IMPACT OF PVRs DRAMATICALLY LESS THAN PREDICTED

TiVo, SonicBlue Sell Slowly; Many Owners Still Watch Ads

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NEW YORK (AdAge.com) -- When personal video recorders debuted three years ago, it looked like the relevance of 30-second TV spots could
The ReplayTV 4000 is SonicBlue's latest model.
be changed dramatically -- and sooner rather than later. The service vexed marketers, ad agencies and networks.

Projections by Forrester Research at the time bullishly called for 50 million homes to have PVRs or PVR-style capabilities by 2005. (The set-top boxes and services marketed by TiVo and SonicBlue's ReplayTV allow viewers to skip ads, pause live TV and store programming.)

It's not 2005 yet, but even less aggressive projections of more than 3 million PVRs in 2001 haven't panned out. Less than 350,000 set-top PVRs were sold at retail in 2001 according to Yankee Group, but yearend household penetration of PVRs and PVR-style services hovered around 1 million. That's due to satellite TV service providers such as EchoStar and cable companies offering PVR features. With 30 million digitally-enabled households in the U.S., cable and satellite TV providers hope to speed the rollout of PVR services.

Yankee projects nearly 20 million homes will have PVR services by 2005.

Revolution on hold
Apart from off-base rollout projections, the initial fury over how PVRs might usher in a revolution in TV viewing is also on simmer. The latest

TiVo's latest offering is the Series 2 digital personal recorder.
annual PVR Monitor, produced by independent research firm NextResearch, provides evidence that viewers are not automatically using PVRs to zap ads and suggests a kind of creative Darwinism is emerging, where marketers who produce ads that resonate may be able to bypass PVR hurdles. For example, the study, which surveyed 358 people who used the services, shows 92% of respondents said they watch ads that are entertaining and 69% watch for products they are interested in.

The study also showed that viewers' likelihood of watching commercials when viewing programs with PVRs vs. live TV is nearly the same. Only 1% said they always watch the ads when using a PVR or watching live TV, while 60% said they occasionally watch them with PVRs and 62% with live TV.

Ad skipping up
The study did, however, offer

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some evidence of how PVRs may pose a threat to ads. The survey shows that 69% of respondents said they skipped through ads frequently, up from 41% in the previous PVR Monitor.

"You can't put the genie back in the bottle," said Jennifer Choate, president of Memphis-based NextResearch. "The fact is that advertising needs to change."

So marketers, agencies and networks can't ignore growing PVR use. Challenges remain over how to weave advertising into programming through plot and product placement, opt-in and other methods.

Exclusive content for marketers
TiVo, which has more than 400,000 subscribers and claims about 40% of the PVR market, plans to sell marketers on its ability to offer up to 40 minutes of video that can be used for exclusive content, polling and other features. Advertisers could sponsor the video bundle or use the time for their own messages, said TiVo spokeswoman Rebecca Baer.

Meanwhile, TiVo last week inked a deal with AOL Time Warner's America Online unit to offer its instant messaging in a new TiVo service. And Replay's new 4000 series lets consumers send ad-free programming to other Replay users over the Internet and allows them to set the device to skip all commercials. The networks filed suit last fall against SonicBlue over these features. The suit is still pending.

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