asking the networks to sell something they have never sold before. We need to ignite the market and it is a challenge. Our final piece is marketplace ignition."

You are receiving this e-mail as a corporate subscriber to Jack Myers Media Business Report. Re-distribution in any form, except among approved individuals within your company, is prohibited. As a subscriber you have full access to all archives and reports at www.jackmyers.com. If you require your ID and password, contact maryann@jackmyers.com