Mark Sherman is founder and president of etc.tv, which operates an eponymous interactive advertising service on Quebec-based cable MSO Videotron's networks. The service, which launched commercially last October, and whose clients include Procter & Gamble, GM and Sony Pictures, allows viewers to "telescope" from a 30-second commercial to long-form advertising, hosted on VOD servers. Sherman recently spoke to [itvt]'s Tracy Swedlow about the genesis of the service; about its business model; about etc.tv's plans to expand the service to English-speaking Canada and the US; about why he believes interactive TV services should offer a "high level of TV" and a "low level of interactivity"; and more.

[itvt]: How did you come to start etc.tv, Mark?

Sherman: My story starts like this: At the turn of the century, I went to an interactive television conference in New York, hosted by a fellow named Jack Myers, whom you're probably familiar with.

[itvt]: Absolutely.

Sherman: I don't really know why I went to that conference. It might have been because I was bored with GRP's, CPM's, and so on. But, more likely, it was because I have a longstanding interest in television: in addition to being the founder and president of etc.tv, I'm the founder and CEO of a company called Media Experts, which is Canada's largest independent media planning and buying company. So I was already in the business of television. But, anyway, I went to that conference and I learned about how interactivity was going to change television--how you would be able to click from an icon on your TV screen to a Web site, and realize many of the convergence ideas that I was first exposed to back in the days of something called the Sega Channel. Do you remember the Sega channel?

[itvt]: Yes.

Sherman: Well, as you know, it was a joint venture between Sega of America and Time Warner. It featured a device that, when plugged into the cartridge slot of a Sega Genesis 16-bit console, facilitated the downloading of games on a pay-per-play or subscription basis. I was involved with a group of executives who were tasked with getting the Sega channel licensed in Canada. This was actually the first license ever granted to a broadcaster that did not have the requisite Canadian ownership--I guess because what they were doing was so cutting-edge. So, at that time, I was exposed to this notion that data could be carried on cable television networks. That was in the early to mid-90's, when it was called the "information superhighway"; most of what they were doing was subsequently superseded by the arrival of the World Wide Web.

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Anyway, I was very excited by what I saw and heard at this conference. I was excited because advertisers were begging us for accountability even back then, and it was clear that these new technologies that were in development could indeed make television more accountable, thanks to bidirectionality, addressability and so on. Now, I should be clear that not everything I saw at the conference impressed me: I remember seeing MSN TV for the first time, and I wasn't terribly excited by that. It was a very early-stage technology at the time, but my difficulty with it was less about technology, and more about consumer behavior: what didn't really add up for me was this expectation that somebody who was lying back in their recliner with a beer in one hand and a remote control in the other would lean forward and grab a keyboard and start typing in URL's and chatting and so on. In short, the reason why things like MSN TV and AOL TV seemed so ungainly to me was that they didn't seem to be about television. Instead, they seemed to be about some engineer's concept of how television and the Internet were going to converge.

But I also saw at that conference a prototype movies-on-demand application, and I found the concept absolutely fascinating. This was back in 1999 or 2000, when VOD had not yet been deployed. Also, a number of speakers talked about TiVo, and succeeded in convincing me to get one.

At any rate, after that conference, I began to think about how consumers click on the Web in order to get more information on something that interests them--how that model could possibly work on television. As I just mentioned, I didn't think that--from a consumer behavior point of view--just putting the Web on TV would work. But, after seeing that movies-on-demand application, I did start to think that it would make a lot of sense to be able to click from a 30-second ad to a long-form ad that would be served off of a VOD server. I was convinced that an interactive television experience had to be very simple--at least from the viewer's perspective. It had to be compatible with somebody who was sitting in their recliner with a beer in one hand and a remote in the other. It had to have a high level of TV--that is, be emotionally engaging--and a low, low level of interactivity.

Anyway, in addition to starting to think how it would be possible to implement this kind of "telescoping" from commercials to long-form content, given that I'm in the advertising business I decided that we should develop a brand. We chose the name, etc.tv, because it meant "more" and because, as a Latin-based word, it worked in both the official languages of Canada. And, in July of 2001, we created a vaporware demo. This demo included exactly the same functionality as in our now-deployed application, save for the fact that its graphics did not suffer the limitations of the settop box environment.

[itvt]: So you incubated etc.tv from within your other company, Media Experts?

Sherman: Yes. In July of 2001, Ian MacLean, who's now VP and general manager at etc.tv, joined Media Experts as VP of our new iTVLab. He came to us from a 22-year career in broadcasting, with vast experience in programming, promotion, regulatory issues and sales. The iTVLab was established as a unit of Media Experts to better understand how interactivity and new television technologies, like PVR's and VOD, would impact our advertisers, and also to incubate the etc.tv business model.

