Inside NBCUniversal's high-stakes experiment to prove TV ads can be just as effective as those on Facebook and Google

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• NBCUniversal is trying to prove TV advertising can match the targeting, precision, and speed common to digital advertising.
• So it teamed up with the crafts retailer Michaels, which traditionally hadn't advertised much on TV.
• The plan was to marry data from parent company Comcast cable set-top boxes with Michaels' 50 million registered users, and then see if highly targeted ads delivered more sales.
• Though it was a modest test in terms of ad spending, NBCU sees it as laying the groundwork for executing loads of data-driven ad campaigns.
• That would theoretically help the TV giant compete for budgets that go to Google and Facebook.

The TV industry is on a mission to show the ad world it can do data just like the duopoly of Facebook and Google.

Nearly every big TV company is touting its ability to provide advertisers with targeting that goes beyond traditional age and gender, but NBCUniversal has been particularly vocal about TV's need to change its mass-marketing-centric ways.

It's even hosted cross-industry forums focused on what it sees as a dire need to reform the business.

To that end, the company has recently engaged in a complex test with Michaels to help make its case for a more programmatic future. Yes, the big-box crafts retailer Michaels. We can explain.

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Michaels doesn't typically advertise much on TV because its massive database is mostly useless in that medium.

According to Stephen Carlotti, the executive vice president of marketing at Michaels Stores Inc., the crafts retailer has typically divided its advertising into two buckets: "mass marketing," which has mostly comprised magazine ads, and direct marketing, which includes everything from web banners, emails, search ads, and Facebook posts.

It's the digital-marketing portion where Michaels focuses and does its most sophisticated work, particularly because it has a massive database of 50 million consumers.

A database of that size is marketing gold. It's the kind of information most big marketers are dying for. In Michaels' case, it uses that database to target customers with specific ads and offers.

"There are very few things we do that aren't designed to drive people to buy," Carlotti said. But historically that robust database has been pretty much useless on TV.

For the most part, TV is still an essentially analog medium, in which ads are baked into slots and beamed out to entire markets - say, all of Chicago - or the entire US.

But NBCU approached Michaels with a way to leverage that information on 50 million consumers for better TV ads.

NBCU wants to dispel the notion that TV advertising is just for blunt mass marketing, and that it moves too slowly.

The deal between the two companies has led Michaels to ratchet up its ad spending on TV. And for NBCU, the company is betting it has established a new model that can be applied to lots of other advertisers.

The broader hope is that it puts TV in a new light, in an era where every brand seems focused on connecting directly with consumers and tracking the business impact of every dime it spends on advertising.

"This has been a blind spot for TV," Tony Effik, NBCU's senior vice president of client strategy, told Business Insider. He says advertisers think of TV as a pure branding vehicle, not a way to drive people to stores or e-commerce sites.

"That's a misconception, and we've always had an issue with that," he told Business Insider. "This is the kind of mythology we are trying to tackle."

The plan was not simple, but it paid off. The question now is whether it can be duplicated and made bigger.

Specifically, NBCU wanted to take Michaels' database and match it up with the data parent company Comcast had on its own subscribers, and then use cable boxes to zap relevant ads just to Michaels' customers.

Here's how it worked: Starting in mid 2017, NBCU and Michaels worked with the enterprise marketing software firm Axciom to anonymously mingle the various data sets.

Then they set up four audience groups. One got only digital ads from Michaels, while another received video ads within NBCU on-demand programming on the web and TV. Still another group got both ads, and the last group saw no Michaels ads at all.

Because Michaels had data on which of its registered users saw which ads and then eventually made purchases, it could figure out which strategy was most effective. But since NBCU had never done this before, there was a lot of groundwork to lay, Effik said.

"We had to build methodology, templates, processes, dashboards, all the pieces," he said. "Then we had to put an exec dream team together. It was very labor-intensive."

The results were promising. The most effective strategy was running two sets of ads, with average sales jump 48% versus the control group. So Michaels and NBC ramped up that strategy during the fourth quarter. Then did it again in Q1 and Q2 of 2018.

"What we really wanted to find out was, could we get a similar result and could we do this fast?" Effik said.

To be sure, on this tactic Michaels is spending "hundreds of thousands, not millions." So similar tests won't exactly reshape NBCU's fiscal year.

But it may lead to racking up more of these types of deals, which is crucial to TV's future in a data-driven world.

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"On a per-customer, per-dollar level, this was very successful," Carlotti said, declining to provide specific sales results. "It suggests NBCU is quite serious about two things: applying data and getting leverage out of the Comcast-NBCU relationship."

Ah, but there's the rub. Comcast has close to 30 million subscribers in the US - a large number, but far from the whole country. Plus, only 19 million of those homes can be reached with dynamic targeted ads via Comcast's video-on-demand product.

"The challenge going forward is scale, scale, and scale," Carlotti said.

What about doing the same thing with other players, such as AT&T, which is making an aggressive push in this direction?

"We would be excited to try similar things with other media partners," he said. "We haven't found anybody."

"If you think about where TV is in a competitive media landscape, better targeting is the thing that it's got to figure out," Carlotti went on. "And we're asking, can we do this in tens of millions of homes versus millions of homes?"

"That being said, two years ago we would have thrown up our hands and said, 'This is never going to happen.' Now we feel like there's momentum."