U.S. cable companies and satellite TV providers, locked in battle with broadcasters and online sites for advertising, are taking a page from Google Inc by using data on their subscribers' tastes to serve up tailored commercials.
In Los Angeles, a 35-year-old female DirecTV subscriber with a cat might get a spot promoting cat food, while the satellite provider would beam a car advertisement to her next door neighbor, a bachelor watching the same channel.
DirecTV combines data it collects from viewing habits from its customers' digital video recorders with information from third-party market researchers in categories such as income, gender, age and buying habits. This is how it figures out how to send the right ad to the person on the other end of the pitch.
"We can target based on demographics, household income, geo-targeting, home owners versus rental - a wide variety," said Paul Guyardo, chief revenue and marketing officer for DirecTV.
This makes commercials more relevant to customers and "can move dollars back into national television because we can provide the same targeting as online ads," Guyardo said.
DirecTV said it keeps this data anonymous and in "aggregate form" so it does not invade its customers' privacy.
Dish Network Inc and cable providers Comcast Corp and Cablevision Systems Corp also let advertisers create "addressable" ads, using third-party data on demographics and buying patterns to aim for certain types of subscribers.
DirecTV and the other providers said they do not target ads based on the specific programs their customers are watching.
Part of the information DirecTV uses comes from data on which customers pay for premium subscriptions, watch shows on demand or how much they spend on movies.
Dish's senior vice president of media sales Warren Schlichting said his company is taking a more conservative approach than DirecTV by choosing not to target ads based on behavioral viewing habits. He said this is because Dish does not want to make any customers uncomfortable.
As it relates to privacy, "the rules need to be worked out as companies and viewers get used to this new approach in advertising," Schlicting said.
Comcast declined to comment about why the company does not use TV viewing data to tailor ads and Cablevision did not immediately respond to a request for comment.
Pay television providers say the data they use is kept anonymous and aggregated, which blocks them from connecting a name and address with specific details about a household, and that customers can opt out from receiving targeted ads.
Even so, some consumer advocates bristle at the amount of data TV providers can use to target ads to viewers.
"They have more information today through your TV viewing than they have ever had before," said Jeff Chester, executive director of the Center for Digital Democracy. "Consumers are getting little in return except an invasion of privacy."
TWO COMMERCIALS PER HOUR
Technology to deliver customized ads is widely used online by companies such as Google and Facebook Inc, but is only now starting to get a foothold among TV providers.
In January, DirecTV allowed 40 of its advertisers, including Allstate and Volkswagen, use its addressable technology to send ads.
DirecTV's agreements with the cable channels allow the satellite operator to intercept and replace an average of two minutes every hour with its own commercials on such heavily watched channels as Walt Disney Co's ESPN and AMC Networks Inc. It can beam addressable commercials for those advertisers to 12 million of its subscribers who have digital video recorders.
DirecTV is on track to generate more than $60 million in revenue from those ads by year's end, according to a person familiar with the matter. That figure is up from zero a year ago and growing by a double-digit percentage.
In March, premium movie channel Starz tested addressable advertising for five days by targeting ads using data from DirecTV to pinpoint movie fans between the ages of 35 and 54 who also were subscribers of rival HBO. Those customers got an ad tailored for them promoting the Starz service for $12.99 per month.
Starz saw a "huge lift" in sales, according to Ed Huguez, president of affiliate distribution at premium movie channel Starz. Sales jumped 49 percent among the targeted viewers compared with another group who were less likely to watch movies that Starz approached with a more general offer.
That prompted Starz to invest a "meaningful amount of money" in a two-week campaign in June to use commercials promoting different offers tailored to its target audience. For instance, discounts were offered to consumers that Starz considered less likely to subscribe.
"We have multiple offers based on who we know will get that commercial," Huguez said. "If you're going to spend tens of millions of dollars to promote and drive your business, you want those dollars to be spent on those who have the highest probability of buying."
Dish Network, DirecTV's satellite TV rival, is signing six and seven figure deals with advertisers for its addressable technology, which now reaches 7 million homes, according to Dish's Schlichting.
Cable provider Comcast also has started offering addressable options to advertisers. One credit card provider used data from market research firm Experian to send TV commercials to Comcast customers in zip codes with a larger number of households earning $150,000-plus and credit scores over 700.
Online credit card applications in those areas more than doubled, said Andrew Ward, a group vice president for Comcast Spotlight, the advertising sales division of Comcast Cable.
Comcast plans to use the technology to make its own TV advertising more efficient by avoiding ads that promote its "triple play" offer, combining phone, Internet and cable services in a single package, to subscribers who already have it. Instead, those customers might get a pitch for Comcast's home security offering.
The ads have potential, but there are hurdles before the technology becomes widespread, said Jeff Minsky, director of emerging media at media agency OMD.
Buying the custom ads currently requires an extra step of signing an agreement with a cable or satellite operator and prices still run high, said Minsky, who has some deals for tailored ads in the works.
"I would like to have that personal conversation with the consumer, but sometimes it's more cost-effective to just have a mass-market, national commercial," Minsky added.
(Reporting By Liana B. Baker in New York and Lisa Richwine in Los Angeles; Edited by Ron Grover, Leslie Gevirtz and Andre Grenon)