Canoe Ventures CEO, David Verklin

[itvt]'s Tracy Swedlow caught up with David Verklin, CEO of Canoe Ventures--the company that is implementing Project Canoe, the US cable industry's initiative to create a national unified platform for interactive and addressable advertising--at the NewTeeVee Conference in San Francisco last week. Audio of the interview is below, followed by an unedited transcript of the interview, as well as some key quotes from a presentation Verklin had given to conference attendees just prior to the interview. In the interview, Verklin discusses the recent appointment of Arthur Orduna as Canoe Ventures' CTO; how the press has missed the significance to Project Canoe of NCC, the national cable spot sales company; why he believes that the challenges facing Canoe Ventures have more to do with marketing and communications than with technology; whether Canoe Ventures should become a consumer-facing brand; why he envisions possible collaborations between Canoe Ventures and the satellite and telco TV industries; and much, much more. To listen to the interview,

 

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Swedlow: Speaking to David Verklin, CEO of Canoe Ventures. And Arthur? Arthur Orduna--he's working with you?

Verklin: He's terrific. Arthur is our CTO. Arthur, I believe, is the guy who will go down in history as the guy who really turned the TV set into a platform--the television platform.

Swedlow: He's very smart.

Verklin: He's a really talented guy. And what's most exciting about Arthur is that he's universally supported by the big six cable CTO's. One of the things we did when we started Canoe was that we reached out to the CTO's of the six big MSO's and said, "Who do you want to work with? Let's choose a CTO for Canoe that all six of you support." And they all turned to me and said, "You hire Arthur Orduna: we'll support you." He is a massive talent and he will go down, in my opinion, as a famous and historical figure in the history of advanced television.

Swedlow: That's quite a big compliment. He's a nice person.

Verklin: Well, he's a great guy and this is his passion.

Swedlow: And a sharp dresser!

Verklin: He is! He wears that bow tie every day.

Swedlow: Well, you have your pocket square....Everyone's asking questions...and because this has been so secret for so long and only if you had signed your NDA's did they understand what was going on. Perhaps they don’t even understand? No one seemed to get the whole picture. What is the technology you're using or are you going to re-engineer Navic Admira, or are you going to do something on your own?

Verklin: Technologically, everything I've talked about today has been deployed. Everything I talked about today.

Swedlow: What's it made of?

Verklin: If you think about RFI, if you think about telescoping...every one of those has been tested or deployed in some kind of test by one or more of the MSO's. Canoe's big idea is its "nationalness." Right...it's not...I keep telling people that Canoe is not a technological breakthrough. Don’t get me wrong: connecting up six MSO footprints is a challenge. But, the real challenge in my mind for Canoe is a marketing, is a marketplace and a communications challenge. It's about bringing en entire eco-system kind of along, right? The buyers right now wouldn't know how to buy advanced advertising, the sellers wouldn't know how to sell it, the measurement and the systems like Nielsen don't know how to measure it, and the MSO's don't know how to scale it. So technologically, we can use cable's existing two-way infrastructure. Think about what I talked about with RFI, right? That's fundamentally a generational small step. RFI is a small step above video-on-demand. You're pushing a button, you're going back into the headend and the headend is sending you back some information. It is not a technological breakthrough. The challenge, of course, is weaving all this together and being able to do it with scale.

Swedlow: It sounds like the challenge is the collaboration of all the MSO's and setting up the business systems and the alliances.

Verklin: Yes, but also bringing the marketplace along. That is certainly part of it, but think about the ecosystem, right? Let's use the programming networks. In some cases, the programming networks have one foot in the future (NBC or Fox and then Hulu, and they're looking at multiplatform distribution at ABC). So on one hand, they've got a foot in the future and on the other hand they've got a foot in the past. There's a bit of a love affair with the linear television commercial. It's simple. It's nice. It's easy. But, on the other hand, the world has spoken. The platform is changing and we need to bring new functionality to the 30-second commercial to get back in the game.

Swedlow: We communicate to our audience (MSO's and everybody else) and we also have a large developer base that wants to know what to expect and they don’t know if it's BIAP, they don't know if it's Navic, they don't know if it's Vidiom or EnableTV...all the guys. Nobody knows.

