Karen Raugust looks at how digital video recorders challenge the traditional TV spot, animated and live action, but also create new advertising opportunities.
To paraphrase Mark Twain, reports of the 30-second TV spots death have been exaggerated. Yet, while TV advertising is likely to remain an important component of the marketing mix into the foreseeable future, there is no doubt that new technologies especially digital video recorders will reduce the importance of traditional TV spots, transforming them into just one of many tools available to reach potential consumers. This fundamental change will affect advertisers, agencies, broadcasters and the creative community alike. In fact, the revolution has already begun.
Digital video recorders, or DVRs (sometimes called personal video recorders, or PVRs), are devices that allow consumers to pause, rewind and record programming. Some are standalones, while others are integrated into a satellite or cable set-top box. They are changing the way consumers watch television, because they enable time-shifting (the ability to watch programs any time rather than during the scheduled slot) and, even more importantly, ad-skipping. DVR consumers must both have the proper hardware and a subscription to a DVR service.
According to the DiMA Group, which tracks interactive technology and assists marketers in creating new media programs, there will be 15 million U.S. households with DVRs by the end of 2005 and 60 million by the end of 2010. The percentage of U.S. homes with DVRs will rise from about 6% now to 40% by the end of the decade, according to several researchers. The best-known DVR brand, TiVo, passed the three million subscriber mark at the end of 2004, double the number of a year earlier, and claims about 40% to 50% of the total market. Satellite companies and standalone devices dominated the DVR industry until 2004, but cable television will likely fuel much of the growth going forward.
One important finding about DVRs is that consumers are happy with the product; researcher In-Stat found in mid-2005 that 89% of U.S. DVR households were extremely satisfied or very satisfied with their service. And having a DVR changes viewers habits: Time spent with TV in general grows, while time spent watching traditional TV ads decreases sigificantly. Forrester Research found in late 2004 that DVR users see 54% fewer commercials than other viewers, and other estimates place that figure even higher.
Davina Kent, director of advertising and research sales for TiVo, says the companys subscribers fast forward through 50% of traditional advertisements, with that percentage rising during recorded programming. TiVo users tend to watch more recorded than live programming and are more loyal to their favorite shows than non-DVR users, because they never miss an episode. They also are likely to time-shift; 56% of people without TiVo watch television in prime time, versus just half that for TiVo subscribers. Meanwhile, subscribers tend to be active users. They keep the remote in their hands at all times so they can click on programming or interactive advertising that interests them.
The Future of TV Spots
Ad-skipping on digital video recorders, in combination with other new technologies such as video on demand, could cost the television business $27 billion in lost ad revenues by 2010, according to research company Accenture. That would represent a drop of 39% from the $70 billion that was spent on TV ads in 2004. And broadcasters, who generated $45 billion of that $70 billion, will be hit particularly hard, since they rely on advertising as their primary revenue stream.
Ed Ulbrich, Digital Domains svp of production/exec producer, says traditional TV spots increasingly are clustered around events such as the Super Bowl or the Oscars, which still attract a big audience and where watching live maximizes viewing enjoyment. Considerable dollars are being spent around those main events, he says. He cautions, however, that such a strategy is typically more appropriate for high-profile consumer brands than for more mundane consumables such as soap.
Of course, DVRs are not the only challenge facing TV advertising. It isnt just the PVRs, says Richard Winkler, partner/exec producer at Curious Pictures. Theres the much larger issue of media fragmentation. People are doing more things, and there are more channels to watch. So there are fewer aggregate marketing opportunities.
