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By now, if we’re doing our job right, you should kind of get how digital advertising works. Companies collect information about you — like where you live and your age and what you buy online and what websites you visit and much more — and they use that information to target you with ads they think you will like, so you'll buy their stuff. But you may not know that this is also happening on television. It's called addressable advertising, and it means your cable or satellite TV provider is showing you ads on your TV that your neighbor might not see. Right now only a small number of the ads you see are targeted ads, but it's evolving fast, because the money is good. Molly Wood talks about it with Tim Peterson, a senior reporter at Digiday. 

The following is an edited transcript of their conversation.

Tim Peterson: The cable companies or satellite companies, whether you have Comcast or Spectrum or DirecTV, you have a registered account with them. So they have your name. They have your address, your phone number, your email address. They have all these data points. And then they're able to connect those to third-party data providers who might also have data on you. And they do it in an anonymized way, but basically they're able to connect the dots to know roughly what your household income is, whether you have a car, how old your car is. And in some cases, if you have an internet service bundled with your TV service, they can also track your browsing as well, what websites you visit. If you have a cell phone service that's also connected, they can know where you're going out in the world and be able to take all that information into account to target you with ads on TV.

Molly Wood: How much more money can cable companies make? I assume they can charge more for an addressable TV ad than a generic one.

Peterson: Oh yeah, absolutely. They can charge you about 10 times more for these kinds of ads, because they can be somewhat more effective, or at least more pinpointed, for the advertisers. So if an advertiser is paying $10 for a general ad that will just run during the basketball game to everyone who's watching the basketball game, they can alternatively pay, say $100, to only show it to people in certain markets who have a certain household income and certain other interest levels. So there's a bit more efficiency or less waste with it, but it's more expensive to do that.

Wood: What are the challenges around this technology? Because I could imagine a scenario in which if there are multiple people in a household, it's just not going to be that accurate. How well does this addressable advertising actually even work?

Peterson: Yeah, so that's why it's largely at the household level, especially because they don't know, if there are multiple people in a household, which of those people is watching a show at any given time. That's why it's things like, is this a household where there are kids? Is this a household where they own a car? What kind of car is this? Is this a household that rents or buys? How many people are in this household? And then demographic information to age [and] gender of the people living in the household.

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Follow Molly Wood at @mollywood