November 2004 - Zapping the Viewer Code

As direct marketers and general rate advertisers continue to vie for available airtime, they’re finding that advanced technology has made selling on TV a challenging feat. Has digital video recorders (DVRs) completely changed the rules?

By Allison Dollar

Choice, control and personalization. If this trinity echoes “life, liberty and the pursuit of happiness,” it’s no accident. Overwhelming evidence finds that American consumers expect freedom in their media consumption. For television, channel proliferation has brought an avalanche of choice, controlled by the remote. That circumstance spells trouble for advertisers, which need innovative ways to break through programming clutter while viewers skip around. Direct response advertisers face the same daunting task. Enter TiVo and the next wave of digital video recorders (DVRs).

By taking advantage of digital delivery and related technologies, DVRs offer innovative ways to deliver an audience. Ultimately these targeted and, therefore, more effective direct response environments will link a short offer to a descriptive long-form piece, whose call to action will culminate in a sale transacted directly through the remote control. Talk about your holy grail.

“TiVo ad technology for the direct response industry might best be described as a new portal to support what DR does best,” notes TiVo President Marty Yudkovitz, who delivered a keynote hosted by the Interactive Television Alliance (ITA) at ERA’s annual conference in September. He contends the service allows many more paths into the DR experience, from live TV, recorded TV or even the viewer’s guide. The TiVo environment provides advertisers much more opportunity for engagement, targeting, measuring, interactivity, lead generation, transactions and accountability. “Traditional :30s were very good for brand awareness. Direct response has been great for accountability. Our Showcase technology marries brand awareness with direct response for the first time on TV in a meaningful way. Effectiveness and accountability-for $60 billion per year, the TV advertiser deserves this new value,” he says.

Indisputably, TiVo is the pioneer in this space. The company, founded in 1997, created a whole new product category in developing the first commercial digital video recorder (DVR). The smart box and subscription service, light years ahead of the VCR, allows consumers to record and access home entertainment on their own terms. TiVo’s interface is designed to make it easy for consumers to automatically record favorite programs (skipping reruns and adjusting for schedule changes), search for programs by topic and access scheduling online.

The company’s Series2 DVR also allows users to record up to 40, 80 or 140 hours of their favorite shows, access and organize digital music and photos from their computer, and transfer shows between multiple TiVo Series2 DVRs in the home. More importantly, from advertisers’ standpoint, TiVo Series2 DVR allows viewers to pause, rewind and fast-forward live television.

Much industry hand wringing has gone on regarding this feature that allows ad skipping. Yet, as Yudkovitz points out, the “model was broken” years ago. “Viewers have been very successfully avoiding commercials long before TiVo,” he claims. “The remote control was the biggest method but even earlier technologies like the bathroom and the refrigerator proved to be very effective commercial avoidance devices.”

Turner Media Group’s Art Cohen, an interactive television pioneer himself, shares Yudkovitz’ perspective. “The DVR revolution is upon us and there’s no denying it is already having an effect on the dynamics of the television marketplace,” says TMG’s senior vice president of advertising sales. “Nielsen is measuring audience trends on TiVo that to some have been disquieting, in that DVR users watch more television and mostly fewer commercials. Yes, it’s true that technology giveth and taketh away: we gave the consumer the remote control and look what they did with it, and now the DVR…What to do?”

In support of their advertising partners, TiVo created the ability to embed a code within commercials that trigger a tag whenever that spot is viewed through a TiVo system. The tag appears on the screen with a “thumbs up” image. When users click the corresponding “thumbs up” on their remote, viewers are immediately transported to the advertising component. That can be video, lead generation or a record tag (to offer the opportunity to record any upcoming program). Starting with the new software release, these tags will be customizable so a TiVo advertiser can supply his or her own graphic and/or call-to-action to appear on the screen with the thumbs-up icon.