[itvt]: When did you start reaching out to the advertising community?

Sherman: Around this time. We visited around 30 ad agencies, media departments and advertisers in Toronto and Montreal. We talked to all the big shops, and we offered focus groups, that we called "Lunchand-Learns," about interactive TV.

We showed them some of the interactive advertising that was going on in Europe--so stuff from BSkyB in the UK and Canal Plus in France, and also some stuff from Wink. And it became very clear to us that things like microsites--and, in particular, the stuff that Wink was doing at the time--made the creative people yawn. Most of the stuff that was out there was simply uninteresting to the advertising community. But when we showed them this notion we'd developed of being able to jump from linear TV to on-demand TV, and of thereby being able to extend the advertising conversation with the opt-in consumer, they became very excited.

From there, we started taking our demo to broadcasters, who thought it was fantastic, and to cable companies, who became quite interested. Ultimately--and by now, this was around 2003—we reached an agreement with a cable company called Videotron, here in Quebec, to undertake a development and subsequent deployment with them. As you may know, they're Canada's third largest cable company.

Following that, we reached a development agreement with a Quebec-based broadcast network called TVA, that has a 28 share--so the kind of share that one of the American networks would have had 30 years ago. The significance of their having such a large share is that it shows that we can really put heavy loads on our platform and scale it--but I'm getting ahead of myself here. Once we had all these deals in place, we set about assembling a consortium of developers, a group of smart companies who had the requisite skill sets, and who could work with us in realizing the telescoping solution we had in mind. We began assembling those developers in the 2003/2004 timeframe, and, in April of 2006, we deployed a working telescoping application to 274,000 Videotron households, and began a trial that included such advertisers as Unilever, P&G, GM, and Molson.

Then, on October 23rd, 2006, we commercially launched etc.tv across Videotron's networks, in partnership with TVA. It reaches 800,000 set-top boxes in 650,000 homes.

[itvt]: Now, I understand there were some improvements in your platform between the trial and the commercial deployment, correct?

Sherman: Yes. The trial was limited to boxes that had more than 16 megs of memory. The client that we put in the set-top box when we launched etc.tv commercially is able to perform sufficiently well in an 8-meg box. Which means that we're now available to all Videotron's digital cable customers: they'll be sitting watching TVA, and a spot will come on the air with an icon that lets them know they can interact with it.

[itvt]: How many viewers have used etc.tv to date?

Sherman: I would say that's in the range of over 100,000 by now.

[itvt]: What percentage of people who see the icon click through to long-form advertising content?

Sherman: Well, that's a number that we have invested a lot of money to learn, and it's proprietary. I can't discuss it--at least not on the record. But I will say that the click-to-view rate is sufficiently high to make it extremely lucrative for any broadcaster or television distributor. I would claim that the amount of revenue that can be garnered from an application like this is sufficient to cure the woes of TV as we move forward. It's a big number.

[itvt]: What's the business model?

Sherman: We have a pay-per-view model. The way the application works is that, four seconds into the 30-second spot, an icon appears on the screen. The viewer has been conditioned to understand from on-air promotional activity that this etc.tv icon means that there's extended content associated with that advertiser's 30-second spot.

If they choose to press "select," an overlay appears on the lower third of the screen, which offers them an explanation of what that extended content is about--and three options. They can press "A" to view the extended content immediately, in which case they move to an ondemand video session.

They can press "B" to create a bookmark, in which case an overlay comes up on the screen and gives them instructions on how to tune to Channel 909, their personalized bookmark page. That's called "Mes Sélectionnés," or "My Choices" in English. Or they can press "C" and do nothing.

[itvt]: How does the bookmark page work?

Sherman: The bookmark page was part of our original spec. It allows the involved viewer to go back at a later time, more convenient to them, to watch the ad. Each household has a page specific to itself, which can be viewed from any set-top in the household.

Now, as I said, etc.tv operates on a pay-per-view model: the advertiser is billed for each unique view--so for each viewer who watches the long-form commercial. And, if the same viewer chooses to watch that long-form commercial two or three times--which is often the case--the advertiser only pays once. The revenues are then split between the distributor, the broadcaster, and etc.tv.

[itvt]: Do you have any information on how much time on average viewers spend watching the long-form content?

Sherman: We have detailed metrics, and they tend to watch most of the way through the ads.

[itvt]: How much of the long-form content does the viewer have to watch for you guys to get paid?

Sherman: If you watch 15 seconds of it, the advertiser gets billed.

[itvt]: Which companies are using your service right now?

