The TV ad is long from dead

March 1, 2012: 10:55 AM ET

After a dismal few years, television ads are back and will almost certainly retain their edge against digital ads in 2012.

By Katherine Ryder, contributor

chrysler_super_bowl_commercialFORTUNE -- Despite the promise of digital advertising, many ad execs still believe that the best way to captivate an audience is the 30-second television spot. Take, for instance, Chrysler's Super Bowl ad this year. Clint Eastwood walks amidst the shadows, delivering a dramatic monologue about triumphing in hard times. Industrial scenes of American life fold down like beautifully crafted playing cards, one after another, on the screen. How can a banner ad compete with that?

Some networks think they've found an answer: taking the 30-second spot a step further. Imagine if Joe Smith, in need of a new car and suddenly feeling patriotic, presses a button on his remote and instantly receives more information about a Ford F150 (F), including where he can buy one. Meanwhile, Joe's wife, Sally, watches a later ad for a Sony phone. The product on the screen is sleek and modern, and Sally wants it. She can turn her emotion into ownership, purchasing the phone with the click of a button. This, according to industry insiders, is the holy grail of advertising.

Interactive television advertising (ITV), which allows advertisers not only to target an audience but also to allow a viewer to buy what he or she sees, has been touted for over a decade. But more recently, the idea has gained traction. With TV ad revenues falling in 2009 and 2010, networks feared that growth in the digital industry was slowly displacing the 30-second TV ad. The advent of the digital video recorder prompted further worries that a formerly captive audience could now skip commercials altogether.

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Yet Canoe Ventures, one of the more promising attempts at developing ITV, shut its doors last week. The firm had an interesting idea: six competing cable networks, including Comcast (CMCSA) and Time Warner Cable (TWC), joined forces in 2008 to see if they could develop interactive TV commercials, delivered through a set-top box. The financial crisis quickly dented their plans, depressing ad revenues across the board and, over time the six competing companies found it increasingly difficult to collaborate. The market really ever caught on to the idea, either. Only 25 million homes installed the set-top box to receive an interactive ad—too small a penetration for many mass-market brands to invest in the technology.

Luckily for the networks, the narrative about the death of TV now seems to be dying itself. TV viewership is growing, and television remains the single most important leisure time activity in the United States, despite the time Americans now spend online. According to a joint ANA-Forrester Research survey, the number of 100 advertising executives polled who believe TV ads have become more effective in the past two years has tripled. The survey predicts that TV ad spending will account for 47% of media budgets this year, a 6% increase since 2010. By comparison, according to the ANA, 14% of advertising budgets will be spent on digital ads.

One of the reasons TV ad spending is back in favor may well be confusion about the impact of Internet ads. "TV is still much easier to measure than the elusive digit world," says one advertising executive. People view advertising on so many different devices—a computer, an iPad, an Android—that advertisers have difficulty understanding whether their ad is being delivered in the most effective way, or who's watching it. Digital ads provide accurate click-through data, but in terms of demographic information they still don't compare to television.

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All the same, high hopes remain for ITV going forward. "The possibilities have gotten richer in a short period of time," says David Cooperstein of Forrester Research. Nielsen recently released a report saying that Americans, who watch an average of 4.5 hours per day, are on their phone for 20% of the time they're actually in front of the TV.—the largest proportion of time for any activity in the survey. Companies and app developers are capitalizing on this trend, coming up with different ways to interact with TV for a lot less money.

Shazam, for instance, offers an app that can hear what commercial is playing and then deliver the viewer coupons, downloads, or relevant links. Procter & Gamble (PG), Honda (HMC), and American Express have tried Shazam, as well as networks like Bravo and Oxygen. IntoNow, which Yahoo (YHOO) bought last year three months after it launched, offers a similar concept. During the Pepsi Max (PEP) advertisement at this year's Super Bowl, for instance, IntoNow users were sent a coupon for a free Pepsi if they simply tagged the ad. MTV is building out its own version of Shazam and IntoNow.

That's not to say that internet firms won't get a larger piece of the estimated $150 billion U.S. ad industry, and that networks should stop creating ventures like Canoe. In a cheeky nod to the increasing competition between online video advertising and traditional television advertising, an amalgam of high-powered tech firms -- Google (GOOG), Yahoo, AOL (AOL), and Microsoft (MSFT) -- is holding an advertising conference in April to woo advertisers by presenting different marketing opportunities for companies to create online-only ads. The conference is essentially a copycat of the UpFront conference that TV network executives traditionally throw in May.

All the same, it seems that TV advertising will almost certainly retain its edge and emerge as the big winner for 2012—and with an election in Washington and the summer Olympics in London both boosting TV viewership, the prize will be considerable.

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