Television is becoming more and more interactive, bringing us closer to a day when we’ll have pull-based content and ad delivery. IPTV promises a lot here, by virtue of its IP-based architecture. But there are lots of other factors that need to coalesce before we get there, including ad delivery, advertiser adoption and Madison Avenue wrapping its collective brain around this concept.

Some television networks, such as Turner Entertainment, are meanwhile starting to toy with the idea of adding contextual advertising to television programming. But so far this falls short of the potential we’ll see with IPTV and product placement.

TiVo and Amazon pushed this whole concept further yesterday. Building on an existing partnership, they will provide viewers with a “product purchase” option that will take users to an Amazon module where they can buy products seen in a given show (think books on “Oprah” or kitchen appliances in cooking shows).

This is all great, but it’s just one piece of the puzzle. Television shows, networks and advertisers will have to get on board to create a worthwhile amount of inventory so that some sort of “buy now” option is prompted at appropriate times. There will be interface issues too: Should a button pop up at contextually relevant times, or will it be more in the hands of the user to drill down to a separate menu to see what products are available from a given show (and how long are these options available after a program is viewed)?

Once this is all worked out, there will be lots of ways it can develop around local offline shopping. For certain types of products like electronics or home appliances, this is a great opportunity to provide promotions for local stores, or even inventory data and reserve features. Think of a national advertiser like Home Depot and the opportunity to drive offline power tool sales through product placement in home improvement shows.

There are lots of ways this could play out, but it could take a while before it reaches its true potential. TiVo is an appropriate company to get things moving, giving a growing installed base and the fact that it is helping to disintermediate the current push-based broadcast ad model. TiVo might accelerate the decline of the 30-second spot, in other words, but at least it has a(n arguably better) solution up its sleeve.

Two news items caught my eye today as they relate to our ongoing coverage of interactive product placement in various entertainment media.

First, Sony has announced a deal that will bring in-game ads to PlayStation 3 games. It will work with IGA worldwide, a New York-based outfit that specializes in video game product placement. Video game sales were way up last month, and engagement levels are relatively high and repetitive, signaling an opportunity for marketers that can integrate ads in a way that’s complimentary to game play. Microsoft is interested in this direction as part of its development of ad placement in online venues other than search.

Second, YouTube announced new capability to append various notes and pop-up messages within its videos. This will let video producers better tell stories and also provide context against which to index video for better searchability and ad placement. But for the purposes of this post, it gets closer to being able to integrate commercial messages within the videos themselves. The closest we’ve come to this is overlays and inline video ads — both experimented with by YouTube to somewhat unfavorable reception.

This ironically comes the day after YouTube’s “monetization chief” resigned. Meanwhile, Google chief Eric Schmidt has been speaking out about the need to better monetize the vast reaches of viral video throughout the network. Others have also speculated on YouTube’s current revenues (mostly home page ads) versus potential.

The interesting part is that the site had 4.4 billion video streams in March, according to comScore, accounting for 38 percent of the 11.5 billion overall online video streams. This means video streams surpassed the monthly searches done on core search engines (10.8 billion, according to comScore). These searches account for about 36 percent of the $24 billion U.S. online ad revenue pie (TKG Global Search Forecast), while total online video advertising is only $775 million (eMarketer).

The challenge, alluded to above, is finding an ad format that isn’t intrusive. Pre-roll is the prevalent format and has been met with resounding distaste, prompting development around less obtrusive formats. There are also quality inventory shortages in some cases. This underscores one of the benefits of merchant video that is served up in a local search context: There is no need for an accompanying ad because the video itself — while serving a user-centric purpose — is the ad.

The addressable inventory is meanwhile limited only by the millions of local listings out there, and local searches done (if you consider search engine distribution). These factors join many other benefits that will be explored in further depth very soon.

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Update: Steve Ballmer preaches to the Washington Post about about interactive product placement in the context of IPTV, among other things (without throwing anything). See video.

