As reported in the NY Times:
Master of Search Seeks Mastery of the TV Dial
By MIGUEL HELFT
SAN FRANCISCO, April 2 — Following its conquest of YouTube last year, Google is now aiming for a piece of the old-fashioned tube.
The Internet search giant is announcing Tuesday that it will begin selling television ads on the 125 national satellite programming channels distributed by EchoStar Communications’ DISH Network.
The agreement is Google’s latest foray into offline media, and it underscores the company’s ambition to bring its wildly successful online advertising technology and auction-based pricing to new markets to continue fueling the company’s rapid growth.
Google’s online advertising technology has appealed to advertisers in large part because it allows them to aim ads effectively at specific audiences and users, and to measure the performance of those ads quickly. The company hopes it can bring those forces to old-line media.
“We think we can add value to this important medium by delivering more relevant ads to viewers, providing better accountability for advertisers and better monetize inventory for TV operators and programmers,” Google’s chief executive, Eric E. Schmidt, said in a statement announcing the EchoStar partnership.
Last year, Google began tests to sell radio spots and newspaper ads. Those tests have been inconclusive so far, and some analysts say the company needs to show investors that it can succeed in a market other than Internet search and advertising, which accounts for the bulk of its revenue.
“For Google to maintain its current momentum, it needs to become the king of something else beyond search, or play a meaningful role in a market that is much larger than the $16 billion online advertising market,” said Jordan Rohan, an analyst with RBC Capital Markets.
For Google, the $70 billion television advertising market offers a potentially lucrative payoff. But Google is likely to encounter some resistance from cable operators with established sales forces, and competition from technology start-ups that also hope to broker TV ads.
Google’s official entry into television advertising has been widely anticipated, and it follows a limited test the company has been conducting since last year with a small Northern California cable system. The agreement with EchoStar, which has about 13 million subscribers, will allow Google to test its system nationwide.
Google will begin to place ads on the DISH Network in the next few months. A few dozen advertisers are expected to take part in the system initially, and Google says it hopes to open the program eventually to its entire base of advertisers.
“The EchoStar partnership allows us to take this to a national TV audience in all of their networks,” said Keval Desai, Google’s director of product management for TV.
Mr. Desai said the television ad system would work much like Google’s existing online and offline advertising systems. EchoStar would make some unspecified amount of air time available to Google’s advertisers. Advertisers or agencies would upload video spots to the system along with their desired target audience or network and would specify the price they are willing to bid for the air time.
Google’s ad system would then select the winning ads and play them on the air. Using information collected by EchoStar’s set-top satellite boxes, it will be able to give advertisers a report showing how many people viewed any ad and whether users tuned it out in the first few seconds.
Google will also use information collected by EchoStar to deliver the ads to their target audiences more precisely, the companies said.
Advertisers will not be able to designate specific households, but will be able to choose individual networks like ESPN or MTV and a time of day. Alternatively, they could choose a demographic group or geographic region, and Google’s system would schedule the ads across a variety of networks.
“Through this groundbreaking partnership with Google, we are confident we will be able to bring increased efficiencies to DISH Network’s advertising sales and more accurate, up-to-date viewer measurement with easily accessible online reporting to advertisers,” Charles W. Ergen, EchoStar’s chief executive officer, said in a statement.
Advertisers and agencies testing the system with Google said they were hopeful that it would prove compelling.
“The Internet is very effective for our clients,” said David Kenny, chief executive of the online marketing agency Digitas.
Mr. Kenny, who is also responsible for the digital strategy of the Publicis Groupe, the parent company of Digitas, added, “If we can do the same on the television screen with video assets, it has tremendous potential.”
But Mr. Kenny noted that the inventory available through Google’s system would most likely represent only a small slice of the overall television advertising market.
“This test is not a test that is going to change the future of television,” Mr. Kenny said.
One of Google’s biggest challenges in selling radio advertising has been its inability to obtain sufficient amounts of air time during prime-time hours and from top radio networks. Mr. Desai said that the EchoStar partnership included air time during all hours of the day and that Google was actively seeking other partners, including cable operators, satellite providers, television networks and local stations.
Michael Kelly, EchoStar’s executive vice president for advertising, said the advertising air time available through the system would be a “small percentage of EchoStar’s overall inventory.”
But he said Google’s ability to deliver ads that are more relevant to viewers, its auction model for selling ads and its expected ability to bring new advertisers to television would be good for EchoStar.
“I think it will have a positive impact on prices,” Mr. Kelly said.
Delivering more relevant ads may also allay fears among advertisers that viewers will increasingly use digital video recorders to skip ads, Mr. Kelly said.
Neither Google nor EchoStar would discuss how revenue from ads would be split between them. When Google sells ads on other companies’ Web sites, it gives the majority of the advertising revenue to those companies and keeps only a small portion.
Some analysts believe that if successful, Google’s technology could invigorate television advertising.
“It is very timely that TV can catch up and even surpass the Internet in terms of accountability,” said Bill Harvey, a media researcher and president of Bill Harvey Consulting.
But Mr. Harvey said Google might encounter resistance as it tries to sign up more partners.
“From the ad sales standpoint, Google competes with the networks’ own sales forces,” he said. “That could slow the adoption.”
Spot Runner, a start-up company that offers an automated online system to broker television ads, is already placing spots from large companies and small local businesses on most major cable networks, said Nick Grouf, the company’s co-founder and chief executive.
Mr. Grouf also said cable technology provides more interactivity and is better suited for precise ad delivery than satellite television.