The DVR Panic Button

It’s not time to panic yet, but you may want to pull your head out of the sand. This issue isn’t going away anytime soon.

I’m speaking of the 800 lb. gorilla that’s been lurking in the shadows of every client presentation I’ve been part of. This phenomenon is so powerful, it has the potential to change advertising’s fundamental principles.

It’s called “skippage.” It even sounds dirty, doesn’t it?

Ad avoidance, made possible with the push of a button, is dramatically accelerated by technology. Last week, we had a fascinating discussion at my agency about the subject and what we should do about it. Truth is, the issues we’re facing in traditional media are not dissimilar to those we’ve dealt with in the interactive space for some time.

Welcome to our world.

Interactive marketers are trained to offer consumers an opt-out on ad placements (i.e., click to close). This applies to most rich media applications today. The belief is if we make the creative dynamic and engaging enough, consumers will want to watch/play/interact with the ad. Performance metrics let us know how successful we are at retaining the audience during “commercial breaks.” It’s analogous to what advertisers now face in a user-controlled broadcast environment.

Brand names are synonymous with entire categories of products and/or services. Coke, Scotch Tape, Tupperware, Walkman, Xerox, Kleenex, and TiVo are some brands that immediately come to mind. Yes, the dreaded four-letter word: TiVo. For the purposes of this column, I’ll use TiVo (and its 1 million households) as a generic term for the entire DVR universe (currently penetration is 3 or 4 million U.S. households, depending which source you trust).

TiVo has its fingers in many pies. It’s selling advertising space in the form of TiVo “Showcases,” a form of VoD, to deliver content in relatively short lengths (4, 8, or 12 minutes) exclusively to TiVo subscribers. It’s acting as a distribution channel (read: broadcast network) in the case of “Sound Check,” a 30-minute branded content experience we created with Coca-Cola and Universal Music. It’s talking about licensing its software to hardware manufacturers, multiple systems operators (MSOs), and other interested parties (assuming it isn’t bought by a major cable operator). It’s also getting into the research business, selling aggregate viewing data to agencies and marketers. One might think a conflict of interest is buried in there somewhere, but that’s another subject.

You’ve probably heard some early reports indicating a tremendous amount of overall viewing in TiVo homes is recorded, not live (over 60 percent), and the vast majority of ads are skipped in recorded viewing (over 80 percent). DVR owners would likely be surprised the number of skipped ads isn’t higher still. We’re in the process of sorting through some very recent TiVo data and expect to have much more detailed information soon.

Television ad skippage is nothing new. Before TiVo, the bathroom, the refrigerator, and the all-powerful remote control were the enabling technologies. Nielsen monitors 5,000 homes and reports on program, not commercial, viewing. I queried a few research experts who said they wouldn’t be surprised if the ad skippage rate were 30-40 percent before DVRs hit the scene. If that’s the case, did we just accept it? Did we adjust our CPMs to reflect a guaranteed audience shortfall of 30-40 percent? I’ll hold this diatribe for a future column.

Arguably, TiVo and other time-shifting technologies offer a very simple, effective way to avoid TV advertising. TiVo also gives us the ability to quantify the skippage rate. That makes people very nervous. Currently, Nielsen doesn’t include any DVR homes in its national sample. With DVR penetration of 3-4 million homes, it’s too small to sample. How long will that last?

Cable operators such as Time Warner are aggressively marketing their own DVR technologies. The hardware is “free,” the monthly fee is half of TiVo’s. Comcast will soon join the fracas with its DVR. With penetration projected to eclipse 7 million homes by late 2004, this isn’t science fiction; it’s here and now.

Is the sky falling? Not at the moment. But broadcast networks, advertisers, and agencies ought to start thinking about very aggressive testing in this area. In a user-controlled world, the broadcast advertising’s old dynamics are no longer relevant. We must get our heads out of the sand, understand what is relevant, and be prepared to guide our clients accordingly.