Nielsen has released figures on the top brands and top TV programs involved with product placement. This is an area that could represent lots of opportunity when the interactivity of the Web reaches the television (read: IPTV).

We’ve already seen some models developed and speculated, but it has yet to really take off. In broadcast television, as shown in Nielsen’s figures, it’s mostly brand advertising so far. But with IPTV, there are implications for more interactivity that plays off products used in video programming.

In other words, we could see local directional advertising tied to products used in certain programs (think cooking, home improvement, fashion, etc.). It could take a while before IPTV providers work this into their service packages and hardware will be an issue (at the onset IPTV won’t look much different from cable). But the underlying architecture is there to build these types of ad delivery models.

We’ll also have IPTV providers with directory assets (AT&T), where the synergies between the two will only take a matter of time to be realized. Some of these integrations were hinted at by former Yellowpages.com president Charles Stubbs, and first signs can be seen in the Yellowpages.com channel on AT&T’s U-verse IPTV package.

In the meantime, the interactivity brought by IPTV will apply more to national brands. This could involve interactive options to find out more about products, or in some cases order them online. Like many other media, including the Web, the massive local opportunity will come later.

Though IPTV hasn’t been the primary focus of a blog post in a while, we’ve mentioned it here and there as a local search medium to start thinking about. The thinking goes that the IP architecture of the technology will allow more precise targeting with content and ad delivery, as well as a two-way street for content pull (which has its own set of implications for behavioral targeting).

This will enable lots of cool mashups and product placement opportunities that allow users to telescope in to learn where to buy products locally. One locally relevant scenario we’ve submitted in the past involves supplies or ingredients used in cooking or home improvement shows. Meanwhile we get a glimpse of some of the decidedly more fun features of IPTV, such as switching camera angles or sound feeds during sporting events.

But one big question mark in all this, explored in a TKG White Paper a while back, is hardware. Given all this great interactivity, will the bottleneck be hardware constraints? In other words, a traditional TV remote won’t do justice to all this functionality and to the way we’re accustomed to searching. Sure, browse functionality is possible using directional buttons, but we’re conditioned by search engines to utilize the full potential of typing queries at 62 words per minute, refining queries by quotes, geographic modifiers, and zeroing in with a mouse.

With a keyboard this is relatively seamless. But search on IPTV will require a new conditioning that is perhaps more reliant on browse functionality, given the presumption that we won’t immediately undergo a cultural shift that puts a keyboard and mouse on every living room coffee table in America. Or will we? This is definitely a dilemma, and perhaps a bottleneck to all the other technological issues on which the IPTV discussion seems to focus.

But we’re starting to see some hints at what could be developed. There are whispers of an Apple remote control to rule over the digital home, including iTunes music, movies, etc. Apple has been on a clear path to the living room over the past few years, including AppleTV which proved ahead of its time, like many other great products that were commercial failures. Netflix’s set-top box, launched this week, allows immediate access to its growing digital library, which could all but kill AppleTV. For now.

But when thinking of how this IPTV interface and hardware dilemma will be worked out, my money is on Apple to be the one to design something that is functionally sound and elegant enough to enter the living room. In true Apple form, it likely won’t be a mass market device at the onset at least, but neither will IPTV. This will be prime fodder for Apple in its ongoing transition to a digital media company. It is definitely thinking about this already, as it knows it’s in the best position to solve this issue, where a major potential market eventually exists.

I’m not really going out on a limb here by picking this horse, I know. But the point is, keep an eye on what the company develops in the coming months, with an eye toward possibilities for IPTV hardware. Clues can be found everywhere, even the iPhone.

Two separate but related news items caught my eye today. First, Comcast has acquired social networking technology provider Plaxo in order to integrate social network-like features that let viewers share programming, among other things. Second, Turner Entertainment Networks announced a new plan to index content within television shows so contextually relevant ads can be served during subsequent commercial breaks.

