Can Advertising Solve The Battle Of The Set-Top Cable Box?

Have you been following the debate around giving consumers more choices for their set-top cable boxes?

The Federal Communications Commission (FCC) has only just opened up the debate for public comment, so we are still probably a few years away from being unshackled from forcibly renting our set-top boxes from our cable companies. As this unfolds, it should be interesting to see how advertisers exploit this new opening.

I suspect that the cable companies will be unable to maintain their monopoly in the end. There is just something intuitively appealing about actually owning your set-top box. The reasons for this will range from the purely superficial (“This Apple box looks awesome with the rest of my entertainment center”) to naively political (“I am not giving ‘The Man’ any more of my money”) to practical (“One device to rule them all”). Any or all of them are likely to drown out the “stifling innovation” argument that Comcast recently put forward.

The thing I’m most curious about is how this will impact the future of TV advertising. I think hardware will play a huge role in three key areas, including ad addressability since whoever controls the box may be in a position to control at least some of the advertising that viewers see, and even create an entirely new stream of ads.

There is also the issue of programming navigation. If the viewer can tailor their schedule view, consumers retain at least some control over the volume of ad messages to which they may be exposed.

Finally, what about viewer control? Will the viewer be able to skip ads and ad supported content outright?

Your Worst Audience: Me

Now, if I put on my couch potato hat on and put together my set-top box key features wish list, it would look something like this:

• Easy schedule creation and navigation with the ability to filter out channels I never watch
• High-functioning DVR capabilities (read: commercial skipping on live TV)
• Easy toggling between traditional linear programming and my on-demand and OTT options, such as Netflix, Hulu and Amazon. Even better would be seamless integration of those options with my schedule view.

That’s right, couch-potato Bryan is an advertiser’s nightmare, which, ironically, makes me my own worst enemy.

Cost Tolerance

The thing I am realizing is that even if the new, consumer-owned boxes meet my criteria above, these boxes need to be really, really cheap.

Figure that a Blu-ray player, a Roku or an Apple TV can be had for perhaps as little as 50 or a 100 bucks each and that an entry-level gaming console can be found for maybe $300. You can easily triangulate where the price for these new boxes will need to fall: well under $150.

You will almost certainly forget that you’ve probably been renting your current box for at least that much or more, so really any outlay for the box is going to feel like a slap, because in the end, there’s only so much a person would be willing to pay in order to free up some HDMI ports and to get rid of a remote or two.

And odds are, many will need more than one box. You can see why there is a school of thought that says that an app-based solution is more likely to win out than a hardware-based one: I am actually not really sure that hardware manufacturers would have that much incentive to get into this game in the first place unless some supplemental revenue stream can be found.

Advertising Fixes Everything

So, if I take off my couch-potato hat, my first objective as an advertiser is to figure out how to make this new piece of hardware a reliable ad-delivery mechanism to circumvent couch-potato me.

A technology set-piece has to facilitate the simple notion of “right audience, right ad” so it should collect and pass information about who’s watching what and when, and seamlessly deliver the most appropriate ads possible.

If the cable company doesn’t own the box, I’m guessing it’s not a sure thing that they’re going to be the sole owners and users of this data, which means that some forms of addressable advertising could become a more open marketplace. The implication here is that every maker of boxes would have the potential to become a broker in audience targeting, kind of like the ad products that Tivo offered in the early 2000s.

As hardware adoption ramps up, this also means that it will be a brutally fragmented market that will force advertisers to cobble together reach via a variety of platforms, vendors and, potentially, standards.

The best way I can think of to accelerate the widespread use of the new boxes and to accumulate substantial reach is to give them away. And the easiest way to give them away is to subsidize them with advertising.

I actually like this scenario because the value exchange is perfectly transparent: In return for this free box that does a bunch of the stuff I was hoping it could do, I am subjecting myself to more and better targeted advertising. Elements of this underpin the models of Hulu, HBO, Amazon (think Kindle Fire with or without ads) and even network TV. It’s basically already in operation across your media consumption spectrum and governed only by what you think quality content is worth.

Granted this is only one of many possible outcomes, and the thing that gives me pause and makes me wonder if the logic is off is that I have a feeling that the best entities to subsidize the “free” boxes will probably be the cable companies.

How’s that for full circle? Hey, Comcast: Quit charging me for these stupid boxes! I actually think that may be all the FCC is really saying.