For 50 years the TV commercial has been king of marketers' budgets. Its combination of reach and impact were unparalleled. Now the rise of the digital video recorder has prognosticators from Wall Street to Madison Avenue declaring the death of TV commercials and the networks they support. But the doomsayers are wrong.
The DVR will save commercial TV. It will eliminate the interruption, which is the real element of irritation in TV ads. DVRs will give consumers control over their commercial viewing, turning an annoyance into a controllable, welcome addition. Being more appreciated-and far more measurable-spots will become more valuable to advertisers, agencies and media companies. A new generation of commercials will be kings of marketing for the next half century.
Conventional wisdom expects doomsday for commercial TV as DVRs enable fast-forwarding through commercials. As commercials are sped through, they will become less effective. Ineffective ads will no longer command today's rates, and networks that rely entirely or in large part on selling ad time will no longer be viable. On Wall Street investors have sold down stocks with high exposure to commercial TV and on Madison Avenue many are counting the days until retirement in hopes of sneaking out before the demise of the industry. But, conventional wisdom has been wrong before.
Accepted consensus almost killed the VCR in the early 1980s. Studios were so worried about the ability to record programs and skip commercials they asked the Supreme Court to ban the device. The studios lost, and it was the best thing that ever happened to them. The nearly complete penetration of VCRs enabled the rise of the home-entertainment business. More than 20 years later, and with some evolution in the business model, home entertainment now accounts for more than 60% of a typical film's revenues and profits. Movie studio have mined their libraries and financial results are at all-time highs. Now TV product is being sold on DVDs, increasing the profitability of TV production, too. Some series, like Fox's "24," make more money from DVD sales than syndication.
The DVR, and analogous technology video on demand, have the power to effect a positive transformation of the TV ad model on the same scale as the VCR did for theatrical.
Conventional wisdom states that viewers will jump at the chance to skip ads. But, it's not the commercials people dislike; it's the interruption. Print media provide plenty of evidence that consumers seek out commercial content. Fashion magazines are bought as much for the ads as for the articles. Surveys show seven of the top 10 reasons people buy newspapers are for advertising content, from help-wanted ads to sale circulars. Even the lack of widespread commercial skipping with VCRs and the slow rate of DVR adoption suggest consumers are not willing to expend much effort or money to avoid commercials.
That said, people dislike TV ads. Complaints are often heard that TV shows have too many commercials and TiVo owners cite the ability to fast forward through ads as one of the top benefits of the DVR. The difference between print ads and TV spots is control. Consumers have complete control over how much time they spend with a print ad. A heart-attack survivor can linger of the details of a cholesterol-reducing drug and a teen can examine whether a particular shade of lipstick is right for her. In contrast, a 30-second spot is too long if the product is not relevant, and too short if one is in the market to buy the product advertised.
The DVR can remedy this problem by allowing viewers control over ads. The five to 10 seconds one spends with a fast-forwarded ad is all the time one needs for an irrelevant ad. Viewers will pay attention to the speeded-up ad more than they do the "live" ad because 1) they have to find out when the ad ends and the program restarts; 2) with a short break there is no incentive to change channels or run to the kitchen; and 3) they want to know if the advertised product is of interest to them. Viewers will readily browse the commercial content, just as most magazine readers flip through the books glancing at the ads. This interest in commercial content is why recall of commercials in DVR homes is as good as in non-DVR homes.
For one interested in a product being advertised, the viewer can elect to slow down and watch the full 30-second ad, or better yet, see a long-form version of the ad. In this DVR-enabled future, a viewer can watch the long-form ad immediately while the DVR records the program so they do not miss any entertainment, or the viewer can return to their show and watch the longer ad after the program is finished.
While the infrastructure to support this vision is not yet in place, the technology is ready and there is already evidence of interest in controllable commercial content. One of the most surprising uses of the DVR has been children storing commercials of the toys they want, creating video wish lists to show their parents. Similarly the success of current campaigns that use TV commercials to drive viewers to longer ads on a Web site-for example the Sharp "More to See" effort, BMW Films and American Express' Seinfeld and "Superman" series-will work better if the consumer does not need to switch between boxes. People want to spend more time with personally relevant commercial content. DVRs enable them to do so.
Putting the systems in place to support this new and improved TV commercial requires efforts by many entities across different industries, which means it will take time. First DVRs will need to penetrate households more fully. Despite early adopters' enthusiasm, 95% of U.S. households still do not have a DVR today. Luckily the rivalry between satellite and cable multichannel-TV providers will drive penetration. Satellite is already pushing DVRs to new subscribers to blunt the impact of cable's competitive advantage in video on demand. These efforts have been successful enough that most cable companies now offer DVRs as well to match their rivals' offerings. This competition will continue and over time will drive deeper penetration of DVRs in U.S. households.
Agencies will have to evolve their campaigns to work on multiple levels, from the fast-forwarded to the longer-form. They will also have to improve the quality and entertainment value of the ads in this world where viewers have ever greater control over their consumption of commercial content.
Networks, stations, cable systems and satellite operators will have to negotiate deals on who sells these new ad formats and how revenues are split. Can stations use their digital spectrum to broadcast longer-form ads that would then accessed on demand via DVR storage? Such use would be more constructive than fragmenting audiences further by developing niche multicast networks.
Fortunately for the negotiations between these players, more revenue will be available; advertisers will pay more for more effective ads. The ads will work better because they will be less annoying and because consumers will self-target. Those interested in the advertised product will spend more time with the product. Advertisers will achieve reach and deep impact simultaneously. Magazine ads today command higher CPMs than TV ads because they already have these attributes.
Aligning the various parties to birth the new generation of TV ads seems daunting, but creating the stores and infrastructure for video rentals was similarly forbidding in the 1980s. The advancement did come, and it will this time as well. Advertisers should lead the charge, as they pay the bills and they have the most to lose. Programmers and networks can receive compensation through other methods such as cable affiliate fees and TV DVD sales. Advertisers are working hard to find new methods to reach consumers, but they have not and are unlikely to find any vehicle that delivers their messages as effectively as commercial-supported TV still does today. Advertisers should redirect much of their effort to creating a better form of TV commercial.
In the place of the 30-second spot will arise a more powerful form of advertising. Being controllable and thus allowing customers to self-target, the DVR-enabled ad will usher in a new golden age for TV commercials. Instead of dreading DVRs, advertisers, agencies and the media should join together to hasten their arrival.
Anne Marie Fink ... is VP-equity analyst, media and entertainment for JP Morgan Asset Management, a division of JPMorgan Chase& Co.