Will Viggle, the ‘Loyalty Program for TV’ From Robert F.X. Sillerman,…

As the media columnist for Ad Age, I’ve been deeply immersed in the social-media-analytics and social-TV space for roughly three years now, which means I get pitched a lot of demos. To most I respond with polite murmurs of restrained interest and suppressed yawns; to be honest, there are a lot of companies doing ever so slight variations on what’s already been done, and most players seem to be thinking from within the same box (e.g., How do we piggyback off Twitter?).

 Will Viggle, the Loyalty Program for TV From Robert F.X. Sillerman,...

But last week when Function(x) President Chris Stephenson walked me through a demo of Viggle, a new “loyalty program for TV,” as he called it, I somehow found myself not scoffing at his rather over-the-top enthusiasm. “I really think we’re going to change the way people watch TV,” he declared. If Viggle gains critical mass and overcomes some obstacles in its way — including potential pushback from networks — he may well be right.

Some background: Early last year serial media entrepreneur Robert F.X. Sillerman acquired a dormant but publicly traded company called Gateway Industries and renamed it Function(x) to serve as his new base of operations. Given Mr. Sillerman’s track record (he founded SFX, the live-entertainment conglomerate, which he sold to Clear Channel in 2000, and as chief of CKX he bought 19 Entertainment, the company behind “American Idol”), both the entertainment and investment communities immediately went into rumor-mill overdrive. A New York Post headline from last February: Mr. Sillerman buys shell, shares soar 25,000% (from two cents to nearly $3 a share at the time; Function(x) shares opened at $9.20 today). Mr. Sillerman, the Post declared, “is considered to have the golden touch in the entertainment industry.”

What the hell was Mr. Sillerman and his team up to? The company immediately went into stealth mode so nobody on the outside was quite sure — but at various points last year I kept hearing rumors that they were creating a “game-changing” product for the social-TV space.

Today Function(x) is announcing that its first big product is Viggle, with a mobile app (making its debut later this month for iPhone/iPad/iPod Touch, with Android versions to follow) as its primary interface. Think GetGlue/Miso/Foursquare but crossed with Shazam (Viggle has its own Shazam-like audio-recognition technology that can tell what you’re watching) and a loyalty program that offers tangible rewards such as Starbucks gift cards.

There are various ingenious elements to the execution but the potential revolutionary aspect is that networks now have a new and compelling show-sampling incentive program. Say you tune in to a show at 8 p.m., and a few minutes into it, you’re bored. You can check Viggle and see either what has the most social buzz at the moment or what show can help you earn the most rewards (you earn points by checking into TV shows, and when you have enough points you can redeem them for gift cards). The networks that partner with Viggle to offer the highest tune-in incentives could conceivably move the needle in terms of viewership, particularly at the start of new seasons before viewing habits solidify.

As Chris Stephenson demo’d Viggle for me, I peppered him with questions. Some highlights from our conversation:

Simon Dumenco: So why do we need a loyalty program for TV?

Chris Stephenson: Think about it: Everything that you buy from coffee to airline tickets to wherever you’re spending money, there’s typically a loyalty program in place. It’s quite a simple model in that you spend a dollar, the company reserves a penny and packages that up as a loyalty program and delivers it back to you in some cool, brand-relevant way. For six years I was the head of marketing for MTV Europe, and we looked at loyalty programs, and the thing that we found then is still true today: Networks don’t have a direct relationship with the audience. The relationship with the audience is actually with the cable company in terms of the financial transaction, but the cable company doesn’t have the geographic reach needed to create a horizontal program. So what you’ve got is a world where the television-show brands are very popular but the networks aren’t really in a position to give anything back to the consumer.

Mr. Dumenco: And you think the way to “give back” is through a second-screen experience.

Mr. Stephenson: We look at the second-screen space and we see — I’m sure you know the statistics even better than I — the amount of mobile phones, iPads and laptops being used while watching TV is now in the 70-80% range. So we know that people are doing this whether the networks like it or not. What we’ve done is we have created a proprietary check-in technology. We have our own patented version of audio-fingerprint technology. The consumer just taps the app and in a short period, in five seconds, we take a sample and send it back to the back-end servers. We’re ingesting the channels at the back-end and we’re able to create a real-time match. We can do this if you’re watching live or on DVR — and once we know that you’re watching a show, we give you points. As you accumulate those points, you can convert them for great rewards.