TiVo’s Kimber Sterling, director of advertising and research sales, acknowledges the threat of ad skipping, but believes manageable when compensated for by DVRs’ ad features. Sterling avers that if done right, “those new ad features may pull the viewer back into the advertising and move them all the way to purchase or at least a lot closer. Couch commerce is not very far away.”

Analysts largely agree, and many will tell you that the ad-skipping fears are overwrought, when the real question ought to be how to exploit this medium. “Ad skipping is going to be a fact of life, but we’re still in the first inning of figuring out how DVRs will be used,” clarifies Craig Moffett, vice president and senior analyst for Sanford C. Bernstein & Co. “Push-based advertising on DVRs hasn’t really begun to be explored.

Personalization hasn’t started yet, either. Ad skipping is spurring the whole advertising industry to find new, more creative ways to sell product, by finding ways to make messages more relevant. Ad skipping will also lead advertisers to demand more concrete and measurable results. Direct response media have always been at the vanguard of targeting and personalization on the one hand, and measurability on the other. DVRs present myriad opportunities for both.”

According to Cohen, the DVR is “an ideal tool for DR marketers,” because long-form infomercials can be downloaded and stored in the box for VOD-like accessibility using ITV triggers from short-form ads. Since the DVR in a digital system can track activity and provide an RFI loop on top of a telephone response mechanism normally used in DR, response rates can be increased and costs lowered, he explains. “And since the long-form [program] can remain on the hard drive for repeated viewing, the life of the message package is extended.”

They’re Not Just Skipping Ads…
  • TiVo subscribers will spend 2-3 minutes engaged in an interactive ad!
  • Response rates driven way up by ease of response
Average Weekly Viewership
Average Time Spent (mins.)
Average Time Spent as a % of Total Video Duration
Retail category average
Music category average
Theatrical category average
TV programs category average
Automotive category average
Offered Item
Average Percent of Showcase Visitors Responding
Chance to win

Cohen’s comparison of DVRs’ features to Video On Demand (VOD) is apt. Cable and digital broadcast satellite providers are vying to roll out on demand services, particularly movies and niche programming around which they can wrap advertising sponsorships. The giants have heretofore given short shrift to the DR approach. But that attitude is changing through the DVR’s success. Moffett sees DVRs as part of a “broader trend toward on-demand programming,” accelerating viewers’ expectation that “they can watch whatever they want, whenever they want it. That, in turn, will provide a strong boost for VOD, which offers what are perhaps the greatest opportunities for DRTV. Rather than seeing DVRs and VOD as alternatives, they should be viewed as part of the same broad trend.”

What’s interesting in these trends is the relative definition of success. TiVo has barely 2 million subscribers, while the combined subtotal of cable and DBS set-top boxes with DVR hovers under a mere 6 million. The Consumer Electronics Association estimates that unit sales for DVRs, including both standalone DVRs and those integrated into satellite and cable TV set-top boxes, will be $275 million for 2004 and $332 million for 2005.

Those aren’t big numbers, especially when compared to VOD’s reach of approximately 18 million households at 2004′s close. But Kagan Research, LLC, estimates the number of DVR homes will triple by 2006, to reach the vaunted 25-percent household penetration mark coveted by advertisers around 2007. According to Ian Olgeirson, Kagan senior analyst, “Standalone DVRs, a category currently dominated by TiVo, will continue to display modest prospects for growth. We don’t foresee a significant impact for the category as the more accessible and convenient integrated models offered by DBS and cable are projected to take the lion’s share of the market.” Still, by 2014 Kagan foresees over 60 million U.S. households with DVRs, largely driven by cable and DBS rollouts.

Turner Media Group’s Cohen makes the more salient point for DRTV purveyors. He contends that the way this is being played out is that in order to compete with cable TV’s VOD capability, satellite-with no immediate return path-had to go the DVR route. “But what happened was unexpected, the DVR became a very popular device in the home, and endowed with bigger and more robust hard drives that performed more VOD-like activities and provided consumers more control. It’s becoming the system of choice (for now) for increased freedom of choice and TV functionality,” Cohen explains.