Verklin: We'll have to set a set of standards within some of it, but I think there's room for a lot of suppliers. Just think about some of the people you named. BIAP make applications. If you think about the interactive applications I'm talking about...voting and polling, RFI, tcommerce or telescoping...there is room for a lot of players to click into the platform that we intend to create. Middleware is an issue. We'll use middleware, but we have to be very careful. The key first step is EBIF deployment. And we're on target. We're delivering. EBIF has set-top boxes right now.

Swedlow: Yes. Mark Hess said at CTAM--was it yesterday or the day before?--that millions of EBIF boxes are in the market by 2008. But they also said something like that two years ago at CES, so...

Verklin: We're looking to light up...I quoted a number here today: I said that we're talking about a number between 15 and 20 million households with an interactive application by this time next year. That's the same thing as saying 15 to 20 million households with EBIF-type deployment. So we're making it happen and EBIF is a key enabler. It's going across the platform very rapidly. Remember: you have to have a digital set-top box. There are 32 million households with a digital set-top box and it's growing very, very rapidly. I mean, 10 to 15 million or 15 to 20 million--you're talking about two thirds of all set-top boxes with EBIF. To me, that's moving...all-of-a-sudden moving pretty rapidly.

Swedlow: EBIF has definitely gained some serious traction. We see a lot of development. The OEDN people are working on things and Java.net. We've announced all the Verizon projects and Time Warner's launches. But, from what I understand, you have trials out there. You have put something into the market--you just haven't announced it publicly.

Verklin: Well, we've done a couple of things. I mean there's a couple of trials going on that I hope you're paying attention to. You've got the Cablevision trial in Brooklyn that's testing interactivity through Visible World...not interactivity, addressability...through Visible World. Really good guys. We love Visible World. And that looks like it's going to expand to a larger piece of their footprint--maybe a million households very soon. It's addressability. That's the Holy Grail right there! Comcast is about to deploy in Baltimore an addressable test using Invidi technology. That's also going full steam. And then, yes, we've announced a product that I announced here today, using existing cable zone technology to bring what I would call a rudimentary form of addressability to the marketplace in 100 days. February.

Swedlow: What is that?

Verklin: Think about this: It uses existing zone technology, which is the same technology the MSO's use for their local advertising insertion. So think about Chicago, right? Chicago has 32 cable zones in it, which was originally designed so you could run a different car dealer ad in each of those zones in a market like Chicago. We've overlaid a demographic map from Experian on top of the geographic locations of the cable zones in a converted geography to demography. What that means is...by February (I'll use Citibank as an example), by February Citibank will be able to buy one ad on AMC, and in households above $125,000 in household income run a brokerage ad; in households from $50,000 to $125,000 run a home equity loan ad; and in households under $50,000 run a free checking ad. And I'm telling you, Tracy, we can get that up in 60 million households in 60 days.

Swedlow: Do you have a team in place that's working on building the systems that fill these local avails?

Verklin: The key that you guys haven't been paying attention to...

Swedlow: What? I want to know!

Verklin: NCC. NCC is a jewel. None of you guys are paying attention to it. NCC is the company that the four big MSO's (Cox, Brighthouse, Comcast and Time Warner) formed to create...it's the national rep firm for local cable TV. Run by Greg Schaefer. The COO is a wonderful guy named Ken Little. The company has been in business for 25 years. It manages all of the local...it's the local rep firm for cable TV. I mean NCC has the platform. What people don't understand is...the fundamental NCC platform is a multi-MSO platform. It allows an advertiser to buy spot cable, local cable and insert anywhere in the United States on a market-by-market basis or on a regional basis. Comcast Spotlight, right, sells local. NCC sells regional across all the MSO's. They're already hooked up to the cable plant. In the headends, it's already there! What we need to do is to bring some functionality to that, but we need to now connect the NCC platform into the national ad-insertion capability. And don't forget: we're also going to bring this capability to the broadcast networks. If you learned about NCC--I mean it's a jewel. I came to the marketplace and saw it and it is an accelerant and it has been there in front of our eyes the whole time.

Swedlow: As far as the broadcasters are concerned, they've definitely kept their distance for quite a while. They want the cable guys to give them something. They're afraid of losing their revenue because the cable guys have wanted to make all the money from advertising through any distributed interactive apps. What will be the new relationship with the broadcasters and the advertisers? Will you allow them to make...

