Google has successfully created a nationwide (worldwide) fine-grained, targeted ad market by using queries to its search engine. The cable industry would like to be able to use its cable and broadband subscriber data to create a nationwide, fine-grained, targeted ad market. This race has substantial implications for the future of online video—and online activity generally. Large cable operators have a major advantage: they are tied to TV sets and set-top boxes, which are closer to consumers’ video consumption (right now, at least) than PCs.

Right now, most people consume video over television sets, and most people in the US subscribe to cable. The TV advertising market is still doing pretty well—about $70B in 2010. TV is still the dominant mass medium. But cable operators don’t capture very much of that total $70B—maybe only $5B goes to them.

With (1) an intermediary providing anonymized but complete data about what all cable subscribers are up to at all times (including their broadband usage), (2) standardized technology for ad insertion for all major cable systems, and (3) a “return path” (a way for users to interact with advertisers and others), the cable industry could achieve the Holy Grail: household-by-household targeted advertising via must-have cable set-top boxes.

Instead of a fragmented market in which nationwide advertisers have to sell to multiple cable operators and programmers (and TV networks) without useful metrics, you’d have a dream interface for cable advertising—nationwide, interactive, one-stop shopping for advertisers, using actual data rather than relying on Nielsen-like guesstimates. Clutching our remotes, we consumers will click around giant TV screens, buying products shown on cable network shows, viewing ads targeted to our household, and responding to well-organized stimuli designed to appeal just to us.

This dream is what the six largest cable operators, led by Comcast, have been working towards since 2008. It’s called Canoe Ventures. So far, Canoe hasn’t quite delivered. It had to drop 2009 plans to provide targeted ads because it was held back by clunky legacy cable ad-insertion hardware. But it’s planning to offer RFIs (allowing viewers to ask for information) later this spring, and Comcast is already piloting this technology in Chicago, SF, and Detroit. About 12 million Comcast households are technically ready for interactive ads.

Here’s the CEO of Canoe, David Verklin, in a June 2008 article in Multichannel News: “At some point, Canoe will combine TV viewing metrics with Internet surfing data to provide advertisers an integrated view across both platforms.” The success of Canoe is central to the future success of cable.

Canoe has to move fast. Online ad spending is climbing rapidly. Internet video—which hasn’t yet taken off—could destroy cable. But if Comcast and its colleagues find a way to corner the mainstream advertising market by making ads much more effective through their set-top boxes, online ad-supported TV and other video won’t work.

It’s called Canoe because all the major cable operators are in the same boat. They’re trying to row together.

Here’s a quote from 2009 from a programmer, Discovery Communications CEO David Zaslav:

In the industry, there are a lot of things we debate, but there is no debate about Canoe, Discovery Communications CEO David Zaslav said. It’s hard to raise your hand and say that having a platform you can customize isn’t anything but a positive.

Zaslav also commented on the potential threat of online video to operators and programmers. Discovery, he added, has opted to put mostly short-form clips of its shows on the Internet for free, a move to drive traffic to the television. But he said that while operators and programmers are in the same boat, they can’t ignore that a shift in viewing habits is beginning.

We have to put our content on platforms people are consuming, Zaslav said, adding that part of the problem was created by programmers who rushed to put all of their content on the Internet for free. He said that while that model obviously doesn’t work for everyone, all parties should be wary of what they ultimately decide.

We have to be careful we don’t train people to view on platforms that are going to put us out of business, Zaslav said.