TiVo, recognizing that on-demand style functionality brings value to their service, has created relationships to push their offering further into VOD territory. Notably, the company’s recently sanctioned partnership with NetFlix furthers the goal of offering movies on demand.

Furthermore, TiVo also has licensed its software to original equipment manufacturers and consumer electronics companies including DirecTV, Toshiba, Sony, Humax and Pioneer. Pioneer, Toshiba and Humax have included TiVo service in their DVD players and DVD recorders, available at TiVo retail outlets such as Best Buy, Circuit City, Good Guys, CompUSA, Fry’s Electronics, Costco,, and

For direct response marketers, the relevance of TiVo’s evolution lies in TiVo’s skillful branding and brand partnerships. The company built its brand from scratch, and put digital video recording on the map. Despite low penetration rates, consumer recognition of the TiVo brand remains high. Mainstream media like CNN, Entertainment Weekly and Time report on what celebrities and public figures record on TiVo, using the term as a verb, as in “I TiVo The Apprentice.” The company’s product has moved into parlance as synonymous with the product category; like Coke or Kleenex, its brand stands for both what it is and what it does.

Capitalizing on that momentum, TiVo recently named industry veteran Matt Wisk as chief marketing officer. Wisk, honored by both Advertising Age and Brandweek, brings TiVo experience with brands such as Nokia and Herbalife. And the company has kicked off several programs, such as a $100 rebate for the new TiVo® Box, expanded distribution, advertising campaign, rewards program and a TiVo® Platinum MasterCard®. The reward program and card generate points which can be for TiVo service upgrades, merchandise, accessories, TiVo boxes, an Apple® iPod®, Nikon digital cameras, Bose® QuietComfort® headphones and other goods.

The company’s message to DR marketers seems to be: let’s make a deal. Because they are at the forefront of using their DVR platform and customizable interface for marketers, TiVo clearly wants to accommodate DR sales campaigns and explore new forms of long form. TiVo marketers stress that their Showcases require almost no new work from the DR producers-the company does all the encoding® and they get the research as well as the marketing, which many have found to be worth the price in and of itself.

On the industry front, regardless whether TiVo sustains its position or moves in new directions as cable, satellite and telcos upgrade their set-top boxes, direct response will garner greater attention and respect as an integral part of the emerging, revamped TV advertising business model.

This new television advertising model differs significantly from the traditional free-to-air broadcast approach, which relied almost exclusively on :30s and :60s. The DRTV industry, creators of one of the truly original business models in television’s history, has not been properly credited with its contribution. But with the decline of the broadcast TV audience and dilution of mass-market reach, advertisers are exploring alternatives and enhancements to spots. Fragmentation has forced traditional advertisers into championing integrated marketing. So we see a resurgence of sponsored programming, product placement, growth of long-form advertainment, serial spots and regional point-of-purchase emphasis. Happily, all of these are poised to collide creatively with the services of the DR industry, and the mix media buyers use in the future will attest to the shift.

Digital video recorders are well suited to this integrated, less formulaic approach because DVRs work outside of the confines of the usual time constraints-advertisers can work outside the traditional primetime grid, as well as mix format and length in their creative. DR companies can play a pivotal role in changing the advertising model from business-as-usual to a sales driver.

Furthermore, DVRs and other forms of interactive television can provide much more detailed customer viewing data and reporting, including the effectiveness of triggers and other measurements of creative elements. TiVo has found that subscribers will spend 2-3 minutes with an interactive ad, with a greatly increased response rate. Along with this more efficient targeting and reporting, as television saw with the Internet, disruption and disintermediation bring opportunity. Consumers’ ability with DVRs to view programs outside of the networks’ schedule, called time shifting, has impacted both their behavior and that of media planners.