Sherman: Right now--this week--GM has three campaigns; P&G has three campaigns; and Sony Pictures has just finished a campaign.

[itvt]: Can you say how many of your advertisers have signed up for repeat campaigns?

Sherman: Both GM and P&G are repeat customers on our system right now. The National Bank repeated in the fall, and others are also coming back.

[itvt]: Now, etc.tv doesn't see itself as a software company/technology provider, correct?

Sherman: Correct. We're not a software company. We see ourselves as providers of an end-to-end business solution. We're providing a service to the broadcaster, the network operator and the advertiser--we're creating an ecosystem--and we're hoping to build a network that will aggregate operators and thus make it easy for TV networks and advertisers to participate in telescopic advertising.

[itvt]: Whose technologies is your solution based on?

Sherman: We work with Everstream, Navic, Envision and recently Bluestreak. We have licensing agreements with each of those companies, which represent a substantial portion of our overhead: after we take our portion of the revenues, we have to pay all the partners we're licensing technologies from.

[itvt]: How are you funded?

Sherman: A mixture of self-financing and angel money. We don't have VC funding. I'm still the controlling and majority shareholder of the company. As I'm sure you're aware, getting funding for interactive TV is not an easy thing, so we decided that we should develop our solution to a stage where it was unarguably real and had sales before even considering going after VC money.

[itvt]: Now that you've deployed your solution, what kind of response are you getting from the industry?

Sherman: Well, I think our time has finally come. The tone of the conversations that we have with operators and broadcasters--both in Canada and America--is very different today than it was before.

That's because we're real--and there are lots of people in this space who aren't. Unless you can see an actual, deployed solution, it's hard to discern what's real and what's not.

The most important thing we've achieved by deploying an actual solution is that we have numbers.

We have numbers that allow us to understand exactly how lucrative this can be to each of the parties.

[itvt]: And can you say exactly how lucrative it is?

Sherman: All I can say is that on a cost-per-thousand-enabled-households basis, the incremental revenue is staggeringly attractive to a broadcaster or a cable company.

[itvt]: When you're pitching your service, what do you talk about?

Sherman: When we visit MSO's or broadcasters in Canada or the US, we talk to them about metrics: about the click-toview rate and how the click-to-view rate translates into the incremental cost-per thousand in etc.tv-enabled homes. That incremental cost-per-thousand is extremely attractive, when you compare it to what a broadcaster or cable operator in Canada or the US sells television airtime for--particularly in light of the fact that the legacy broadcasters are facing a future that's not terribly bright. One CEO even said to me, "I don't like the future of TV." That's because it's quite conceivable that, five or eight years from now, 20% of television viewing will be done online. And what that means is that the legacy structure is going to have shrinking hours tuned and therefore shrinking revenue. The legacy TV system needs ways to offset that. So we point out that the future of television lies in bi-directionality, and that if we can together harness that, television can be significantly more powerful than it is today. This isn't exactly a huge revelation:

What have advertisers been asking the TV industry for since 1962? They've been asking us for accountability. Bi-directionality delivers that.

[itvt]: Is your relationship with TVA exclusive, or are you looking to work with other broadcasters on Videotron's networks?

Sherman: On the Videotron deployment, we have an exclusive relationship with TVA and their all news channel, LCN. However, that exclusive relationship has a window that expires, and we expect that other broadcasters will eventually join us on Videotron. We envision that our launch in English-speaking Canada will not be exclusively with one broadcaster, given the nature of the discussions we're having right now with the broadcast community in Canada.

[itvt]: When will your exclusivity with TVA expire?

Sherman: That information is in legal agreements that I'm not at liberty to talk about. However, as I just mentioned, we're quite certain that, when we deploy in English-speaking Canada, it will be on a non-exclusive basis. That's because we're currently having conversations--at the most senior levels--that are roundtable: i.e. that involve operators and several broadcasters who are competitors with one another, but who are working with us and cooperating with one another in order to change the traditional TV advertising model.

[itvt]: Are you hoping to launch your service on satellite?

Sherman: Our service definitely works in a satellite environment: the long-format content is simply cached to the viewer's PVR hard drive. The only issue there from a deployment point of view is critical mass--and we're working toward that with a Canadian satellite provider.

[itvt]: So with Bell ExpressVu?

Sherman: We want to be platform-agnostic. So we're interested in deploying on satellite, cable, or whatever. We see ourselves as a telescopic advertising business solution for advertisers, operators and broadcasters, that also allows broadcasters and television distributors to outsource a full range of services.

[itvt]: Are you interested in deploying on alternative platforms, such as IPTV or mobile? Do you see yourselves eventually being a multiplatform play?