Audience fragmentation has long reduced the number of eyeballs per ad. Universal McCann estimated broadcast TVs share of U.S. ad dollars at 18% in 2004, less than half of the 37% share broadcast achieved in 1984. That 20-year period coincided with the rise of cable networks, not to mention the Internet, the DVD (especially TV-on-DVD titles), videogaming and other entertainment platforms that have siphoned consumers from broadcast TV
Consumers are saying, I dont have to sit through this any more. Ive got my PSP, Ive got my DVD, Ive got my iPod, says Joseph Jaffe, a new media consultant and author of Life After the 30-Second Spot: Energize Your Brand with a Bold Mix of Alternatives to Traditional Advertising. We tend to forget, gaming and DVDs are cannibalizing TV even more than the Internet.
The whole system for buying TV ad time and creating 30- and 60-second spots has a lot of waste built into it, Jaffe adds. Theres a lot of fluff and superfluous layers of ad time that are not being efficiently and effectively allocated, he points out. As long as males are being targeted for feminine hygiene products, we have a problem.
The fact that advertisers buy most of their ad time during the upfront selling period, prior to the season, and are then essentially locked into that schedule, is another factor. No matter how big the idea the agency comes up with, its still going to be executed in the 30-second spot. The how, where and when have already been decided. All we have left is the what. Between the growing ad clutter and consumers increasing propensity and ability to skip ads, Jaffe says, No matter how big the idea, if its in a 30-second spot, it may not be seen.
TV as Part of a Larger Marketing Mix
While the TV ad will not go away completely, its status will be reduced as media and advertising platforms proliferate. Rather than being the primary method of reaching consumers, it will become just one of many potential tools. As Pat Dunbar, evp/cofounder of the DiMA Group, points out, There are products that appeal to a wide sector of our national community, for example movie trailers. These will continue to rely on TV spots directed at a mass audience. But there are many other products where consumers want to decide if they are part of the target audience before choosing to watch.
As TV advertising becomes less effective, advertisers and agencies are evaluating all kinds of marketing alternatives. Digital technologies will eventually make possible widespread advertising on cell phones and PDAs, in videogames (including online), on DVDs, during broadband content, on iPods and through video on demand, to name a few. Some of these have already taken hold. In addition, advertisers are evaluating alternative platforms that do not involve new technology, such as cinema advertising; branded entertainment, sponsored content and product placement; and street marketing.
Branded entertainment and sponsored content already have become key means for advertisers to keep their brands in front of viewers. The brand is integrated into the programming or identified with it in a relevant, organic, preferably non-annoying way, and it is impossible for viewers to ignore it by fast-forwarding with a DVR. Several advertising, marketing and creative companies are launching divisions to specialize in branded content; Curious Pictures expects to launch such a unit later this year or early next year. Meanwhile, both the Independent Film Channel and the Sundance Channel are among the networks that have launched initiatives to create branded entertainment opportunities for advertisers such as Target and Bacardi.
Winkler points out that the interest in sponsored content has led to a proliferation of opportunities for the creative community to produce short films. Networks perennially use shorts to incubate content, he says, but demand is growing as companies such as Nike and Getty Images commission short films on specific subjects, which they compile for distribution on DVD or the web. These projects place the brand in front of consumers in an entertaining way and the results can be used as premium giveaways.
As more media platforms become viable as marketing tools, messages increasingly will go out over multiple media so interested consumers can choose to receive the message at various touch points. While all the incarnations can be created simultaneously through digital production, it is important to remember that each medium is unique and the message must be tailored to each. The way I consume on my cell phone is not the same way I consume in a movie theater, says Ulbrich.
Marketers are already creating spots that will work across digital and traditional media. Ulbrich reports Digital Domain is working with David Fincher on a spot for Heineken starring Brad Pitt. Fincher conceived and wrote the spot and enlisted Pitt. Digital Domain shot the whole thing with a Viper digital camera and produced footage at 2K (a high-res digital format that is essentially on a par with film). The spot was delivered in traditional celluloid for cinemas, in electronic formats for the few cinemas that exhibit digitally, in every flavor of HD for world consumption, in NTSC and PAL for traditional television distribution globally, and in print, all from the same workflow.