Beyond holes in Turner’s plan that I’ll get into in a minute, these are moves that signal an interest among television providers to learn from what is working on the Internet. As Marc Andreessen asserted yesterday (see past post), television and other established media have to look to software to benefit from the innovation cycles that aren’t possible with their relatively fixed formats.

What Plaxo could do for Comcast involves more potential for growth than what will be possible at the onset. The idea is to integrate a system that taps the social and viral qualities of social networking to drive consumption of television content and ads. Plaxo already works with Comcast in some markets to provide software that ties together its triple-play products.

Future integrations based on this software will include things such as interfacing telephone calls and messages through the television. More value-added integrations are further off, such as greater pull-based content delivery and Web-like interaction with product search and communications. Here IPTV will have an architecture advantage over cable, but Comcast is moving in the right direction.

On to Turner, it’s likewise moving in the right direction, though its plan is to mashup contextual ad placements with traditional push-based 30-second ads, which kind of misses the point. In search, a great deal can be gleaned about intent from an isolated query. Television ads are much more passive. Just because I sat down to watch a particular movie, it doesn’t mean I’m interested in a specific product mentioned halfway through the film that may or may not have any thematic connection.

Contextual placement in other words is much more effective when intent can be determined, which is hardly the case here. This will improve with some of the aforementioned moves toward IPTV and its capability for behavioral targeting, product placement and “telescoping” items of interest for more information or purchase (think cooking shows and home improvement).

It’s good that TV execs are thinking differently, but it will take a few iterations and lots of other moving parts (user behavior, IPTV deployment, etc.) before they get it right.

Lately there has been a noticeable rise in the amount of attention and investment paid to online video sites that specialize in generating “how-to” videos. These include:

ExpertVillage (acquired by Demand Media last June)

VideoJug (received $30M last May)

HowCast (launched this month with $8M from Tudor Investment Corp.)

MonkeySee (launched last month)

5Min.com (received $5M from Spark Capital last month)

WonderHowTo.com (launched last month with undisclosed funding from General Catalyst Partners)

DIYNetwork (owned by Scripps)

Each is a variation on a model that involves providing thousands of how-to video — some amateur and some professional — in a number of categories. Most are ad supported, but many intend to have popular categories sponsored (JetBlue sponsors HowCast’s travel section). Additional distribution in some cases comes from YouTube and distribution deals with video networks such as Joost.

This format follows the growth in online video overall and is a natural offshoot that’s conducive to viral distribution. That is, it can be entertaining and informative. There is also a good opportunity, as pointed out in a past post, to utilize basic SEO tactics and make these videos surface in result pages for things people are searching for (i.e., “how do you fix a leaky faucet?”).

In fact, 2.6 percent of all searches are “how-to” in nature, according to Hitwise, and 5 percent of traffic from the top 10 how-to searches goes to video sites (mostly YouTube). Those top searches for the four weeks ended Jan. 26 are:

1. How to tie a tie
2. How to …
3. How to have sex
4. How to get pregnant
5. How to write a resume
6. How to win the lottery
7. How to kiss
8. How to lose weight fast
9. How to lose weight
10. How to solve a Rubik’s Cube

What About Local?

In addition to YouTube, how-to video distribution could also come from Internet Yellow Pages and local search sites, which have a clear interest in integrating video. This would involve local service providers that wish to advertise via instructional video — joining the formats they currently use (care of video producers such as TurnHere). For IYPs, the opportunity here would stem from using the aforementioned video SEO tactics to gain traffic from all these how-to searches.

It also seems this format could thrive in the IPTV environment and become almost a form of “advertorial” content that could replace traditional television advertising in some verticals, such as home and garden. Thirty-second spots will in fact be less relevant in the “on demand’ environment of IPTV, and there will be some creativity required to come up with alternatives, such as product placement or instructional video.

