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May 11, 2005
The TiVo Revolution: Are You Ready?

Are digital video recorders (DVRs) all hype? Or are they changing the way people view TV? We believe there is a revolution happening in our industry and it is being led by TiVo, the most prolific DVR in the marketplace today.

TiVo, time-shifting and other trends that affect your bottom line.
Early on, some pundits made the mistake of comparing TiVo’s potential impact to the VCR revolution 20 years ago. We see this as a big error. Yes, some people taped their favorite shows, particularly soap operas, and then played them back at night and zipped through the commercials. Nevertheless, the majority of VCR usage was for playing feature films that were rented at local video shops.

For DVRs, usage will be centered around time-shifted programming (watching at a time other than when the network originally aired it). Forrester Research has projected that by 2007, some 28% of TV viewing will be time-shifted. This statistic is particularly relevant when you understand that a significant amount of time-shifted programming will not have commercial interruptions.

Research from TiVo indicates that a stunning 97% of current users have recommended it to a friend. There are only a handful of other services or products that have that kind of customer satisfaction. And sales information from Best Buy and other electronic retailers during Christmas 2004 indicates that TiVo sold briskly. Assuming the economy remains strong, Christmas 2005 could be the breakout year for TiVo and its entire competitive set.

What does this mean for advertisers and marketers?
Essentially, it means that we have a narrow window of 30-36 months to get ready for a profound change in our business. The TiVo revolution may come like a thief in the night, but once the “toothpaste is out of the tube,” no network TV programming stunt is going to put it back.

Consider the state of the current major networks. For 4th quarter 2004, the median age of the networks is up as follows:

  • ABC: 45.3 (Median Age), +2.0 (1 Year Change)
  • CBS: 53.1 (Median Age), +1.6 (1 Year Change)
  • FOX: 36.1 (Median Age), +0.5 (1 Year Change)
  • NBC: 45.7 (Median Age), -- (1 Year Change)
  • UPN: 34.0 (Median Age), +1.2 (1 Year Change)
  • WB: 32.6 (Median Age), +2.0 (1 Year Change)

Where are the young people? They are moving to gaming options, the Internet, DVDs, even satellite radio and DVRs. But DVRs are only in 3% of the U.S. TV households for the moment. Imagine what will happen when many millions of tech savvy teenagers and young adults get their hands on TiVo-style technology and can use it daily.

Creatives—those who actually write and produce TV commercials—believe that better creative is the way to zap commercial zapping. But for people in a time crunch, if a program is now 44 minutes instead of 60, it would take some spectacularly memorable and intrusive creative to persuade them to slow down and watch the commercials. And, once people watch commercial-free TV, it will be next to impossible to get them back.

Who has the greatest time pressure? Two groups: the very affluent who work very hard and lack patience; and working Moms who are long on patience but have no time at all. Increasingly, reaching these linchpin demos will be very hard for marketers as we go forward.

How to win in a changing marketplace.
Some say that we have nothing to worry about. Any impact of DVRs can be blunted by putting product placement in big programs or doing sponsorships for Video on Demand or network and cable programming. For massive, fully national or global spenders, there is some truth to that argument. The Coca-Cola Company, Procter & Gamble, Colgate-Palmolive, McDonald’s and auto makers may all be able to minimize the impact of this new technology with clever end runs around the zipping and zapping that goes on. But most advertisers are local or regional in scope. What happens to them? Those sponsorship avenues are simply not possible to players who are not fully national.

Online media, e-mail and carefully crafted direct mail can pick up some of the slack. And a real sleeper in the mix—for a while, at least—is radio. Satellite radio is starting to grow rather quickly but has yet to have a measurable effect on radio listening levels. So radio, which held up as network TV eroded to cable and satellite fare, may hold its own longer than some would suspect. And radio is wonderful for local and regional advertisers and good broadcasters still welcome inspired promotions.

One benefit of DVR growth and change in TV usage habits is that of viewer empowerment. Time-shifting requires some interaction so TV will cease to be such a passive medium. Also, Direct Response TV advertisers can put a tag on the screen and viewers can stop watching the recorded program and learn more about a product or purchase it with one more click. DVR companies could pitch a return on investment story to advertisers that cannot be matched today.

Where do we go from here?
The DVR explosion will rock the marketing and advertising industry to the core. The mighty 30-second spot, our industry standard, will die a slow death. Its utility will diminish greatly over the next five years, and will be a minimal part of the mix 10 years from now.

Tactics that worked for us in the '80s are passé. Remember road blocking? You could buy spots in the ABC, CBS, Fox and NBC station in the same hour, or, better yet, the same break and you could reach 60% of the entire market or country in an instant. Now you roadblock and you hit 16% on most nights. To get 60% you would need seven networks plus another 75 cable channels. What about appointment TV where the big hitter shows such as Seinfeld, ER or Friends could cover 20% of your demo in one spot? With time-shifting, your reach would be scattered. And how many people would sit patiently through several commercial breaks to see your spot?

Fletcher Martin Ewing has a commitment to lead our clients through the alligator-infested swamp that is emerging in our marketplace. The key is to recognize that something profound is happening and to prepare alternative courses of action.

We confidently predict that the future for advertisers has not been cancelled. But survival and prosperity will go to those who meet the challenge of the coming TiVo revolution.

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Don Cole puts his 30 years of media strategy and negotiation skills to work as Corporate Media Director for Fletcher Martin in Atlanta. Over the years, he’s worked on clients such as BP, Eckerd, Arby’s, AARP, and McDonald’s. He’s seen it all in the media landscape, which makes him the perfect person to ask about where media is heading.
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