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DVR Threat Real, Growing

Oct 20, 2003  •  Post A Comment

For the third time this week a client has asked for my point of view on the recent Yankee Group prediction that TiVo and other digital video recorders will be in 20 percent of U.S. TV homes by 2007. Couple this with research that shows roughly 70 percent of DVR owners skip the commercials, and we find ourselves at the beginning of a sea change in the way we deliver advertising messages and plan media.
The DVR’s potential impact was obvious when TiVo and ReplayTV were first introduced. Although they downplayed the commercial-skip capability in contacts with the advertising community, the feature was front and center in their sales pitch to consumers. Since then the language has been toned down.
Replay’s Web site makes a point of its QuickSkip feature that allows users to “Skip through your show 30 seconds at a time to get to the stuff you want to see. Make an hour-long program 40 minutes by skipping over the fluff.” The consumer knows exactly what they are talking about-that “fluff” is my client’s commercial.
A Gathering Storm
In the past year we have seen forces combining into something that can only be described as a gathering storm. TiVo penetration, benefiting from its partnership with DirecTV, is expected to go over 1 million by the end of the year. EchoStar’s DISH Network will give away a DVR to each new subscriber who signs a one-year contract. Cable companies, feeling the pressure, will soon be offering DVRs built into the set-top box. It is only a short step from there to having a DVR built into the TV set the way VCRs and DVDs are now packaged. With total penetration nearing 2 million, the 20 percent penetration estimate is not unreasonable and additional growth is expected.
Users say they like DVR-it changes the way they view television. This differs from the VCR, which had little effect on advertisers, according to Nielsen data, because recording with it was complicated and thus the recording of programs had only a minimal impact on viewership numbers.
If there is any dissatisfaction with the DVR, it comes from those who saved money buying a smaller unit that can record only 40 hours. DISH Network’s offer of a 100-hour box sets the stage for a capacity race as technology develops.
The challenge to television advertising is real.
Product placement will not be able to meet the needs of the industry. Our analysis of national television advertisers in April 2003, based on data from Nielsen MonitorPlus and Quick*Views, found spending by 1,774 advertisers (companies and subsidiaries) and 3,116 brands. Product placement will help a few established brands, but it cannot begin to accommodate the number of advertisers who use television today.
The reduced effectiveness of television will have the greatest impact on retail advertisers, who often have low-production-cost messages that are especially likely to be skipped.
Measuring DVR Viewing
The research challenge is daunting. For the past year TiVo boxes have held Nielsen software that can measure DVR viewing. And Nielsen is working to get similar access from other DVR manufacturers. But it is a long way from the technical capability to provide measurements we can use for planning and buying.
Today’s ratings are based on the average minute of the program. A useful DVR measure would show the number of people viewing commercial minutes at normal play speed. New research from TiVo will provide this, but the numbers will not become currency until they are incorporated into the Nielsen ratings.
Another research challenge is the definition of a program’s viewers. Since all DVR viewing is delayed playback, does the rating include people who watch a show one day later? Two days later? A week later?
Because of these and other research challenges, DVR households are not included in the national People Meter or local market samples. It will be business as usual until Nielsen implements a DVR-relevant methodology that has been approved by the Media Rating Council. The effects of commercial-skipping will slip under the radar until, at some point, advertisers notice that a TV promotion doesn’t give the expected bounce in sales or a new product introduction doesn’t generate the predicted brand awareness.
The DVR will not kill commercial television. New research will show which programs and program types are less likely to be skipped. (News, weather, sports and infomercials come to mind.) And advertisers will find ways of using the medium that avoid the effects of skipping or that capitalize on targeted programming that delivers relevant advertising to those most interested.
What to do? With DVR penetration at less than 2 percent, its effects today are negligible. Advertisers have a few years to experiment with less traditional ways of providing impact with television and expanding the use of other media that will eventually become more important as DVR penetration increases.
Roger Baron is senior VP and media research director, FCB/Chicago.