For instance, picture an instructional video on tiling your bathroom sponsored by Home Depot and followed by an interactive menu of supplies used. This could come with the ability to purchase or reserve items for in-store pickup. All this will be possible with the interactive capabilities of IPTV (defined here), while IP-based targeting can send or suggest behaviorally relevant content on an ongoing basis.

(A foundation for this scenario can already be seen in the local search “channel” AT&T provides with its U-verse IPTV package — see firsthand look from Peter Krasilovsky.)

IPTV is a long way from reaching mainstream penetration and more developed advertising models that leverage this IP-based delivery. But it’s not too early to begin pondering these possibilities and what they mean for local advertising as we know it. In the meantime, production of video ads — both how-to and more traditional formats — can get a head start as a growing form of online SMB advertising.

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Update: In response to this post, TurnHere’s blog demonstates a how-to video they shot.

I’m a happy subscriber to AT&T’s U-verse IPTV service, and I noticed in the monthly program guide that AT&T’s Yellowpages.com is now available on Channel 97. So I “rented” it … a process that required a one-time-only download of graphics, etc.

The Yellowpages.com screen appeared after about a minute. It has the logo on top, a list of nine core YP categories on the lefthand side, and a featured advertiser tile and a search box on the right. When I clicked on one of the nine categories — of which eight could be viewed at a time — I could see that each category has a dozen or so of its own listings, with “featured” listings at the top. Featured listings also utilize an additional column with “copy point” info (hours of opening, etc.). If you scroll down further, you can get MapQuest maps of the businesses.

So — how is the service? It is kind of interesting but not so great. The logos and fonts of the featured listings, for instance, don’t seem to have been adjusted for the TV and can be hard to read. Moreover, many of the maps for the featured listings don’t come up. This is probably because they are generally toll-free franchise businesses that don’t have local locations.

Non-featured listings, on the other hand, automatically display the map but have no additional information. Ultimately, however, I feel these listings provide a better experience. The map is big and easy to see. It was good to learn that “J&J Electricians” is just up the hill from me, for instance. (I wish I had known that last week, don’t ask!)

I’ve been excited about the possibilities for Yellowpages.com on TV for a while: on-demand local business videos, testimonial pages, etc., etc. I still am.

But this early version of the service is minimalistic, slow, not always functional and often hard to read. The listings are far from comprehensive, and there is no audio (which would give it more of a TV-like experience). There are also no explanations anywhere on how to use the service.

But you’ve got to start somewhere, right? For me, this is a definite “Beta,” but it is kind of exciting to be in a test area. This could be important.

Longtimers might remember Bell Atlantic’s CD-I service from the mid-1990s. That Compact Disc driven service had mood music, menus, manager greetings and many other features. In retrospect, it seems very advanced.

In a significant development, AT&T’s Yellowpages.com is replacing Yahoo! Local Search for AT&T’s broadband and Internet customers. It is a move that will greatly enhance Yellowpages.com’s position in the space. The company recently told analysts it expects to attract 2 billion searches in 2008 and 3 billion by 2010.

The move is part of a broad multi-year reworking of AT&T’s existing deal with Yahoo! that gives Yahoo! $300 million to $400 million in upfront cash, according to analysts interviewed by paidContent.

It replaces a previous deal that was primarily based on providing Yahoo! with a share of every AT&T broadband user for a co-branded AT&T/Yahoo! portal and sell through of premium services – an arrangement that AT&T has publicly chafed at.

According to published reports, the previous deal brought Yahoo! roughly $300 million in high margin cash flow. A complete collapse of the deal was unlikely, but the renegotiated terms reflect AT&T’s strong position in the company’s many markets like wireless, directories, and increasingly, the Internet.

AT&T is clearly focused on building up its own portal efforts. The new deal will have a portal “powered by Yahoo!.” With the Yahoo! deal completed, it is adding access to its portal and e-mail for all AT&T customers, not just AT&T Internet customers.

The news comes at an interesting time. Last week, the wireless spectrum bids were due and AT&T will clearly be a contender. Further, Google is rumored to benefit substantially from increased mobile traffic from the iPhone available exclusive through AT&T Wireless.