Verklin: The most important thing to pay attention to with Canoe...to remember...is the distribution channel for Canoe's products (interactivity and addressability) will be through the existing program networks' sales forces (e.g. through ABC's sales force, through ESPN's sales force, through Joe Abruzzese's team at Discovery). Every programming network has a team of people calling media buyers out there every day. We're going to train and enable them to sell Canoe products--the programming network sales forces. We also have a team that will help create tools and educate the buyers how to buy, and we intend to educate the sellers how to sell these products. But this is where it's a whole new relationship. There's no channel conflict! NBC is going to sell these products, not Canoe, not the cable industry. We're not going to talk to the customer. If they want us to go on a sales call, it will be up to them.

Swedlow: When they sell a product to the advertisers, how are they marketing it? "Hi. We have this interactive capability. We have this relationship with Canoe. We have these tools that can do this or that"?

Verklin: We'll train them. The key thing is that we're going to bring these products into the market in a disciplined, metered, organized fashion. Just as I said: the marketplace isn't ready for some of this stuff. The Internet had an advantage, right? It built a battleship. It started small. It created a platform. It wasn't owned by anyone, right? Think about where the Internet was when it first started and where it is today in terms of the sophistication of the ad sales process.

Swedlow: I used it in the early 90's. It was a black-and-white menu system.

Verklin: TV is different. We have an existing platform. We need to be careful of an existing ecosystem and bring change to it in a digestible series of steps and jumps. So, yeah, we'll train AMC and Turner and MTV and E! and ESPN to sell RFI. We'll give them that capability. We'll enable just a few spots every hour in the beginning and they'll call on it and they'll call on their clients. And we'll help create presentations and help execute. And we'll begin in a very deliberate and organized fashion to bring the capability to specific clients. The clients...I can’t tell you...I think I said in my speech at CTAM that the interest in Canoe has gone from amazing to ridiculous, right? We're getting meetings from clients that are demanding to meet Canoe. See, the world wants a successful TV platform. P&G wants TV to be successful, you know! And as I said in my speech today, we're not convinced that the Internet display advertising is some kind of killer application. I mean, what does display have? It brings in a perception of targeting and it brings a perception of ROI. If you look at it closely, targeting by cookies isn't really that spectacular. And the ROI really isn't that spectacular because the transaction isn't taking place on the platform. So, we're just enormously interested in the ecosystem for a successful, energized television platform.

Swedlow: As a central organization, will you be managing the alliances, the technology alliances for the MSO's or will they?

Verklin: Yes.

Swedlow: So, they won't be making the deals on their own. They'll all be communicating through the...

Verklin: We have an agreement. Canoe is the new, centralized, simple-to-call-on face of the cable TV industry in America.

Swedlow: So when the sales forces of broadcasters say, "We want to sell something," are they selling it as a Canoe service or are they branding it, or they're saying, "We're working with Canoe to offer these services"?

Verklin: Good question. We just have to meet with...we really don’t care. That's a good question. I don't think we've really gone that far, so whether it will be white-labeled or not, it really depends. We haven't made the decision that Canoe needs to be a consumer-facing brand. Canoe has already gotten so much publicity that I think the Canoe brand...When you go to a client and you say, "Hey, this is a Canoe enablement. This interactivity is using the Canoe platform," that brings credibility to the sale, to the pitch by broadcast networks.

Swedlow: To some extent, by being at this conference and welcoming the potential onslaught of all these broadband TV companies to come to you, I think you're positioning your company as an exciting company to work with.

Verklin: Exactly.

Swedlow: And you don't want to hide and you want them to work with you. So, the Canoe brand is going to...

Verklin: Correct.

Swedlow: ...be elevated.

Verklin: No question.

Swedlow: I'm not sure that's what the MSO's were expecting. People are going to want to know more about you.

Verklin: Correct. I’m just saying that I don't know how NBC will sell it. You're right. To this community and the community out here, absolutely...I flew all the way out here for 20 minutes to reach out to people and say: "You know what? We're getting back into the game. We want to work with you. We want you to root for us."

Swedlow: What do you expect for the broadband TV community to help you do? They're ready to launch widgets; they're ready to launch Facebook and Twitter on TV, and all of these other apps...

Verklin: I think some of those are relevant to what we're doing. Do you think there should be a YouTube On Demand channel?

Swedlow: Yeah.

Verklin: Do you think that there couldn't be some of these developers to help us figure out how to enable a polling and voting application into the content, right?

