DVR Threat to TV Ad Model Looks Increasingly Manageable

Household Penetration and Ad Skipping Are Slowing

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NEW YORK (AdAge.com) -- Feared a decade ago as a killer stalking the TV-advertising model, DVRs are proving less of a threat than many people feared.

More and more people are plugging in new DVRs, of course, and starting to skip the commercials during shows they record. But the devices are spreading more slowly than before, according to new research. And latecomers to this particular party are proving less likely to skip commercials than the earlier adopters. The way things are going, according to one rough calculation, prime time TV won't see more than 13% of its commercials fast-forwarded in the foreseeable future.

Year DVR Penetration
2006 15%
2007 21%
2008 23%
2009 28%
2010 31%*
2011 34%*
2012 36%*
2013 38%*
2014 39%*
2015 40%*
The latest annual consumer-technology study by Forrester shows a marked deceleration of DVR adoption in recent years. After rocketing from 15% of households in 2006 to 31% this year, DVR penetration is now expected to only reach 40% by 2015. And there may even come a stopping point for its growth.

Topping out at half of households?
Tivo and some others are more bullish, but DVR penetration now seems likely to top out around 50% in the U.S., or even little under, according to Forrester analyst James McQuivey.

That's still a big deal. "50% is huge," Mr. McQuivey said. "So we shouldn't diminish that. There are very few things that reach 50%."

But 50% is a far cry from even 70%, a level that broadband internet connections have already reached, according to Forrester. And it leaves many, many people living much the same the TV ad model that their parents knew.

Why is DVR-penetration growth decelerating? The troubled economy has probably slowed DVR adoption, but continued robust growth for broadband web access, HDTVs and laptop computers -- all of which are now in a majority of U.S. homes -- suggests money is not the only drag on DVRs.

DVRs not a slam dunk for every home
"In order to have one of these things you need a critical mix of things that include money and somebody who really cares about watching television -- and not everyone does," Mr. McQuivey said. "And it helps if you're in a multi-user household."

Yes, the average American watches four hours or so of TV a day, but within that average comes a range of commitment. On one end, 2% of households have no TV at all. On the other are multigenerational households with widely varying TV needs or people for whom TV plays a major emotional and social role, both of which are prime DVR customers, Mr. McQuivey said.

Another problem for the DVR is varying commitment by local cable operators, some of which have been far more vigorous about getting set-top boxes with DVRs into households than others. The odd results include a DVR-penetration rate in Minneapolis that's twice the rate in Cleveland.

Other ways to watch
Some of the most committed TV viewers, moreover, are also getting hooked on Hulu Plus, Netflix's streaming service and other ways to watch TV that don't involve a cable or satellite box. The advertising on Hulu Plus, for one, differs from TV's traditional commercial pods, but users can't fast-forward through ads there they way a DVR user can on TV.

And finally, plain old resistance plays a role. People over 50 years old are a little more reluctant to adopt DVRs, Mr. McQuivey said.

"You've spent more time watching TV than just about anything else in your life besides working if you're over 50 years old," Mr. McQuivey said. "If somebody comes along and says, 'I'm going to change the way you watch television,' some are going to say, 'Not on your life.'"

Of course, that leaves the segment of people with DVRs younger, richer and more into TV than everyone else -- and therefore more attractive to advertisers than the people who aren't getting DVRs.

But even people with DVRs aren't skipped ads quite as much as everyone once feared.

You can't record everything
A variety of studies suggest DVR users time shift only around 20% to 30% of programming, predominantly prime time, where 50% of DVR viewership is time shifted, said Mike Hess, exec-VP of research, marketing science, and consumer insights for Carat. And on average, studies have shown DVR users fast forward through about half of ads, he said.

Doing the math, and generously assuming 40% household penetration for DVRs, that nets out to 8% to 12% of programming that's time shifted and 4% to 6% of total ads fast forwarded through, he noted. Even in prime time, only around 10% of ads get time shifted at 40% household penetration, he said. Assuming DVR penetration tops out at 50%, as Forrester projects, consumer usage patterns would suggest 5% to 8% of all ads and 13% of prime-time ads being fast forwarded.

At the same time, he said, several studies have indicated people recall substantial amounts of the advertising they fast forward through, Mr. Hess said, likely because they have to focus on the ads even at high speed to know when to stop fast forwarding. Even without seeing the full ad, he said, seeing part at high speed can serve as a "reminder" of having seen the same ad at regular speed in live programming.

Tivo more bullish
Tara Maitra, VP-general manager of content services for TiVo, said the Forrester forecast is one of the lower ones of several published projections of DVR penetration, with estimates of current penetration ranging from 30% to 46% for 2010 and some projections still calling for as much as 60% penetration by the middle of this decade.

"DVRs are some of the most popular and have the highest consumer satisfaction ratings of any device we've seen," Ms. Maitra said.

She acknowledged the added choices consumers now have, including Netflix streaming and Hulu, will affect how they consume content. But she said DVR growth will continue and "cord cutting" by consumers getting TV through other means hasn't been a major factor yet.

TiVo's own research also shows considerably higher levels of time shifting and ad skipping by consumers than some other studies, such as one released earlier this year by the DVR Research Institute, a California consulting firm, that concluded DVR users on average fast forward 6% of ads.

Mr. Hess believes the discrepancy may lie in the differing makeup of TiVo users, who tended to be early and more eager adopters of DVRs.

DVR threat or no, he acknowledged TV advertising continues to face plenty of challenges from fragmentation and clutter, both of which appear to have considerably upped the ante on how much marketers must spend to make an impact compared to decades ago.

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