Marketers care first and foremost about reaching their target customer. Content (media) has traditionally been a proxy for reaching those consumers.

But that's all changing now, and it will adversely impact old media (such as broadcast and cable TV), which does not have strong audience targetting capabilities.

There is a philosophical shift on Madison Avenue, where major agency holding company media services operations say they have shifted from a mentality of "buying media," to one of "buying audiences," and that technology and automation have enabled them to accelerate that shift.

"Data is the fuel that drives today's audience targeting engines. Data-driven audience planning and targeting tools ultimately enable brands and their agencies to reach and target verified audiences of prospects that look like their best customers," David Helmreich, vice president-interactive markets at verified audience data provider TARGUSinfo writes in the report.

Rubicon described this shift as "advertising 3.0," and said it will really start to accelerate as publishers begin selling their "audiences - not just their sites, zones, brand and content."

Story:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=117611

I love Pandora. It gets very close to the perfect, utopian radio experience: fresh selection of music you love with amazingly accurate recommendations mixed in. The more you use it, the smarter it gets about what you like. And it's portable across almost all devices.

But, like Hulu, I'm concerned they don't have a sustainable biz model yet. They've secured the rights to stream practically the entire commercial music library in exchange for giving back a percentage of revenues to the content providers. They make money from selling display ads in their apps and (supposedly) short audio ads (I've NEVER heard one). This is similar to Hulu's model for TV content. Pandora also has a premium account that gives paying customers more control over their music stream and other enhancements to the experience.

Leaving their premium upgrade aside for now (I don't know how much % revenue that brings in for them), Pandora can't possibly make much money from their current ad products. I can't imagine how they will keep the content providers happy AND retain enough margin above streaming costs to build a large profitable business.

They have the same fundamental problem that Hulu has: consumers have much less tolerance for commercials in on-demand content environments (or pseudo on-demand, like Pandora) as they do in the traditional, force-fed broadcast environments (radio and broadcast TV).

As a result, Hulu makes just 1\3 the ad revenue per viewer episode of The Simpsons than Fox makes via broadcast and cable.

Now I don't know this for sure, but my very strong hunch is that the same dynamic is at work for Pandora, if not worse. Display ads in streaming music apps? Come on! People plug Pandora in and walk away. No ads seen. And audio ads? Again, I have never once heard an audio ad and I listen to Pandora almost every day. Even if there were abundant audio ads, Pandora would still run up against the same problem Hulu has in dealing with consumer intolerance for disruptive ads in streaming content.

I've probably listened to 1,000 songs streamed on Pandora and have never clicked on an ad or even heard an audio ad. That's not a business model that I'd bet on.

Like Hulu, Pandora will have to go with a subscription model. And I will gladly pay for it!

Well, because it will be better than the alternatives, if we want streaming video on-demand, across all devices.

The primary alternatives are:

1. Paying a la cart for "streaming rights" to individual shows and movies. This is the model Disney likes, which has Steve Jobs' fingerprints all over it (Mr. Jobs is a very large, influential Disney shareholder).

2. Paying separately at each individual site that provides premium video, such as Hulu.com, HBO.com, ESPN.com, etc.

The fact is that we, the viewers, are going to have to pay for premium video content moving forward. The economics are such that pure ad models online for premium TV and movies are simply not generating enough revenue to create sustainable businesses. That being the case, we are going to pay one way or another.

Personally, I would rather have a small, additional fee added to my cable bill to access all my TV content on-demand, across multiple websites and on any device.

The extra money I pay will actually go mostly to the content providers, not Comcast, to approximate the carriage fees they get via traditional cable distribution. This will help ensure the selection of streaming content is the actual content we want, without the glaring holes we see today on Hulu and expected in Comcast's initial rollout of its free version of TV Everywhere in Jan.

I believe the convenience, freedom, and content selection will be worth paying Comcast another $10 to $20 per month.

The momentum is definitely turning towards a paid content model for online TV access these days!

More accurately: the momentum is for a hybrid model mixing free (ad supported) and paid content. The reality is that the "Hulu experiment" for NBC and Fox has had mixed results.

Yes, Hulu has been very successful in building a large online audience very quickly (with the help of exclusive primetime TV content deals, a Super Bowl commercial, and tens of millions $ in marketing).

But Hulu has thus far been unable to show an advertising business model that comes close to matching cable / broadcast models. Hulu generates just a third the revenue per viewer episode than traditional TV from advertising. While there are lots of reasons for this, the basic reason is that viewers have a much lower tolerance for TV commercials in a lean-forward (at computer) environment than in a lean-back (living room) environment.

So the "Hulu experiment" will soon be entering a new phase of its life which involves extracting a little flesh from its viewers. We don't yet know how exactly this will be implemented. It is likely going to be different than the cable-industry's TV Everywhere initiative, which requires users to prove (authenticate) they are paying cable subscribers before getting access to certain content.

It might be more similar to Disney's newly announced iTunes-like, pay-per-show model they announced yesterday.

We shall see. But all of this is certainly a sign of the times. Here's the story on Hulu's move to a paid model:

http://mobile.broadcastingcable.com/blog/ADverse_Atkinson_on_Advertising/23941-Chase_Carey_Hulu_to_Charge_in_2010.php?nid=2228&source=title&rid=6454445

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http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=115617

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http://www.broadbandreports.com/shownews/Comcast-Broadcasters-Will-Determine-TV-Everywhere-Ads-104967

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Comcast making their Video On Demand (via cable, no yet web) offering a better advertising opportunity for content providers. The hope is that "time-shifted" (after initial broadcast) TV can be as well monetized via ads as the original broadcast.

Here's the article:

http://mobile.broadcastingcable.com/article/357755-Comcast_Taps_BlackArrow_For_VOD_Ads.php?rssid=20102