Swedlow: Absolutely. I'm all for it, believe me!

Verklin: So there are some great ideas out here. The vision we have of the platform...and we may surprise you...we want other people to be able to click into our platform and make money, right? We intend to make some money out of this and we intend to collect our share of the toll. But, remember what I said today: "The vision of Canoe is to turn the television set into a platform called 'television.'" There's pieces of that that a lot of people, we think, can profit from. Think about something like Spot Runner, right, that makes TV ads. I think that addressability is going to create the need for lots more advertising content. That's not a business that we're going to be in, but we think that our platform can help drive and create that and they can click into the platform.

Swedlow: Are you working with Liquidus?

Verklin: We have. We just saw Liquidus the other day. We think they're very interesting.

Swedlow: Very interesting. I think they could be a lot bigger by now than they actually are. They should be much more consumer-facing than they are.

Verklin: We can help drive success for companies like Liquidus and a host of others. Just think about what we can bring to the data business.

Swedlow: What are you doing with the other cable companies out there? The other smaller ones--the ones that aren't on the bandwagon yet?

Verklin: Pay attention to what we did with Elections '08, right? We launched a national...Canoe's first product was a national product called Elections '08. Come to the office and I'll show it to you. That wasn't a joint effort by the top six MSO's, that was the top 10. I've already reached out to the MSO's. They all want to be part of Canoe. The satellite guys want to be part of Canoe, and I think they'll be part of Canoe, too.

Swedlow: IPTV? Telcos?

Verklin: Sure! We'll talk to them, too. This is a whole new cable industry. This is a whole new idea!

Swedlow: How are the satellite guys going to be involved?

Verklin: I think they have to be involved. I'd like to be able to start with data, right? I mean we have set-top box data on 70% of America. They've got set-top box data on 30% of America. Form a joint venture, perhaps, and we'll bring all that data in the United States, and now you have set-top box data on the entire platform. That's just one idea.

Swedlow: The cable industry is definitely good at allowing other people to make money off of money they're making when it's the right deal, but it's not common. But, to allow the satellite guys to make money off of cable business...They'll take money...

Verklin: I know. It's hard for you to believe, but think about it...

Swedlow: It's a new world.

Verklin: It is a new world. We can't be myopic. We do represent 70% of all TV households, right? We do represent 70% of TV viewing. Remember where I came from: I came from the media planning and mind business. But when you come and call on me at my old job at Procter & Gamble...when I ran Procter & Gamble's business, right...and you say to me, "Hey look. I can reach 70% of America"...I'll look at you and say, "What about the other 30%?" So, if we're going to be able to bring products to the entire marketplace, we need to put away old animosities and look to reaching out. There are places where satellite and cable are in alignment. Hey, look at privacy, right? Privacy issues in Washington D.C. Who testified on the privacy issue? Telephone companies and cable companies. There are places where we are competitors and there are places where our interests are very much aligned.

Swedlow: Actually, at our [TV of Tomorrow Show] conference held in San Francisco in March every year, we work hard to bring together multiplatform interactive television players. The key goal is to get these people to collaborate. My goal has always been to break these barriers down. On a panel, we'll put the satellite guys with the cable guys with the broadcasters, etc. I have one more question.

Verklin: Yes?

Swedlow: With the Digital Transition coming up in February, and all the manufacturers are getting into the [interactive television] business with integrated television sets, are you going to do business with them, too? Intel wants to do business, Panasonic, Samsung...? There are all those new consumer electronics boxes coming on to the marketplace like Sezmi...there are so many of them...ZeeVee...

Verklin: One of the interesting things about Canoe...there's a thing you'll hear me say in the future when we talk about "above the line" and "below the line"...it's an invisible line, but what I mean when I say that is that there are certain things that are below the line, which we would say have to do with individual MSO infrastructure. Canoe needs to work, obviously, with the MSO's below the line because some of our products have issues to the existing cable plant. Some interactive applications require new storage technology. They need servers. When we think about the idea of bringing advanced advertising products to the broadcast networks, they don't have the insertion gear, right? Right now, we can't even insert on a broadcast network so we don't get the two minutes an hour! We're going to have to invest some money. It's not big money, but we'll have to bring new SeaChange gear to be able to do ad insertion. That stuff with some of some other stuff is probably more below the line about working with these next-generation, new-generation...with the Digital Transition. My only point is that we need a set-top box to be able to deliver advanced advertising applications in most cases. Now, remember I talked to you about creative versioning where I used Citibank as an example. This has nothing to do with a set-top box. That's headend-based. That's pretty exciting. That's a technology that has nothing to do with...

