In the age of TiVo and on-demand television, in which users can fast-forward through commercials or skip them entirely, advertisers are rethinking their use of traditional 30-second TV spots.
According to a joint study released by the Association of National Advertisers and Forrester Research, nearly 70% of advertisers said they believe digital video recorders (DVRs) and video-on-demand (VOD) will reduce or destroy the effectiveness of traditional 30-second commercials.
Also, 78% of advertisers said television advertising has become less effective over the past two years.
"The TV industry is in the throes of change," said Bob Liodice, president-CEO of the ANA.
The report, based on a survey of 133 national advertisers, was presented at the ANA Television Advertising Forum March 22 in New York.
"DVRs will force us to think differently about how to leverage TV ads," Liodice said.
Conventional TV ads will slip
The study found that when DVR usage reaches 30 million households in the U.S., expected within three years, almost 60% of advertisers say they will spend less on conventional TV advertising; of those, 24% will cut their TV budgets by at least 25%.
Regarding how budgets will be reallocated, 80% of advertisers said they will spend more on Web advertising, and 68% will use search engine marketing, the survey found.
Advertisers are also looking at alternatives to traditional TV advertising and will spend more of their ad budgets on branded entertainment within TV programs (61%), TV program sponsorships (55%), interactive advertising during TV programs (48%), online video ads (45%) and product placement (44%).
One advertiser that has taken an aggressive stance in exploring alternative TV and emerging media ad formats is Visa USA, which has experimented with TiVo, VOD, wireless phone and PDA advertising.
"The shift in media consumption has definitely redefined how we reach our target customers," said Jon Raj, VP-online and emerging platforms at Visa USA. "With the advent and adoption of the DVR, we started to look at new ways of utilizing an extremely effective medium."
To leverage its National Football League sponsorship, in September Visa ran a five-minute promotional segment on TiVo featuring ESPN analysts sharing their top picks for the 2005-2006 NFL Fantasy Football season. TiVo users could choose to view the program by clicking a gold star on the TiVo menu. Along with the segment, Visa promoted an Unpredictable Sweepstakes offer.
"Bringing the two together—content and our promotion—we found great integration and were able to effectively communicate our message," Raj said.
During the 2006 Winter Olympics, Visa sponsored an on-demand Olympics highlights program on NBC. Ad space included a three-second Visa "bumper" ad prior to the highlight footage, and a 30-second spot at the clip's conclusion.
"Television is still an excellent media vehicle to reach a broad audience," Raj said. Although Visa is exploring emerging media, it does not plan any major budget shifts away from TV, he added.
Josh Bernoff, principal analyst at Forrester Research, said, "The thing that is most striking is how similar the results [of the ANA/Forrester study] are to results we got two years ago and four years ago."
In 2002, when Forrester conducted a similar study for the ANA, 76% of advertisers said they would spend less on TV spots when DVR usage reached 30 million homes. In 2004, the response was the same.
However, Bernoff said, while DVRs and VOD were mostly theoretical in 2002 and 2004, "now they are a real force."
"From talking to large, national advertisers, there is a feeling they may have signed up for too much TV in the ad mix, and they may want to move some of that to other media, such as the Internet," Bernoff said.
Online gains momentum
Meanwhile, video advertising on the Internet is gaining momentum as the technology improves and advertisers find new ways to leverage the medium.
In a December report, research firm eMarketer projected that online video ad spending would reach $640 million by 2007 and $1.5 billion by 2009. In 2005, online video ad spending totaled approximately $225 million, the report found.
Online video ads give marketers an opportunity to provide online product demos, interactive content and more in-depth information.
Iron Mountain Digital, an online backup and data recovery company, recently created an online video ad featuring comedian John Cleese that is nearly seven minutes long.
The humorous video, which was based on the Accelacast rich media platform, ran on sites including ITWorld.com and Computerworld.com, and had an average viewing time of nearly four minutes.
"What is important is having an asset that is very attractive for people to look at and to engage with," said Christine Eyre, director of corporate marketing at Iron Mountain Digital.