See Spot Run—or Not
DVRs impact ad viewing, but is it time to panic?
By Joe Mandese -- Broadcasting & Cable, 11/28/2004 7:00:00 PM
Madison Avenue knows that viewers skip TV ads when they use digital video recorders (DVRs). Now some of the biggest media shops are putting hard numbers on the loss. Although DVR penetration is relatively low—only about 4% of U.S. TV households have them, according to Nielsen—the impact is significant in terms of viewers’ skipping spots.
| Spot check | ||
|---|---|---|
| Madison Avenue estimates losses due to DVRs | ||
| Year | Source | Percent of Total Spots |
| E = estimated Source: Company reports derived from analyses of proprietary research and Nielsen Media Reseach estimates, except for Starcom, which collaborated with TiVo on a 2003 DVR-subscriber study |
||
| 2003 | Starcom | 1.3% |
| 2004E | ZenithOptimedia | 2.0% |
| 2005E | Magna Global USA | 3.8% |
| 2010E | Magna Global USA | 16.9% |
And the problem is growing.
Last year, Chicago-based TV buyer Starcom released findings of a study it conducted with TiVo about TiVo subscribers. It estimated that, based on a penetration of 3.5% of U.S. households, 1.3% of TV spots were being skipped nationwide due to DVR usage.
But in June, media powerhouse ZenithOptimedia Group issued the first study to benchmark the impact of DVRs in terms of total commercial losses.
Citing April 2004 data, Zenith’s projects surpassed Starcom’s. Based on the same 3.5% penetration rate, it claims DVRs “must have destroyed about 2% of the U.S. spot audience so far.”
Interpublic’s giant TV negotiating unit, Magna Global USA, is even more pessimistic. It released a “worst-case scenario” analysis of what it called “custom Nielsen data,” indicating that the amount of commercial time being zapped by DVRs would rise to 4% next year and 17% by 2010.
A second dilemma is how the ad industry’s top media buyers can calculate an effective CPM (the cost-per-thousand rate advertisers pay to place ads) when DVRs are thrown into the mix. Eventually, they could try to renegotiate deals with telecasters based on what they estimate to be diminishing commercial audiences. Or they can simply factor it into their advertising-cost estimates.
“Should people take money out of television advertising to adjust for the ads that haven’t been seen?” asks Jon Mandel, chairman of Grey Worldwide’s MediaCom unit. “The reality is that people have been skipping commercials since the 1950s, yet [advertisers] keep spending more money on television,” he says.
And even with DVR impact, is it realistic to think advertisers will abandon TV? Where else can they reach such a large audience at one time?
Print, Mandel claims, has TiVo problems, too. “It’s not just electronic,” he charges. “It’s your fingers flipping by ad pages.”
Meanwhile, the studies’ findings have come under fire.
Beth Uyenco, senior vice president, US director of strategic research and analysis, OMD USA, thinks the industry is panicking prematurely. A big problem with the stats, she says, is that they are guesswork. There is no technology that can accurately measure the real impact of DVRs on TV commercial exposure.
Both studies are essentially snapshots of DVR users projected onto the larger U.S. TV population. But DVR behavior can alter radically, Uyenco notes, based on several variables: the type of DVR a person uses—TiVo vs. one provided by a cable or satellite operator; how long the subscriber has had a DVR; and the demos and lifestyle of the DVR household.
Notably, Zenith and Starcom differ in their findings. The Starcom report came from research that ESPN/ABC Sports presented during a recent Advertising Research Foundation workshop, indicating that consumers who get their DVRs from a cable or satellite operator are less likely to zap commercials than people who regularly use TiVos.
The research suggested that, as a greater percentage of U.S. households begins subscribing to DVR services via cable and satellite companies, the levels of commercial-skipping should moderate.
But that result contradicts the Magna study released last week, which showed that commercial-skipping grows the longer consumers have a DVR.
“About 56% of those who’ve had a DVR for less than a year say they always fast-forward commercials when watching recorded shows. This rises to 72% among people who’ve had a DVR for a year or longer,” says Steve Sternberg, executive vice president and director of audience analysis at Magna.
Sternberg contends that the biggest threat to advertisers isn’t the impact of DVR behavior on commercial exposure but Madison Avenue’s ability to track it. “DVRs only become a major threat to advertisers if we can’t measure how people use them,” he says.
If advertisers can discern who is watching when, for how long and what is being fast-forwarded, Sternberg believes, the industry will simply adapt to new benchmarks and viewing patterns.
Even though Nielsen plans to incorporate DVR households in its national and local ratings samples in 2005, the ability to accurately measure DVR usage may be a long time off. That’s because the data is incomplete, Uyenco says, and will use differing and, in some cases, questionable methods to obtain results. Nielsen will apply “arcane” editing rules likely to obscure the impact of DVR usage on TV ad exposure.
While many Madison Avenue media buyers were dubious about Nielsen’s plan to begin measuring DVR usage in its national ratings sample next year, they were shocked by the research firm’s plans to measure DVR usage in most of its local markets.
The plan calls for the use of an “eight-day diary,” in which a member of each DVR household would record how household members utilized their DVRs over an eight-day period.
“It’s ludicrous to use a paper and pencil medium to measure how people use a digital medium,” says Tony Jarvis, a member of the executive committee of the Advertising Research Foundation.
Uyenco concurs: “If we’ve had a hard time with diaries keeping track of regular TV viewing, what makes Nielsen think it can use paper diaries to measure what’s going on with even more dynamic viewing via DVRs?”
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