Testing the Waters
Although some technologies remain in the future, many marketers already are starting to experiment with digital platforms. Large advertisers such as Procter & Gamble, Pepsi and General Motors have reduced their TV advertising budgets and are diverting more dollars to techniques such as interactive advertising, branded content, video on demand and TiVo advertising showcases. Were already seeing things happen in small ways, says Dunbar.
Advertisers and agencies are freaked out and desperate, and also sort of excited at the same time, says Winkler. Everyones experimenting with new formats and delivery mediums. Its testing, its experimental, its fractions of their marketing dollars. But everyone is doing it to some degree.
One challenge for advertisers is that new-technology business models, compensation models and audience metrics are all evolving. Developing metrics can be particularly thorny. Major advertisers are interested in understanding how their marketing messages are performing across their advertising portfolio, says Dunbar, noting that in that respect coming up with some type of apples-to-apples comparison is important. But its hard. There are differences in technologies, and that affects how consumers use them.
Meanwhile, the transition to virtually all-digital production is driving the creative community to reevaluate its business models, including compensation practices. Historically, payment has hinged on the number of shoot days, and agencies have been incentivized to have as many as possible. Today, the shoot could be negligible or nonexistent, explains Ulbrich. Some production companies are embracing digital tools and basing their compensation on creative fees or other items instead of number of days.
Despite the changing environment, opportunities for animators will still exist, especially for those who position themselves for the new-media economy. Were still making advertising. Where that advertising surfaces is the question, says Ulbrich. People still need rich, compelling content. Rather than working primarily for television, studios will be creating content for everything from in-videogame product placement a company called Massive has an online gaming network where product placements change as you play to broadband to long-form TV advertisements.
Jaffe emphasizes that most advertising platforms rely on video. TV is not the killer app. Video is. The producers and creators of video will continue to be in business for a very long time. The demand will only increase, he says.
The DVR as Marketing Tool
Much has been made of DVRs ad-skipping capabilities and the threat they pose to traditional advertising. But DVRs are also one of the platforms advertisers have at their disposal to reach ad-skipping, time-shifting TV viewers. Consumers are looking for new forms of entertaining marketing content, says Winkler. The PVR can be part of that.
With a DVR, viewers can interact longer with messages in which they are interested, while skipping others. When the viewers raise their hands to spend time with the brand, thats better than being forced to watch, says Kent.
TiVo launched a branded tag in July, with General Motors and Universal the first advertisers to sign on. The tag is embedded in 30- and 60-second spots without interfering with the content. If the ad interests viewers, they can select the tag, which pauses the program and takes them into an advertising showcase where they can find out more, request information, or record a branded program about the product. When finished, viewers can go back to the show at the point where they left off.
The company launched a similar program last month that focuses on direct-response advertising. The first advertisers testing that initiative, where an imbedded tag takes the viewer directly to a request for information, include Ameriquest, E*Trade, Nautilus, Novartis and Tylenol.
TiVos early research on these efforts shows that viewers spend more time with interactive advertising in the broadcast environment than they do on an average website, says Kent, and that they make a purchase decision more quickly. Meanwhile, TiVo has three years experience with its advertising showcases (4- to 12-minute long-form ads). Kent reports that viewers engage with these showcases, on average, longer than their actual duration, which suggests that the viewers are rewinding and rewatching the message.
Other DVR providers are creating similar opportunities for their advertisers. Satellite systems DirecTV and EchoStars DISH Network, for example, have both worked with advertisers such as DaimlerChrysler to create interactive spots involving those networks DVR services.
The reason consumers like digital video recorders is that they really provide convenience and control, explains Dunbar. If youre looking for a product, youre looking for information on that product, whether its on broadband or TV. As consumers embrace the paradigm of convenience and control, the kinds of marketing messages that will be successful will evolve.
This business is about storytelling, adds Jaffe. Ironically, the DVR might help us be better storytellers. If the fast forward button is your worst enemy, then the pause button is your best friend.
Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).