Sherman: We're interested in deploying on cable, satellite, IPTV, mobile, the Internet?We even have some things on the drawing board that involve out-of-home, newspaper, and other ways of creating cross platform bookmarks on our "My Choices" page. We are currently in discussions with two IPTV providers, although I can't talk more about that as I'm under non-disclosure.

[itvt]: Which of your technology partners developed the application that links the 30-second commercial to the long-form content--so, the app that displays the icon, and the overlay with the various choices on it? And is that app customizable?<br>
Sherman: Navic did all that. The advertiser or their agency doesn't need to do any creative on top of it. The icon and the overlay aren't specific to the advertiser's brand: our brand is on the icon and our brand is on the overlay. We just ask the advertiser to write some text that we drop in there.

In our judgment, making the icon and the overlay customizable would just further complicate things for the advertiser. Their primary interest is in television advertising, and the service we offer is about extending the television conversation beyond the boundaries of the 30-second spot. I know that, at EchoStar, for example, they're doing microsites for their interactive ads, and that advertisers therefore have to work with creatives to design their interactive app. But we're very much of the opinion that interactive television advertising is ultimately still about television/video--which, of course, is an area that the advertisers and agencies we work with are already familiar with. We're trying to keep things as simple for them as possible. All advertisers who use our system need worry about is producing their 30-second spot and some long-form video. We take care of the rest.

[itvt]: Why do you think that it's important for broadcasters and operators to offer interactive advertising on their linear TV channels?

Sherman: Well, as you know, viewing habits are about to change. The legacy system is facing suffering a significant tuning loss, and, along with that, a more significant revenue loss. Now, the stakeholders are doing what they should be doing by getting involved in broadband video and so on.

Presumably, they're doing that because they're seeking out revenue opportunities that will be offsetting. But it's our position that they should also be renovating the legacy system, so that these new revenue opportunities are not offsetting, but incremental.

[itvt]: What makes you convinced that they won't just abandon the legacy system in favor of an online, everything-on-demand TV environment?

Sherman: That may very well happen one day--but farther down the road that many believe. Live TV will always be part of the landscape: our viewing patterns are far too ingrained in our behavior to shift overnight; and the cap-ex which the networks have invested is far too significant to be abandoned overnight.

[itvt]: Telescoping today seems to be seen primarily as a means to enhance advertising. Do you see it also being used to enhance programming going forward, and do you have any interest yourselves in moving in that direction?

Sherman: There's no doubt that telescopic functionality has tremendous programming possibilities. One can envision watching a newscast, and then jumping from a small piece on a particular news event to an in-depth, 15-minute or half-hour piece; or moving from your typical sportscast locker room interview to some unedited footage of jocks in their underwear from the locker room. And, as you can see from all the extras you get with DVD's nowadays, TV shows and movies generate all kinds of footage--outtakes, bloopers and so on--and telescoping would certainly be a suitable way to give people access to that footage.

However, I'm just not certain what the business model would be. I'm not sure that you could support that type of extended content with advertising revenues that would be significant enough to offset the cost of the bandwidth.

[itvt]: I see that Tim Hanlon, who's a fairly high-profile figure in the US interactive TV advertising space, was quoted in a recent etc.tv press release. Are you working with him in your efforts to penetrate the US market?<br>
Sherman: We sought out and spent time with Tim as part of our incubation process. He was quite excited about what we were doing, and about the benefit it offered to his advertisers, and he has been very helpful and supportive. We are receiving strong support from the most senior levels in the US TV system. Not simply from advertisers and their agencies, but from the networks, and most critically from the distributors. One senior executive at a US TV distributor recently told us that our model was "probably the Holy Grail," and another told us, "This is exactly what we have been looking for."

For more information, please contact:

Ian MacLean
Vice President & General Manager
etc.tv
(514) 863 0567
ianm@etc.tv

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About etc.tv

The etc.tv Advertising on Demand Network (www.etc.tv) is a cross-platform, standardized business model that leverages the broadcast, Video on Demand (VOD) and digital video recorder (DVR) environments to allow Canadian Television viewsers access to Long Form Advertisements (LFAs), on demand.

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[itvt] is an ITV/broadband advisory and media company which identifies new trends, business opportunities, and relationships within the interactive television broadband space. [itvt] offers professional services, products, and programs to clients. These include our free email newsletter, focused analysis and advice sessions, in-depth research reports, a B2B portal Web site, networking and workshop events, dynamic online discussion groups, and interactive database resources. Today, more than ever before, [itvt] believes it is imperative to develop dynamic, flexible, and robust interactiveTV platforms that allow us to learn from and talk about our world and the cultures in it in a free, constructive, and proactive manner.