Mr. Dumenco: Actual rewards — not virtual rewards.

Mr. Stephenson: This is about getting real rewards — this isn’t about badges and status and all of that stuff. You’ll see gift cards for Starbucks, iTunes, Fandango, Amazon, Best Buy, brands that people love.

Mr. Dumenco: The Shazam-like audio-fingerprinting technology you have here, what kind of scale are we talking about here in terms of number of shows? How big will your database be?

Mr. Stephenson: Capturing the top 150 channels gets 92% of overall viewing so live is obviously important. We’ve recently started to capture [audio of] all major broadcast and cable shows, and over time we’ll have a corpus of everything that’s aired since we’ve been up and running.

Mr. Dumenco: So watching old episodes of your favorite show, you’ll still be able check in to Viggle and get points?

Mr. Stephenson: This is not about trying to drive people back to live TV viewing, although that’s a definite benefit of the program and something the networks are very happy with. It’s really about being rewarded for your time wherever you’re consuming that content.

Mr. Dumenco: How do you feel about where you stand in this space vs. existing check-in services like GetGlue and Miso?

Mr. Stephenson: Everyone else is really operating a social-TV product, not a real loyalty program with real rewards.

Mr. Dumenco: I know that you’re not naming your network partners pre-launch, but what level of cooperation are you getting from the networks overall?

Mr. Stephenson: It’s an interesting question. We don’t actually need contracts directly with the networks to do this at launch, but it’s very important for us to have creative relationships with the networks. So while we’ve been working very closely with them, no one is excluded, and you can check into any show at all regardless of whether we have a relationship with a network.

There are different points associated with different shows. So Nickelodeon might be launching a new show this weekend that they want to really promote, and they’d want to put down a lot of points against it to try and drive people to check into that particular show. There might be additional points against a show if you watch it live — check-in bonuses on top of the baseline points — and these are distributed by the networks. The networks buy these points from us — so this is basically a different way of them advertising their shows.

Mr. Dumenco: Viggle has its own advertising element — advertising within the app — as well, right? Can you tell me names of launch sponsors?

Mr. Stephenson: We’re launching with some great advertising. Burger King is a big partner, and we’ll be announcing others. All of the advertising is completion-based; if someone’s not watching the ad they aren’t getting charged.

Mr. Dumenco: Speaking of completion, back up for a second. Does Viggle know if you’ve watched an entire program or does the audio fingerprinting only pick up five seconds or so and then decide you’re a viewer?

Mr. Stephenson: If people have checked into a 30-minute show and they don’t check into another show in that 30-minute time frame, we give them the benefit of the doubt that they’ve watched that show. Let’s say I start watching “Shameless” and don’t really like it and I switch over to “American Idol.” I will get some points for the time I was watching “Shameless” and then I’ll get some points for “Idol,” but I’m only ever able to earn in any half-hour period 30 base points. If you’re not sure what to watch, check out Viggle and look at the shows that have big point bonuses associated to them. The reason they’ve got bonuses is because the networks feel that they have a great product and they want people to know about it. They’re putting something in their shop window to promote that. Also, at the end of the show, there is a feature that comes up that will say, “You just finished watching ‘American Idol,’ can we interest you in something else?”

Mr. Dumenco: Let’s talk about that — you messaging while the networks are doing their own messaging. Give me an example of when and how you’re serving up a proper ad for a brand, not just plugs for shows. [At this point in our conversation Mr. Stephenson demo'd checking into an episode of ABC's "Modern Family" on Viggle.]

Mr. Stephenson: Once you’re checked into “Modern Family,” now we know you’re a “Modern Family” viewer — and we have [awareness of] a certain demo around “Modern Family” viewers. And our knowledge of Viggle users also includes their previous check-in history, so we can really target the advertising effectively.

Mr. Dumenco: Do the ads live within your app?

Mr. Stephenson: We can run interactive HTML 5 advertising units in the device. Think of this as like an iAd, that’s probably the best way to think about it. We believe that this particular space in the app is really the holy grail. We will allow people to check into commercials as well as TV shows. The idea is that I check in and the coupon or the interactive experience is right there on my device at that moment.

