The TiVo Effect: Advertisers See Less TV Ad Spending

  |  November 25, 2002   |  Comments

A new Forrester Research study finds advertisers in a quandary over how to deal with ad-skipping technology and ready to explore other media options.

With TiVo predicting it will surpass 1 million subscribers next year, a new study has discovered advertisers are uncertain about the effects of personal video recorders (PVRs), and are ready to take the axe to TV ad budgets.

The survey of 112 marketers, completed by Forrester Research and the Association of National Advertisers, found 68 percent of advertisers feeling unprepared to deal with ad-skipping technology, while 75 percent said they would cut their ad budgets as a result. Of those marketers saying they would cut spending on TV ads, 75 percent said they would scale back at least 21 percent.

In a related research report, Forrester estimates PVRs will lower spending on TV commercials by $7 billion in 2007. However, interactive and video on demand (VOD) advertising will nearly make that up, growing from $106 million this year to $6 billion in 2007.

While customers like the ease and convenience of PVRs, more than half said the ability to skip commercials was their favorite new TV feature. Forrester estimates that one in five ads will be skipped over the next five years.

A consequence of the marketers' uncertainty about TV advertising's continued effectiveness is that advertisers will look to other media for their marketing dollars. Advertisers in the study said they were likely to increase spending on alternative media, with half saying email marketing and Web advertising would get more money.

Forrester said PVR penetration is still small, at just fewer than 2 million households, but with the potential for explosive growth. The researcher asked consumers to identify favorite TV enhancements and they named PVR or VOD technologies as seven of their top 10 features.

With consumer interest expanding, Forrester expects PVR penetration will grow rapidly, with half of all households having some form of on-demand TV by 2007.

With more viewers skipping traditional TV commercials, Forrester said marketers would shift spending to TV initiatives unaffected by ad-skipping viewers. However, advertisers are more likely to embrace tried-and-true concepts, like sponsorships and product placements, rather than newer vehicles, such as interactive commercials. Two-thirds of respondents said they planned to bump up spending on sponsorships, and 46 percent said more money would go to product placement.

While advertisers see PVRs as a threat, the study found little stomach for fighting the new technology in Congress or the courts. Only 12 percent said that pushing for Congressional action was a good idea, and 14 percent favored suing PVR makers, like last year's suit brought against ReplayTV maker SONICBlue by a group of networks.

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