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 Brand.net 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.

Simplifying the Narrative

Josh Chasin of comScore can definitely count me among his fans.  He wrote a great article late last year on the limitations of CTR as a metric.  A couple weeks back he wrote another great one that I have been looking for a moment to comment on.  Between the upcoming product launch and the 1 year old I finally found a little time, somewhat belatedly.

As I read it, the main theme of Josh’s most recent article was that as an industry we have inhibited the migration of brand-focused budgets online with complex and conflicting narratives, which cause advertisers essentially to throw up their hands and look for reasons not to spend.  I couldn’t agree more.  In fact, I don’t think Josh would object to framing this as a different angle on the same idea I discussed in a post last year (Josh – feel free to comment if I am taking your name in vain).  Regardless of the angle we each take on the story, we’re clearly in violent agreement that the narrative needs to be simpler.

Josh is also quite correct that the 30-spot is an extremely compelling creative format, next to which a hastily-assembled static banner can look, well, flat.  However, as I have previously noted, within 5 years about 80% of households will have the capability to fast forward through that compelling creative.  Online creative formats get more compelling every year – it’s not hard to imagine a well-made pre-roll, rich media or even animated flash creative execution comparing favorably to a TV ad that is watched at 10X normal speed with no sound.

Even before DVRs reach their inevitable tipping point, the research shows that online advertising drives sales at least as well as TV.

One area where I might diverge with Josh just a bit is on the “scale” element of the narrative.  As he correctly points out, a single highly-rated TV show generates gobs of inventory.  Let’s use his Two and a Half Men example.  The 6 rating means 18M unique viewers, which when multiplied by the 15 spots per episode yields the 270M impressions per episode he mentions.  Breaking that number down in the context of a particular campaign, however, makes it more manageable.  Even if a marketer was comfortable with a frequency of 3 during the half-hour sitcom, that would translate to about 50M impressions.  If it was truly necessary to deliver those impressions in a half-hour period, that’s a pretty big buy for online – possible, but big.  If, however, we allow those impressions to be delivered over a week (i.e. between the beginning of this episode of Two and a Half Men and the beginning of the next one), it starts to look a lot more manageable.  So I would argue that the scale is there, it’s just not as “instantaneous” because web content consumption is less “event-based” that TV consumption.

This all assumes, however, that we’re talking about the type of objective targeting that is possible to do buying a prime-time TV spot – i.e., context, demo, geo.  The myriad other online targeting techniques that continue to proliferate, creating “monstrous” complexity as they do, just can’t deliver anything like that type of scale; we’re not delivering 50M impressions in a week to 18M “competitive peanut butter bakers” any time soon.

For me, it all points back to Josh’s bottom line.  Online has the audience, the content, the creative and yes, the metrics.  A decade of burgeoning complexity has moved lots of DR money online, but brands are still waiting for the simple, efficient, repeatable scale of TV.

If we give them a simpler narrative, reflecting a simpler process, the money will move.

Again, I would suggest our goal needs to be, “Your audience moved. Your marketing needs to follow them. Let us show you how the internet can deliver the same quality, scalability and value as TV.”

What do you think?

DVRs are coming

Some new data points last week on the inexorable march of DVRs into US households.

I am obviously quite focused on brand advertising (the majority of which is still done on TV), so I have been closely following DVR penetration and its impact on advertising ever since I got my own DVR in 2005.  At that point, my TV consumption increased significantly (taking share from DVDs), but at the same time I stopped watching commercials.  I would estimate I only watch 10% of the commercials embedded in the TV content that I consume.  So more TV, but largely free TV; the only one getting compensated for the content I consume is Comcast.  Great news for them, but not so great news for the (largely brand) advertisers who paid top dollar for my attention and whose advertising I saw at 20X its intended speed, on a different day/daypart, with no sound.   So much for “sight, sound and motion”.

I am not alone.  As I have written earlier, DVR penetration of all US households is now >30% and going to 80% by 2016.  Articles like this one in MediaWeek make it seem like the level of conversation / realization is increasing.  However, when we consider the current market projections and new, penetration-driving technologies like “Virtual” DVR, it’s hard not to feel like the brand advertising community as a whole should be a bit more concerned and thus a bit more active in its search for TV alternatives.

Stay tuned.

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