Accordingly, Nielsen Media Research and TiVo have been conducting research on time shifting. DirecTV has agreed to offer participation in the study to its 1 million DVR customers. In a release, Eric Shanks, senior vice president, advanced services and content at DirecTV, commented that, “…more than 1 million DVR customers are passionate about their DVR service and participating in the Nielsen panel will help us better understand how viewers use DVRs so DirecTV can provide even more compelling services and robust features in the future.”

That passion cannot be underestimated, and could be exploited by the DR community, as well as by traditional advertisers that haven’t yet used direct response methods. As Susan Cashen, TiVo vice president, marketing, admitted to Kagan’s TV Program Investor, “Customers say, ‘TiVo makes my life better,’ but you can’t say that openly to prospects because they’d think you’re insane.” However, more than anecdotal evidence testifies to Cashen’s accuracy. For DRTV, the time could not be better to consider DVRs as a distribution route. Cable, satellite and telco companies are already headed down that path, with IP broadband other entrants well on their way.

DRTV has a chance to make television history again. Real-time targeting and tracking, coupled with extremely granular reporting enable the dramatic reworking of the television business model. Factor in transactions via the remote control and DR companies can laugh all the way to the bank. “Advertisers stand to gain the most from the evolution to a new TV advertising model, where there will be real-time interactivity,” maintains TiVo’s Sterling. “Viewers will become active shoppers, not just when watching QVC but when watching any television program or commercial. How much more money is there to be made with one-click TV purchase? How much more likely am I to buy if I don’t have to dial an 800 number and spend 10 minutes on the phone? A lot!”

Never a slouch in ferreting out a big dollar opportunity, Microsoft renewed its efforts in interactive television when it announced in early October its vision for “Digital Entertainment Anywhere.” Microsoft’s seeks to have its Windows XP Media Center Edition 2005 be the hub of all devices in and out of the home, with DVR functionality available to TV’s throughout the household through extender devices offered by HP and Linksys. (The Media Center extenders work for music and photos, too, just as TiVo offers.) In addition, the Xbox® can be used as a Media Center extension.

These home networking and media management tools, also offered by Digeo’s Moxi Media Center and other products and services, fundamentally transform viewers’ expectations of what media is and how to consume it.

Motorola, a preeminent set-top box manufacturer, has hedged its bets on creating its own Home Media Architecture solution to extend DVR capability into home networks, augmented by its relationships with Ucentric on the broadband side, as well as with cable providers and others. Motorola sees the DVR as a critical component service provider’s can use to help advertisers target and reach consumers. And they know that DVRs are the tip of the portable advertising strategy. Affirms spokesman Paul Alfieri, “As we look to the future, our platform will evolve to support new forms of interactivity and connectivity-whatever they may be-offering marketers the means to creatively enhance the impact and reach of their advertising.”

Major brands have already had success with DVR programming on TiVo Showcases, including Coca-Cola, Universal, Charles Schwab, Royal Caribbean. And others like Ford, M&M Mars, Mercedes, Volvo and the U.S. Army have joined in DVR and VOD campaigns. So DRTV companies would not only be in good company, but not risking being the first. Using smart cross-platform strategies, DRTV could very well become ubiquitous when television can be moved not only around the home, but also out of the house though a variety of portable devices.

Yes, Microsoft and partners have launched their Entertainment On the Go initiative. And yes, TiVo received FCC approval for its peer-to-peer TiVoToGo service, which allows subscribers to forward saved programming to other TiVo households via the Internet. But viewers are probably not thinking of these tools as a “new class of portable devices,” as much as convenient time savers. For DRTV, that’s a good thing. If television ads and sales offers are enveloped in the glow of modern time management, if they become more entertaining and enjoyable to watch (high definition is coming!), viewers will respond with their wallet.