It is unclear if the deal essentially cuts Yahoo! out of being a local search destination site for AT&T customers. In an environment where top portal and search brands are recipients of mobile usage, that seems unlikely. Regardless, it gives Yahoo! more opportunity to sell display and search advertising throughout the AT&T network. It is something that could have strong dividends as Yahoo! battles directly with Google and others. No doubt, retaining tight control of the carrier deck will allow AT&T to steer traffic accordingly.

It is of no small coincidence that last month, AT&T reworked corporate branding to reflect the company’s intended direction. What was once “AT&T Advertising & Publishing” is now being touted at “AT&T Advertising & Search.” The merger between Yellowpages.com and Ingenio, a $250 million transaction, confirms our belief that AT&T is moving the company toward a fully integrated cross-channel marketing company.

It also extends the reach of the Yahoo! portal to the old BellSouth territories recently integrated into AT&T, and extends Yahoo!’s content beyond the desktop to mobile as well – something that will be much more important over time.

According to paidContent, Yahoo! may see declines over $150 million to $200 million in revenue due to the deal’s restructuring. But there clearly is also plenty of upside if Yahoo!’s advertising is widely used, and mobile develops as strongly as anticipated.

We have speculated for some time that AT&T is a natural fit for Yahoo! in terms of an eventual merger or sale. While this news doesn’t sway us one way or another, we do believe these two companies are moving closer together and an eventual marriage of some type is more than a remote possibility.

(This post was co-written by Matthew Booth and Peter Krasilovsky.)

While the other telcos have divested their Yellow Pages units, AT&T maintains that there is real synergy in pursuing a three-screen strategy. Rather than selling the YP unit and using the proceeds to build out its network, a la Verizon, AT&T is betting that there is a home field advantage in keeping its landline, mobile and U-verse video customers intact, and selling advertising — especially local advertising — across the digital channels.

It is a big bet. U-verse apparently has had start-up pains in an intensely competitive video marketplace. And mobile advertising obviously needs to be very sensitively handled. AT&T could always change course and spin out the YP unit. But for now, I like the ambition of it all.

Speaking at its 2007 analyst conference, Ray Wilkins, group president of diversified businesses, said his revenues are $600 million today, but that he hopes to see $1.5 billion in non-print advertising revenues by 2010. Yellowpages.com, especially, is the core of the opportunity, since it represents a giant umbrella for all the products. It is expected to get 30 percent revenue growth CAGR over the three-year period.

The basis for these projections is integrated sales from the YP sales force, a boost in searches from 2 billion to 3 billion, the integration of Ingenio’s Pay-Per-Call platform and the general growth from search revenues, especially on the mobile side. Wilkins noted that 18 million wireless handsets will be pre-installed for AT&T mobile search next year, and enabled in 20 million others. By the end of the year, he said, digital ad insertion will begin in U-verse homes.

Last week Bebo, the global social network, announced its new OpenMedia platform partnerships. The network has partnered with major media brands to deliver premium content to its 40 million users.

Partnerships include CBS, MTV Networks, ESPN, the BBC, Channel Four, ITN, Yahoo! and BSkyB, as well as emerging media companies like Music Nation, Next New Networks, Crackle, Ustream, Last.fm and JibJab.

The launch of OpenMedia allows users to create libraries of their favorite content. Users can then rate, post and forward it to friends.

As audiences have started to demand higher quality programming online, this move will satisfy the crowds while providing partners with an opportunity to reclaim their fragmented audiences.

With regard to advertising, many brands look to align themselves with premium content especially when trying to reach the elusive teen (Bebo attracts the 13- to 24-year-old target audience). This move will make it easier for major national brands to make the leap toward advertising on the social network.

Interestingly, the partners will not be charged for access to the platform and are able to distribute their content using their own video players, which can carry their own advertising and allow them to retain 100 percent of the related ad revenues.