Swedlow: ...because they're putting the technology into the televisions themselves.

Verklin: Correct! And that's good for us because, in the long run, although it opens up the platform, we need that technology embedded into consumer electronics so we can deliver interactive applications or addressable applications. So, that's what I get excited about. Digital set-top box installation, as you know, is soaring, right? Because of the triple play, because of HDTV, and because of flat-screen technology. I mean, I think I mentioned that we're in 32 million households on the Canoe platform out of 60 million that Canoe represents. I think you're going to see us in--what, two years?--you're going to see us in close to 50 million households with a set-top box. So, we're feeling good about it. You know, you gotta have a set-top box. You gotta have a set-top box to be able to deliver interactive applications.

Key Quotes from David Verklin's Presentation

"Believe me, we get it. We get it. We're not sitting idly by. We're not Neanderthals and we're not Luddites. We intend to turn the television set into a platform called 'television.' And we intend to give display advertising on the Internet, for one, a run for its money or maybe it's a run for our money. As we say in television, 'Stay tuned.'

"Canoe represents two thirds of cable households today. That's pretty big, don't you think? Over half of cable subscribers have a digital set-top box. Canoe has a digital set-top box in over 32 million households as I speak to you today and it's growing rapidly. Canoe is also the ISP of over 35% of all American households, so Canoe represents over a third of all Internet users and also represents the third of America that has a digital cable set-top box in their households."

"Two new features are coming to your television set: interactivity and addressability. And no, it's not just about the ads, it's also about the programming, too. Interactivity will come in four flavors: voting and polling, requests for information, tcommerce and telescoping. And addressability, number five, is the ultimate promise of the new platform, television."

"We've tested this functionality in Orlandoand in many cases, we've seen over 15% of the people watching the television programming using the functionality. In England, where the voting and polling function has been around for four years on BSkyB, we're seeing up to 30% of all TV viewers click A, B, or C as part of a poll."

"The third product, which is a really exciting product that we intend to bring to the television set, is tcommerce. Gee, here's a feature that many of you will like. You're watching an infomercial and a slate will come up and say: "Would you like to purchase this product? Click A." Depending on the purchase price, you'll enter a PIN code and you'll either be charged on your cable TV bill or you'll be charged to an electronic wallet to PayPal or a credit card account that you'll set up just once. No more getting up to go to the phone, which you never do, or no more going to the Web to buy a product you saw on TV, which you never do, to buy that CD collection or that Abdominizer, that BowFlex, or that chamois cloth you see on TV that absorbs all the water in your swimming pool."

"By the way, don't think that the Internet is a killer application in direct response advertising and electronic commerce. Keep in mind that all those screens and data fields that need to be filled out for Internet transactions have led to a 60% bailout rate. Did you know that? 60% of the time, as I stand here today, 60% of people bail out of a shopping cart transaction because they find the checkout process to be onerous 60% of the time. Meanwhile, the process on the new platform called TV will be fundamentally the same as that used to order a movie on video-on-demand. One click and a PIN code. Remember: we're your cable TV company. We already know your address and we do business together every month."

"Let's be honest: Google's done a wonderful job describing the benefits of search to the entire Internet platform. Search is, no doubt, a killer application. But display advertising on the Internet, however, is not, and clients are starting to notice. Cookies are actually a very imprecise way to target. Ads displayed are small and cluttered and virtually no one clicks on them. Keep in mind that transactions are mostly done on bricks and mortar. So there's not really accurate ROI data on display, if we're really honest with each other. And as for online video, the many of you that are focused on it at this conference, pre-roll doesn't get anyone that excited at the moment and YouTube is continuing to look for ways to turn a rising audience into a ringing cash register."

"'When's all this going to happen? Dave, you're part of the cable companies. They're slow and they never make anything happen. When's this new platform going to start?' Faster than you think. Canoe believes that we can bring an interactive application to 15 to 20 million households by this time next year. Probably RFI first, with voting and polling coming very shortly thereafter. As for addressability, Canoe hopes to bring a very basic version of it, called network addressability or national addressability, into the marketplace in 100 days. 100 days. Watch."