PVRs To Hit 20% By '07

Exec reactions mixed as TiVo soldiers on

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%%STORYIMAGE_RIGHT%% TiVo's consumer traction travails notwithstanding, advertisers and the TV industry should avoid complacency and craft new business models and marketing schemes going forward. That's the clear implication coming from a recent Yankee Group forecast on PVR penetration and its impact on the economics of TV advertising.

The study predicts U.S. household penetration of personal video recorders, as they become available through satellite providers and cable systems, will grow from the current 3.8% to 20% by 2007. The correlating impact on the U.S. TV advertising marketplace, according to the report, would be a significant 11%— or $5.5 billion—loss from the current $50 billion annual TV ad pie.

Some said that while the Yankee predictions may not be completely accurate, the momentum is clearly on the PVR side. "It really doesn't matter whether [PVR penetration] is going to be 15% or 20% or even 50%," said Carat North America CEO David Verklin. "We have to take our heads out of the sand because TV 2.0 is upon us and we have to prepare" for the future.

Verklin predicted the growth will be fueled in large part by News Corp. Chairman-CEO Rupert Murdoch's intention to position PVR features in the DirecTV satellite system he's acquiring. Verklin also expects cable operators to be equally as aggressive as they mine new revenue streams and look towards PVR technology as a key enabler of video-on-demand as well.

But David Poltrack, exec-VP, research and planning at Viacom's CBS, is a skeptic. "Even if you got to a 50% PVR penetration level by 2010, which is highly speculative, considering the current adoption growth rates, audience loss in a worst case scenario would be around 15%. That's about 2% loss per year in commercial exposure from now until 2010. Since 1980, the loss of commercial exposure due to competition has been 2.7% a year and the networks haven't lost anything."

Omnicom Group Exec VP Bruce Redditt, whose mandate for the holding company is to develop and implement new resources and competencies to respond to the changing marketplace, recommends the networks adapt by integrating clients into the programming process earlier. And if PVRs do ultimately take a huge bite out of TV ad revenue, Redditt doesn't believe that shifting the cost to viewers via a subscription model is the answer, suggesting the networks may want to consider running a tighter ship. "Is the deficit financing model for scripted shows the most efficient way? Aren't there some other models that should be brought forward?"

%%PULLQUOTE_LEFT%% Meanwhile, TiVo, undeterred, with 703,000 subscribers as of its second quarter and projecting 1 million by yearend, remains committed to positioning itself as a conduit between cable operators and Madison Ave. It looks to strike licensing agreements and plump its advertising and measurement services businesses. The company has re-upped with showcase advertisers PBS, Universal Studios, Fox Cable's FX and has attracted new ones including Coca-Cola, Dell, and Pioneer Electronics.

Coke's "Sound Check", set to debut Oct.9, will be a showcase of exclusive video and music content and represents the latest iteration of the brand's "Real" campaign. It features 25-minutes worth of interviews, music videos, behind-the-scenes footage, and live performances from such artists as Ashanti, Sting, and Mary J. Blige. "Sound Check," will run on TiVo for three months.

Although Coke won't run ads during the 25-minute showcase, Coke branding and its logo is integrated into the transitions between the video content.

TiVo will also bow a direct marketing effort, of which, the cornerstone will be a 20-minute DVD featuring testimonials from subscribers and celebrity fans of the service. The production costs for the DVD are estimated at $1 million, and it is expected to reach prospective subscribers in the next few weeks.

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