Using a DVR platform “changes the viewer experience from an ambush to an opt-in value-add. It’s a hit with viewers, who see it as a service, not an intrusion,” says Yudkovitz. “They know it’s pitching a product but it’s done in a way they accept at a time they control. Opt-in rates are high; response rates are even higher; and time spent is unheard of in a world where getting even 30 seconds of viewers’ attention is so difficult. As professional marketers get more comfortable with using this tool in creative new ways, I can only imagine how much more business they’ll generate.”

Media Buyers Weigh In on DVR Issue

Recently, Electronic Retailer asked a few direct response television media buyers to offer their opinions about digital video recorder technology.

As more consumers begin to utilize DVR technology (such as TiVo), what impact will these devices have on the DRTV industry?

“I believe that the impact of DVR technology will first present itself as a direct sales vehicle, rather than as an impediment to DRTV [marketing]. I clearly remember a presentation by TiVo three years ago. The focus was on selling advertising through TiVo to the direct user. That direct link to the end viewer could develop into a significant sales channel in the next five years. However, I don’t believe that DVRs will be any more of an impediment to response than remote controls are now. The vast majority of DVR owners use them as recording devices. Very few users make the effort to edit commercials out of their recordings.”-Dick Wechsler, president of Lockard & Wechsler Direct

“It’s predicted that DVRs will be in 30 percent of homes in the U.S. in the next five years. A DVR’s ability to skip through ads is the consumer’s favorite feature, and they use it to skip through 70 percent of the ads. These numbers all point toward an environment where fewer people will be watching less ads on TV, unless companies like TiVo and the advertising industry band together to come up with creative ways to stop this trend. If fewer people are watching the ads, then it’s likely going to impact DRTV, since the universe of potential buyers you are reaching will be diminished. Initially, increased usage of DVRs will likely affect short form more, but it also could potentially affect long form, since people will have more control over when they watch TV and will be channel surfing less.”-Peter Koeppel, president of Koeppel Direct Inc.

How can direct marketers and media buyers overcome some of the challenges that the technology may create for them?
“Direct marketers and media buyers cannot change the inevitable if, in fact, new technology can change the viewing habits of consumers…it is yet to be seen. TV media time buying is up over last year, general and DR. In addition, DRTV is finally expanding to the Web just like every other advertising media. The Web presence has provided enough added value that the threat of any new technology such as TiVo becomes an afterthought.”-Nancy Marcum, CEO of Marcum Media LLC

“Don’t be afraid of the future. DVRs, like the Internet, will open new opportunities, not create additional hurdles for the direct marketer. The Internet has become an incredibly important contributor to DRTV efficiencies. Those of us who realized this early on were able to benefit from the incremental efficiencies the Internet delivered. I honestly believe that the same will be said of DVR. Like the Internet, DVRs will deliver new customers that might never respond to a DRTV offer by phone or the Internet. The other exciting aspect is the precise measurement direct marketers will be able to obtain through DVRs. They will enable us to employ the tracking and analytical skills that are the foundation of direct marketing, and apply them even more exactly to the mass broadcast market.”-Wechsler

“It will become more important for marketers to develop creative executions that break through the clutter of the barrage of ads the average consumer receives daily. Outstanding creative will encourage consumers to stop and watch an ad or infomercial. Schlocky creative work is not going to cut it anymore. Media buyers need to be more creative in terms of the types of media they buy. They will need to think beyond just national cable in their planning and buying. They will also need to keep on top of the latest innovations being offered by the various media outlets and DVR manufacturers to further engage the viewer. Buyers will also need to be more astute at integrating other mediums, such as print, radio and the Internet, into their overall media mix.”-Koeppel

Allison Dollar is a founder and co-president of the Interactive Television Alliance, a non-profit trade organization devoted to accelerating the deployment of ITV in the U.S. She is the author of “Interactive Television: Tracking an Emerging Market,” published by the National Association of Broadcasters (NAB). Please send comments or questions to [email protected].


No Comments

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a comment