A recent FCC ruling clearing the path for “next gen TV” could provide advertisers with more precise targeting options on local TV stations and allow broadcasters to tap into a new revenue stream and better compete with Google and Facebook for digital ad dollars.

But there are hurdles. Local stations and TV manufacturers need to update their own systems before the new standard can truly shake up the U.S. broadcast business. Industry experts say it could take up to five years, and it won’t come cheap.

The new standard, dubbed “next gen TV” or “ATSC 3.0,” will eventually allow advertisers and programmers to transmit higher quality broadcast content directly to a TV or mobile device over the air, through an Internet Protocol signal.

The update will make it possible for advertisers to serve different ads to specific households and mobile devices, similar to how advertisers target consumers online.

The practice, referred to as addressable TV advertising, has been heralded as the future of TV advertising, but progress has been slow. It is only possible today through cable TV operators, who control a small amount of ad time in programming. It hasn’t been possible up until now through over-the-air broadcast programming.

The cable operators haven’t been able to agree on the technology and systems that make it easy for advertisers to serve cable ads to specific households at scale, across the country.

Pivotal Research analyst Brian Wieser describes addressable advertising as “a mass customization approach,” but, he said, “no one’s figured out how to do that efficiently.”

U.S. addressable TV ad expenditures will increase from $450 million in 2016 to $600 million this year, according to a Magna Global report. The figure, which makes up a small fraction of total TV advertising dollars, represents 12% of local cable spend. Total homes that receive addressable ads are expected to increase from 42 million this year to 74 million by 2021.

Broadcast ads are typically bought based on broad age and gender data; an advertiser buys a certain program and timeslot because they’re told it reaches adults 18 to 49 years old, for example.

With next gen TV, the idea is that advertisers will be able to buy broadcast ads targeting more precise consumer groups. Someone on one street might see an ad for a minivan, while someone on another street might be watching the same show and see an ad for a hot sports car.

Stations and advertisers will also likely be able to glean more precise data on viewers, informing better ad targeting and programming decisions.

With more precise targeting and data, advertisers will likely pay more for each impression than in a national ad buy, but they won’t necessarily need to buy as many impressions.

An addressable campaign can save some clients 30% to 40%, if not more, said Rino Scanzoni, chief executive of GroupM’s advanced TV group, Modi Media. In a non-addressable campaign, there can be “a tremendous amount of waste,” he said.

Next gen TV could give a needed boost to TV stations.

“The biggest continual decline in our business is ad revenues,” said Mark Aitken, vice president of advanced technology for TV station giant Sinclair Broadcast Group. Next gen TV could stop and ultimately reverse that “draining process,” he said.

The FCC may have given the nod to station groups to start rolling out next gen TV, but the changes are far from imminent.

TV manufacturers need to start selling devices with special technology that can receive the new signal, and then consumer adoption could take time.

Meanwhile, updates to station towers and systems will likely take more than three years and cost anywhere from about $100,000 for a small independent station and tower with minimal reach, to $1 million for a facility that can be shared by multiple local stations, said Mr. Aitken.

Once “a bunch of infrastructure” changes are made, this broadcast update will be a “bigger game changer” than broadcast’s shift from analog to digital, said Tracey Scheppach, CEO and co-founder of consultancy Matter More Media. At that point, addressable broadcast ads will be sold at a “premium.”

A consortium made up of broadcasters including Nexstar, Sinclair, Univision and Tribune is working on creating a new system that will automate more of the transaction between ad buyer and seller and create more standardization around the data that the stations capture, said Mr. Aitken.

Through the consortium, the station groups can present themselves “as a national platform” to Madison Avenue, he said.

The consortium is planning on testing the new standard in a top-ten broadcast market by the end of the first quarter next year, he said.

Write to Alexandra Bruell at alexandra.bruell@wsj.com