Mr. Dumenco: Say that I’m a 34-year-old woman and I’ve just checked into “Modern Family” and Viggle has served up a compelling little HTML 5 ad because I’m a “Modern Family” viewer — but meanwhile on the TV before the episode actually fully starts there’s a McDonald’s commercial followed by a Verizon Communications commercial. How much do you think that networks and agencies and brands are going to want to play ball with you given that you’re potentially offering a competing ad experience? Or do you want them to sync with you?

Mr. Stephenson: The networks have been intrigued. The first thing they say is, “This is competition, we want people focused on our ads.” But when you get into the conversation it changes, and the story goes something like this: If advertisers can make their advertising on TV more profitable, if they can define an ROI on that and really drive to retail using modern technology, it makes the value of the ad unit on the channel higher. What it gets down to is, how are we are going to share revenue, how are we going to work together? These are the initial conversations right now. We’re trying to work through how we might take some of our inventory and package it up with their own sales.

Mr. Dumenco: So you expect them to want to play ball.

Mr. Stephenson: When a big brand speaks to the networks about what they’re doing with us and says “We want these ads, and we want you to help us create engagement around the ads that are running on your shows” — we think it’s a huge opportunity.

Mr. Dumenco: So you expect that brands will be enamored enough of these opportunities that they’ll force the hands of the more reluctant networks — the ones that see you as unwanted competition?

Mr. Stephenson: Yeah. The brands we’ve talked to have definitely been progressive. I think the way they look at it is they’re not necessarily spending 95% of their budget on an experimental digital mobile product like this, but they are spending 25% of their time trying to figure out what the next big thing is. We’ve really focused on the more progressive, creative CMOs out there and we’ve been lucky to get some great partners for launch.

Mr. Dumenco: From the consumer perspective, what would it take to get, like, a $5 Starbucks gift card in terms of just sheer TV watching?

Mr. Stephenson: That’s a great question. Think of 1,000 points being a dollar as just a benchmark — a benchmark that’s not precise, but if a thousand points is a dollar, a $5 gift card might normally be 5,000 points. What’s an average consumer going to do? We don’t really know, but you could imagine being able to get a couple of hundred points in a night.

Mr. Dumenco: If somebody is an unemployed couch potato and literally wants to eat at Starbucks for the next month, if they’re checking into every show through every daypart because they’re unemployed and have nothing better to do, then what?

Mr. Stephenson: For daytime shows, I can’t imagine we’re going to have too many bonus points around “Judge Judy.” Certain times of the day are more important than others. So there are different times when the networks will want to apply different point values and it’s obviously going to be a function of the ratings and the amount of revenue that they can add around a particular show.

Mr. Dumenco: So at launch you will have a tentative point system in place for various shows and you’ll adjust that as you work with networks and see where they want to drive viewership?

Mr. Stephenson: That’s exactly right. I couldn’t say it better myself. We’re going to start somewhere and then we’re going to figure it out from there. We don’t know what points will drive what type of behavior — what’s enough to make people check something out that they wouldn’t have otherwise checked out. Most people who are watching live TV, they normally go and sit down in front of the TV, look at the guide and see what’s on. There’s very little destination viewing, maybe “American Idol,” maybe football, that type of stuff. If you sit down and your habit is to open the Viggle app, the moment you open the app you’re going to see things that we think are most relevant to you tonight. You can also see what shows have the most chatter right now in the social-media space.

Mr. Dumenco: Chatter across Facebook and Twitter?

Mr. Stephenson: Exactly. Some of the other players in this space, that is their business, for us it’s just another feature. You can also post right to Facebook or Twitter from within the app.

Mr. Dumenco: You know, the idea of Viggle points that networks buy from you — that suggests to me a Google keywords/AdWords kind of system where networks potentially have to compete in a sort of auction to buy the most points from you so as to properly incentivize viewers to sample their programming.

Mr. Stephenson: That’s exactly the right way of thinking about it. You used the exactly correct analogy — this is an AdWords type of system. We’re starting by allocating the points ourselves so we can just learn our way through this. The objective is exactly how you described it. The networks will buy the points from us and they will use a real-time bidding situation to drive tune-ins and engagement into their shows. It gets into a very sophisticated technical model, a lot of work for us, but that is where this goes.

Mr. Dumenco: If you can pull this off it could be quite powerful.

Mr. Stephenson: I really think we’re going to change the way people watch TV. I think we’ve got something special here.

Edited and condensed from a longer conversation.

~ ~ ~

Simon Dumenco is the “Media Guy” columnist for Advertising Age. You can follow him on Twitter @simondumenco.

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