Cable Plays Catch-Up on the DVR Front

Dec 1, 2003  •  Post A Comment

Now that video-on-demand has proved its worth to cable operators, this holiday season they are turning their attention to VOD’s cousin, the digital video recorder.
Satellite moved first with DVR and now counts about 1.5 million DVR customers between DirecTV and EchoStar. Now cable operators, eager to catch up, will be promoting the DVR message into next year.
DVR numbers clearly illustrate that the technology is still in its infancy and has indeed taken some time to catch on-even though DVR owners freely hand out kudos for the product. But given cable operators’ increasing attention to this area, the usage numbers are expected to rise over the next several years, an increase that could alter traditional advertising models, since 60 percent to 70 percent of DVR owners skip the ads.
While product placement and show sponsorship will grow in importance as commercial skipping becomes more commonplace, they won’t pick up all the slack. Other ad models will emerge.
Comcast, Cox and Adelphia all plan aggressive DVR launches through the end of this year and early next. Time Warner already reaches nearly all of its markets with DVR service. (See related story.)
Cable operators are playing catch-up in the DVR area, said David Pugliese, VP of product marketing and management at Cox. “This is the year that Cox as well as some other cable operators really took command with the video products, and frankly, we had fallen behind in some areas, like digital and DVR,” he said. “Now we are leapfrogging [satellite] with VOD. The bulk of our development efforts are in HD, DVR and VOD.”
Cox has high hopes for DVRs during retail’s strongest season of the year. “I’m convinced one of the hottest holiday gifts is going to be a DVR player,” Mr. Pugliese said. “I’m sure between cable operators’ DVRs, TiVo and satellite providers who have some integrated units, it will be a very popular item.”
Given the rash of deployments expected during the next year, it’s no surprise that analysts are expecting DVR penetration to grow substantially in the next few years. Advertising is already beginning to evolve.
By 2007, cable will claim 10.9 million of the 24.7 million DVRs in use, while satellite will count 9.9 million, said Adi Kishore, analyst with the Yankee Group.
A recent TiVo study found that TiVo users time-shifted 80 percent of the prime-time content they viewed, Mr. Kishore said. Other studies suggest that number is closer to 60 percent.
“Any way you cut it, it’s going to be a serious problem for the industry, and I think everybody gets it at this point. I think advertisers are incredibly concerned,” he said.
Solutions include downloading advertising to the DVR. That works best for movie trailers and other content that consumers like to watch.
But consumers won’t want their hard drives clogged with ads, so downloaded content will be limited to “sexier” products, Mr. Kishore said.
He also expects more interactivity in commercials, making them more compelling to watch.
Two-screen interactivity is another option. About one in six homes surf the Web and watch TV simultaneously, providing an opportunity for advertisers to place ads related to the show in games, Web sites and chat rooms online.
“There is no single approach. You have to be very opportunistic,” Mr. Kishore said. In addition, it’s important to bear in mind that while one in five homes will have a DVR, four in five won’t.
DVRs may also be the key to reaching the elusive 18 to 34 male demographic that is increasingly emigrating from broadcast television to other forms of media, Mr. Aksman said. “As early adopters, this demographic is likely [to be] among the first to fully embrace DVRs and on-demand television generally, providing programmers and advertisers a unique opportunity to leverage the technology in packaging the two together in a unique and ultimately more effective manner from a marketing perspective,” he said.
Ad models won’t be disrupted until the number of DVR users reaches close to 10 million, said Bruce Leichtman, president of Leichtman Research Group. “There is still a lot of legs for traditional ad models,” he said. He expects to see more commercials wrapped around on-demand content.
One interesting opportunity is that in a DVR home, if a consumer likes a commercial he or she can watch it over and over again and show it to friends, said Greg DePrez, VP of subscription VOD at Starz Encore Group, which offers DirecTV Starz on Demand, in which it downloads five movies per week for on-demand viewing on DirecTV/TiVo boxes. Advertisers can also push different kinds of commercials into a DVR and target ads to the set-top box, he said. He added that direct-response ads will grow in popularity.
Mr. DePrez also pointed out that while 60 percent to 70 percent of DVR users don’t watch commercials, the industry does not know how many people are actually watching commercials in non-DVR homes. After all, the remote has been around a lot longer than DVRs.