DVRs will cut TV advertising in half over the next 5 years

More evidence of the large and growing holes in the TV advertising dike passed with little fanfare a ways back.  I continue to be surprised at the relative lack of coverage (that is, other than mine) of what appears to be a huge story in media: the rapid and inexorable infiltration of the world’s living rooms by DVRs and the implications for TV – today’s workhorse branding medium.

This latest data (not as fresh as I’d like, as I’ve been a little busy) is from a Comcast-sponsored poll, so should potentially be taken with a grain of salt.  However, even with salt, it presents a pretty stark picture.  Some highlights:

•    Time-shifted TV has more than doubled in the past year alone
•    >40% of Americans now make plans to record their favorite shows for later viewing
•    74% of viewers have watched prime-time TV using video on demand, DVRs or the Internet

Estimates vary, but some sources report up to 2/3 of viewers skip commercials in recorded programming.  Combining that figure with the usage stats above means that more than 20% of TV commercials will be skipped this season.  Not only that, but researchers believe that commercial skipping increases as users become more familiar with the technology; that 2/3 will likely increase.

These data have fairly dramatic implications for the mid- to long-term value of the TV ad model.

Perhaps this story hasn’t gotten much attention because the Nielsen “C3 ratings” – launched in 2007 and designed to take into account both time-shifting and commercial skipping – didn’t look much different initially.  What seemed a little strange (at least to me) is that they still don’t look much different – most shows actually fare better under C3 than the “live” ratings.

This was counter-intuitive until I actually did the math.  Because C3 includes both time-shifting (incremental to live ratings) and skipping (decremental), C3 will always be equal to or greater than live ratings because skipping cannot be greater than time shifting by definition.  However, this can (and does) occur even as the size of the audience viewing TV advertising shrinks dramatically.

Consider the (highly simplified1) example below:

In rough terms, a show watched by an audience of 20M people goes from a C3 rating of 6.7 pre-DVR, to a C3 rating of 3.3 in 10 years under perfectly realistic assumptions flowing from DVR penetration projections and usage research cited and linked above.  Total viewership of the programming, including time shifting (Live +7), can stay the same or even increase, but ratings for the commercials themselves (C3) plummet under any reasonable scenario.

So DVRs will cut the effective reach of commercial TV advertising in half, absent some dramatic changes in consumer behavior, TV advertising models or DVR devices themselves.   This represents nearly $40 billion in advertising spend simply being “skipped”, i.e. wasted, or a doubling of cost per GRP which amounts to the same thing.

That seems like a newsworthy headline.  I wonder why I haven’t seen it before today.

Incidentally, that $40B in TV money coming into play makes me especially excited that offers the best and most scalable web-wide media forecasting, buying and delivery management platform available today, with cutting-edge tools for agencies to drive measurable, profitable offline sales with online advertising.

1 In the interest of simplicity, this commentary and analysis ignores some edge cases related to different measurement methodologies between live ratings, which measure viewership of content and C3 which measures viewership of commercial pods only. These simplifications do not materially affect the conclusion.

What is the definition of “Online Display”?

I recently explained why the IAB’s new video ad serving standard (“VAST” for short) will have a huge impact on the online video ad market by breaking down format barriers.  Online video advertising competition is increasing rapidly as the most sophisticated display ad networks ramp up video efforts aggressively.  That article generated energetic discussion, with virtually everyone, even incumbent video ad networks, agreeing with the fundamental thesis of convergence.

As it happens, I wrote that piece on the way to CES.  Right after my co-founder, Elizabeth’s panel discussion we were approached by the CEO of a Digital Out Of Home (DOOH) network.  His question:  is buying DOOH inventory?  Our answer to him:  it’s lack of standards, not lack of business potential, which prevents us from seriously considering it.   Our next thought:  it’s time to write about a topic we discuss frequently with our investors and industry analysts:  accelerating online media format standardization and accelerating media convergence (the ever-blurring line between what is “online” and what is “offline”) are working together to create a financial opportunity in the online display market that is even bigger and growing even faster than they think.

While online media advances rapidly, hardware, telecom and content providers are moving just as aggressively in “IP enabling” TVs and other consumer electronics devices to take advantage of new technical possibilities and to accommodate quickly evolving user habits.  This isn’t just the usual future-state pronouncements from technology titans like Microsoft.  For example, mass-market consumer retailers are changing up their offerings quickly too.  Consider Best Buy’s recent announcement that all web-connected TVs it sells will come with a subscription to a Best Buy library of content.

