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Ad Avoidance As High As 80% For PVR Users

Ad Avoidance As High As 80% For PVR Users

Between sixty and seventy percent of television advertisements are being screened out by viewers who own personal video recorders (PVRs), according to equipment manufacturer TiVo. This statistic will reinforce worries in the TV industry that the widespread adoption of PVR technology will pose a major threat to the fundamental economics of the broadcasting sector.

Since the emergence of hard-disk video recording a few years ago, some observers have warned that the technology could be the death knell for the traditional spot advertising system which underpins television’s economy.

PVRs not only allow users to easily skip past commercials, but also to record large volumes of programming and watch it at a different time to the original broadcast schedule. The recorders allow users to ‘pause’ live programmes and continue watching them as is convenient and can also compile a new ‘schedule’ by recording whichever programmes meet the user’s preferences (such as certain actors, or programme-themes).

In such time-shifted viewing, TiVo says that 60-70% of adverts are skipped. In viewing to ‘live’ or ‘almost live’ TV, the avoidance rate climbs to around 80% of ads, according to estimates by Merrill Lynch. Given that TiVo users time-shift around 80% of prime-time viewing in the US, a lot of ad dollars are going down the pan in TiVo-enabled homes.

The PVR therefore not only jeopardises TV spot advertisements, but also diminishes the logic of a schedule of programmes, such as a prime-time evening run. Consequently, if penetration grows, advertisers may have to look to new formats to reach viewers.

Demand to boom or dwindle? The consolation for the industry at present is that the take-up of PVRs has been lacklustre, both in the UK and the US. So much so, in fact, that TiVo recently discontinued production of its units in the UK market (see Digital Video Recorders Will Thrive In Europe, Says IMS Research).

Take-up in the UK has been even slower than in the US, with just 65,000 units in circulation at present (0.2% of households). BSkyB is currently the only company offering PVR technology in the UK, through its Sky+ system. Merrill Lynch analysts believe that Sky entered the market for defensive reasons – to prevent the cable operators getting a foothold – and so far it has not promoted the service aggressively.

However, this may well be about to change, with analysts predicting significant increases in PVR penetration in the next four or five years, according to Merrill Lynch. Forrester Research last year forecast that 15% of US households would have PVRs by 2007 (see PVR Technology Will Force Advertisers To Adapt, Says Forrester). Informa Media Group predicts that PVRs will be in 30% of UK homes by 2010, up from just 2% by the end of 2003 (see Government Switch-Off Target Cannot Be Met, Says Informa Media Group).

The cost of hard-disks is falling, resulting in cheaper units. As the units become cheaper, satellite and cable operators are expected to market their own versions of the PVR hardware to their existing customers. Given a promotional drive, falling costs and possible subsidies, the penetration of PVRs in the US and the UK could really take off. Once penetration creeps up, the ad avoidance ratios start to become a much more pressing issue for the industry.

Merrill Lynch does not expect the standalone PVR units (for example, TiVo and Replay in the US), to significantly boost penetration from current levels. Rather, growth is set to come from the cable and satellite operators, not least because they can offer the technology already built in to the TV set-top box, making the package more attractive to consumers.

The broker says that analysts’ views on the future of PVRs remain polarised: Some say that if consumers do not understand them within four years, they never will. Others are predicting a boom in demand, with manufacturers so far remaining committed to the system (see Manufacturers Remain Committed To Personal Video Recorders).

Implications for advertisers If demand for PVRs does boom it seems likely that viewing of the traditional spot advertisement in the traditional schedule will be disrupted to some extent.

In order get around this problem and continue to provide revenue to broadcasters and content producers, advertisers may have to become more creative in their campaigns. Product placement, programme-sponsorship and programme content-related advertisements have all been proposed as alternative formats, according to Merrill.

However, there is a flip-side. As well as allowing viewers to avoid ads, the PVR system also allows precise viewing data to be collected. This potentially creates a more accurate measurement system for advertisers. For example, TiVo data from the 2003 US Super Bowl show that a Reebok ad was the most watched commercial throughout the telecast of the game.

Regulatory intervention Merrill Lynch also notes that a number of US broadcasters have taken Replay to court over two of the unit’s features – web sharing of recorded programmes and an automatic ad-skip button. The official opposition was to web sharing of copyrighted programme material, but the genuine concern was the ad-skip button, according to Merrill analysts.

So far there has been no regulatory intervention in the US, UK or Europe to prevent PVR manufacturers from including functions which could jeopardise television revenues.

PVR Households By Region 
                   
  2002  2005  2010 
    Penetration (%)    Penetration (%)    Penetration (%) 
  Households (000s)  Of Dig Homes  Of TV Homes  Households (000s)  Of Dig Homes  Of TV Homes  Households (000s)  Of Dig Homes  Of TV Homes 
Asia Pacific 183 0 0 6,594 9 1 69,591 27 13
Europe 344 0 0 5,828 9 2 38,035 30 16
Latin America 64 0 0 1,326 9 1 10,404 25 10
North America 1,429 2 1 10,315 13 9 54,012 44 43
Total  2,020  1  0  24,062  10  2  172,043  31  17 
Source: Informa Media, September 2002 

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