Posted on 24-5-2002
Digital
An Ad Killer
By AMY HARMON, NT Times 22 May 2002
Digital successors to the VCR that eliminate the frustration
of recording
television programs have crossed a popularity threshold, raising
alarm
among advertisers and TV executives who see the devices as a
threat to the
economics of commercial television.
Digital video recorders, or DVR's, make it so easy to program
and play back
shows — they do away with videotapes by storing 30 hours or
more on a hard
disk — that their owners often choose to watch what is on the
machine
rather than what is on TV. Ignoring the networks' painstakingly
planned
schedules, they watch prime-time programs late at night and
late-night
programs before dinner, often oblivious to the channel on which
it
originally appeared. They also see fewer than half the commercials
they
used to, compressing hourlong shows into 40 minutes as they
fast-forward
through the advertisements that the television industry has
long depended
on to pay for its programming and profits.
One in five people who own a DVR like TiVo or ReplayTV say they
never watch
any commercials, according to a recent survey from Memphis-based
NextResearch. Numbers like that have provoked gloomy pronouncements
from
industry executives. Some even come close to accusing habitual
ad skippers
of theft. "The free television that we've all enjoyed for so
many years is
based on us watching these commercials," said Jamie C. Kellner,
chief
executive of Turner Broadcasting. "There's no Santa Claus. If
you don't
watch the commercials, someone's going to have to pay for television
and
it's going to be you."
But such admonishments appear unlikely to sway DVR owners. By
recording the
shows they know they want to see, many say they have escaped
the scourge of
channel-surfing and the empty sense of wasted time so often
associated with
watching TV. Although sales of DVR's are still small compared
with those of
other home entertainment devices like DVD players, analysts
say the
remarkable enthusiasm they inspire makes their broad adoption
only a matter
of time. "I can do e-mail and I can go on the Internet but I've
never been
able to program the VCR," said Kay Friedman, 66, of Morton Grove,
Ill., a
TiVo owner who takes special delight in waiting until 9:20 to
watch "The
Practice" on Sundays so she can skip through the commercials
even as it
records. "I'm hooked."
Dismissed until recently as too expensive and complex for the
average
consumer to set up, DVR's are now a fixture in more than a million
United
States households — about 1 percent of the total — a number
expected to
grow to 50 million over the next five years, according to Forrester
Research . Fueling the growth are cable and satellite companies,
who plan
to build DVR features into their set-top boxes, greatly simplifying
the
set-up process. Cox Communications, Time Warner and Charter
Communications
have already announced plans to make these services available
to consumers
later this year. TiVo, which markets its own DVR and licenses
its service
to others, costs $300 to $400, plus a $12.95 monthly fee. Sonicblue's
ReplayTV 4000 costs $699 for 40 hours up to $1,999 for 320 hours
of
storage; the company said it expected sales to increase when
it introduces
a lower-priced machine later this year.
Some advertisers are re-evaluating their buying strategies and
demanding
new ways of measuring audiences. Steve Sternberg, director of
audience
analysis for the advertising firm Magna Global USA, circulated
a memo
recently that asked, "If an advertiser buys `NYPD Blue' on Tuesday
night,
and 10 percent of its audience watches it on Friday after midnight,
should
that audience be given equal value as the `live' prime-time
audience?"
There is an important distinction, Mr. Sternberg said, between
"zipping and
zapping": "When people switch channels, they are going from
something to
something else. There are losses for one channel, but gains
for another.
With fast-forwarding there are only losses."
Others are trying to turn the technology to their advantage.
Coca-Cola has
paid for advertising that appears on the screen of a ReplayTV
user when a
viewer pauses a program for more than a few minutes. Last week,
Best Buy
announced that it would embed electronic tags visible only to
TiVo users in
30-second commercials featuring the singer Sheryl Crow it is
running on
MTV. Viewers can click on an icon to see 12 additional minutes
of the Best
Buy "advertainment," while TiVo records the continuing MTV programming
so
they can watch it later. "We need to start to understand how
we're going to
have to reach our consumers with this new technology," said
Mollie Weston,
a product manager for Best Buy's image advertising. "It is going
to force
us to put advertisements out there that people are actually
going to choose
to watch."
Because DVR's are connected by a phone or high-speed Internet
line from a
viewer's home to a central server to get program schedules,
some
advertisers envision downloading commercials aimed at individual
people
based on information from databases compiled through other sources.
Members
of Purina pet clubs might get pet food commercials, for instance,
while the
owner of a BMW lease that is about to expire might get an advertisement
on
the automaker's new convertible. "There's a lot of things that
are going to
start to change," said Ira Sussman, director of research for
Initiative
Media North America, an advertising buyer whose clients include
Maybelline
and Home Depot . "We're going to have to start thinking more
about the
importance of product placement within programs, placing more
relevant,
highly targeted messages. But we see it as a glass half full."
His research
reflected a less rosy picture for the television networks, however.
"We've
found people recording programs and watching them on their own
time are
often not realizing what network they're coming from anymore,"
Mr. Sussman
said. "That's a real brand equity that might be lost on the
networks' part,
if you're trying to put something next to `Friends' but no one's
watching
`Friends' live."
Much of the television industry's response to the new technology
so far has
focused on a lawsuit that seeks to ban the sale of the newest
version of
ReplayTV, which allows its customers to set it up to skip commercials
on
playback automatically, without even requiring them to fast-forward.
The
machine also allows its owners to send shows to each other over
the
Internet. A group of media companies including Viacom Inc.,
the NBC
television network, the Walt Disney Company, AOL Time Warner
Inc. and
Twentieth Century Fox has asked a federal court in Los Angeles
to stop
Sonicblue from selling the device, saying it contributes to
copyright
infringement. To win, they need to prove that the machine is
fundamentally
different from the VCR, whose distribution was upheld by the
Supreme Court
in 1984 after a similar challenge by the entertainment industry.
Lawyers
for the companies now argue that the court's endorsement of
consumers'
right to "time shift" television programming in the 1984 case
was based on
the assumption that copyright holders would not suffer significant
financial damage as a result. Over the protests of privacy advocates,
they
are demanding detailed information about which shows ReplayTV
owners record
and which commercials they skip.
Sonicblue's chief executive, Ken Potashner, concedes that on
average
ReplayTV users skip more than half the commercials. But he says
it is up to
the networks and advertisers to come up with creative ways to
persuade
viewers to watch. The ReplayTV machine records all the commercials,
and
users must choose to set it to skip them automatically on playback.
They
can always reset it if they choose. "What are they going to
attack next,
the mute button?" Mr. Potashner said. "We've provided an efficiency
improvement for a consumer who is compelled to skip a commercial.
What they
should do is work with us."
A victory in the companies' case against Sonicblue will not
stave off the
fundamental shift in culture undermining their business, industry
analysts
say. Consumers have embraced digital technology that allows
them the
greatest flexibility in the way they shop, communicate and consume
all
kinds of media — and it is not likely to be different in TV.
"We've trained
people that you can buy things at 3 in the morning in the nude
on the
Internet and make a call to anyone from anywhere on a cellphone,
and the
idea that CBS is going to determine when I watch `CSI' flies
in the face of
that trend," said Josh Bernoff, an analyst with Forrester Research.
"TV
networks are going to have to figure out how to make money from
a TV viewer
that is not nailed to the chair waiting for the commercial to
end."
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