So when you’re sitting on your couch, looking at your 50” flat screen TV on the wall, watching a show that is streaming from Best Buy through your internet connection and you see an ad, does the “offline advertising” cash register ring somewhere or the “online advertising” one?

The (literally) 11-figure question is: will the bigger catalyst for “driving TV budgets online” be (a) online ad technology / format innovation or (b) consumer device evolution and usage blurring to the point where “online content” becomes impossible to distinguish from “offline content”.  You guessed it – we vote (b).

Of course it doesn’t stop at just TV and Online Video.  All digital media comes together.

I started this piece with a DOOH executive asking us about partnership opportunities.  Many DOOH devices are already IP-enabled and that percentage is growing rapidly. Network owners should follow the IAB’s lead, standardize DOOH ad units and serving protocols and watch the money flow!

And how long will mobile remain a hodgepodge of complex and proprietary advertising standards?  Not long.  Apple (true to form) blazes the trail to the future here:   when you’re browsing the web on your iPhone, where do you think the display ads you see are being served from?  Answer:  in most cases, the exact same systems that serve them when you’re browsing on your PC.   Sure there are some issues with Flash compatibility, but the direction is clear; format barriers are falling.

Surprised?  You shouldn’t be.  Mobile offers powerful capabilities for hyper-local, hyper-timely offers, but geographic and temporal targeting are not new concepts in online advertising (or in “offline” advertising for that matter).  Why should we need a whole separate “stack” just to deliver an ad to a different device?    The new iPad makes the distinction between “mobile device” and “computer” melt away even further.   The Apple example will evolve rapidly from exception to rule, particularly as more encouraging performance data emerges.

So as with video serving standards, the question of the digital marketplace coming together isn’t “if” but “when”.    More and more devices will become IP-enabled with increasing degrees of standardization to take advantage of the financial opportunity.  Online advertising will grow bigger and faster as advertisers can more seamlessly trade off serving offers against the right consumer on the right device, managing cross-channel campaigns in an ever more integrated way.    The definition of “Online Display” will broaden dramatically, essentially encompassing all graphical advertising regardless of format, size or screen/device.

We’d love to hear your thoughts on which capabilities will be most valuable in this fast-approaching merged media world, and who in the current crop of advertising players possesses them.  I look forward to sharing your thoughts, and my own, in an upcoming piece.

As I have mentioned previously, the next 12-36 months will be exciting indeed.

Online Video: Our Opportunity is VAST

In my guest article today in Ad Age, I state that the IAB’s new video ad serving standard (“VAST” for short) has serious implications for video-only ad networks (e.g., Tremor, Brightroll, etc.) for two reasons:

1. A significant portion of the engineering work in which the incumbents have invested enormous time and money will effectively be marked to zero by the market

2. Existing, technically sophisticated display ad networks will enter the video market quickly and effectively.

To be clear, when i say “video”, I’m not talking about in-banner video or overlays, “bugs” etc.  I am talking about :15 and :30 second pre-, mid- and post-roll video.  This is the video advertising format where the environment is most similar to TV and the creative is directly transferrable from TV.  As such, it represents >90% of advertiser demand for online video and will continue to be the lynchpin in moving TV budgets online.  VAST effectively hits the “reset” button on this market in 2010 and while many current players will face serious trouble, for some companies this is an enormous opportunity. is one of those companies.  Melissa, Elizabeth and I have been astonished how often and emphatically during the past year the top agencies, as well as Top 100 advertisers directly, have asked us to extend our market leading brand display platform capabilities (SafeScreen, SmartScale, etc.) to video.  So our sales force is out taking orders for a platform extension that does just that.

Top 100 advertisers want online video to explode as an advertising medium.  It’s the obvious, and (to stay in front of their target audiences) necessary, successor to the $60B they spend on sight, sound and motion brand-focused TV buys each year.   But today’s video ad networks simply don’t provide the brand-focused capabilities Top 100 advertisers require.   What have they told us for the past year they want from online video?  The ability to guarantee Quality, Scale and Value.

Music to our ears.  Stay tuned.

%d bloggers like this: