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Tuesday, January 6, 2009

The Elephant in All Our Offices

Each morning as we stumble in with our coffee and turn on our computers, there is an elephant in our offices.  And, it gets bigger every month.  We get wrapped up in our day and often ignore it completely despite its size.  The elephant, of course, is DVR penetration and usage.

First, let's step back several years. At the turn of our new century, I was asked to speak at an industry gathering and it was requested that I finish the presentation by making a few predictions about the future of media. So while the Internet was on everyone's mind, I did cover that arena.  But, I finished with a forecast about Digital Video Recorders (DVR) which were then generally referred to as TiVo and occasionally as time shifting devices.

My forecast was pretty straightforward.  I said that "when DVR penetration hits 40%, television will cease to be the powerful advertising force that is has been the last 50 years."  Even though the crowd was largely made up of broadcast and cable people, no one was really upset.  At the time, DVR penetration was hovering around 4% and TiVo, the company, was struggling financially. During Q&A and in conversation with participants after the meeting, the discussion centered around whether DVR penetration would ever get that high or would it take 15 years or so.   There were few concerns among the crowd and we parted very amicably.

Fast forward back to January, 2009.  Nielsen now pegs DVR penetration at 28.9% nationally. This may be slightly below some of the futuristic forecasts made but a seven fold increase in eight years is impressive.  And, as always, Nielsen tends to lag a bit in monitoring penetration levels.

The real story is not that nationally we may have already crossed over the 30% threshold. It is what is happening in key local markets.  Nielsen currently pegs Dallas-Ft.Worth at 37.2%, Los Angeles at 38.2%, and Orlando at 38.8%.  Any or all of these could be over 40% in the real world.

Was there anything sacrosanct about my 40% tipping point that I forecast so long ago?  Not really.  It just seemed to be common sense. When you are effectively having the potential to lose 40% of an audience, particularly in key prime-time shows, yet still pay a premium for them, something has to give.  Also, the early adapters to a new technology tend to be marginally more affluent than the rest of the population and certainly are open to new ideas.  So, they are often your best advertising prospects.

Agencies have reacted somewhat childishly to the impact of DVR's on the marketplace.  Some say proudly that if one makes a better commercial people will stop in the fast forward process and watch it.  Hmmm.  Do you really think time challenged people, particularly working moms, are going to go back?  They are incredibly time deprived and, to me, the real heroes of our society. Saving 15 minutes by using a time shifting device gives them back perhaps their most precious perishable commodity--time.

Others say that they are loading up with more sports because everyone watches them live and the interest level is intense.  I admit that rabid fans often call or text each other during a game so watching it live is imperative for them.  But more casual fans tell a different story.  Anecdotally, several men have told me that they now tape football games each weekend and spend more time with their children.  One said "it is amazing how fast you can go through a football game if you only want to see the action."  Another gentlemen in the southeast told me rather sheepishly that he now spends Sundays, shall we say, renewing his marriage vows with his wife.  His wife is thrilled that he no longer spends a dozen hours on the couch on fall weekends swilling beer.  He still gets to watch his football so both are happy.  As more granular data comes out from set top box samples, I think you will find that the real world premium for sports advertising may be higher than any of us dreamed.

Finally, Nielsen has come to the aid of advertisers and their agencies with their live +3 and live +7 rating calculations.  Give me a break!  Certainly, some people tape shows and play them back in their entirety.  But that number has never been high and has to decline a bit each day.

To those readers who cover a local market beat as I have for many years take a look at sales performance. I am willing to bet that even prior to the recession it took more rating points to move the sales needle in a market such Dallas-Ft.Worth or Los Angeles  than it did a few years earlier.  DVR's plus some help from trigger happy viewers with a remote in their hands  have forced local advertisers to spend 1400 rating points in a flight to replicate the sales performance that they used to get with 1050.  It will only get worse as DVR penetration grows.

Today, I do not have any specific solutions but will cover some ideas in upcoming posts.  What I can tell you is that people need to stop the mindless and endless arguments about daypart mix issues and start planning a long term strategic withdrawal from broadcast.  It may only be 15% of the current TV budget  allocated somewhere else for 2009 but the train has left the station.

Act now and protect your brand!

1 comment:

  1. Don,

    Great points, and we all do talk about DVR on this side of the table quite a bit. The answer is in programming, not better commercials. Two ways to go at it:
    1). A better program will have higher ratings, and can survive losing some audience to DVR usage.
    2). A better program may become a must see program, as in, "I can't wait to see it" and therefore, making the viewer want to watch it live. The only example I have for this (for me)is the show "Lost". It would bother me so much to miss a new episode, that I don't trust my DVR (despite a failure rate of only 1%) and want to make sure I catch it.

    When I first started out in advertising, I remember the talk of how the VCR would kill TV. True, penetration never got above 2-3%, mainly because it was too labor intensive to use on a regular basis. The highest recorded show back then was the Simpsons. Today, the highest DVR'd show on broadcast is the Office on NBC and The Hills on MTV. Why? Because MTV's viewers are young and more into the technology. The Office was one of the top shows recorded on Itunes (Before the fight with NBC and Itunes).

    My girls only know of a tivo world. They don't understand when we travel and I say "Your show is not on now". Forget penetration, let me know what we can do with the next generation that is growing up on DVRs. Yikes.