Posted on 10/01/2003 7:04:10 AM PDT by NotQuiteCricket
As the broadcast networks rev up to debut dozens of comedies, dramas and not-so-real reality shows, the new fall television season already is a smash hit, financially. Advertisers placed $9.3 billion in advance orders for commercial time, blowing away last year's $8.1 billion mark. This year total TV ad sales, excluding cable, could crack the $60 billion barrier for the first time.
Yet many of the biggest buyers look at the heights the ad market has reached and see a precipice. In a few years over half of the nation's 108 million homes will have digital recording technology that will let them zap past commercials effortlessly or choose from a vast selection of commercial-free shows. That will threaten the economics of most TV programming and force networks and marketers alike to find new ways to reach elusive masses of ad-evading consumers.
This digital wave started with a trickle called TiVo, one of the first computer-hard-drive-based digital video recorders (DVRs). It debuted to bold expectations in 1999 but has struggled, signing up fewer than a million homes. Now, however, TiVo-like technology has plunged in price and complexity and is gaining momentum, for the first time being offered by cable and satellite providers that reach almost 90 million U.S. households.
Most network executives play down the digital threat (as incumbents often do), and the networks are resorting to cleverer--and potentially more intrusive--product placements as a way to zap the zappers (see related story, p. 82). But others have begun to fret. The digital wave will be "a brutal attack on the underpinnings of our business," warns Garth Ancier, who oversees programming at CNN, the WB network, TBS and other AOLTime Warner outlets.
The TV ad market is "reaching the top of the curve," and digital technologies will accelerate the coming decline, says Peter Sealey, a former Coke marketing chief who now teaches at the University of California at Berkeley. He recently leveled this warning to a group of advertisers: "Folks, this is a tidal wave. It is happening, and it is profound. And we have got to figure out a way to deal with that."
Digitally armed consumers can suddenly destroy business models that thrived for generations, as people in the battered music and photography industries can attest. Yet even comparisons to Napster undersell the potential economic upheaval and social impact of overturning the TV ad market. It has twice the combined revenues of the recorded-music and film-photography markets. Americans spend an average of four hours a day watching TV, an hour of that enduring ads. That adds up to an astounding 10% of total leisure time; at current rates, a typical viewer fritters away three years of his life getting bombarded with commercials.
For 50 years advertising has paid for the production of most of the TV shows that have graced the three (and later four)main broadcast networks and run later on a panoply of local stations and cable networks. Advertising also finances a big part of the first-run programs now popping up with increasing frequency on cable, as well. (Seen Queer Eye for the Straight Guyon Bravo?)
And, year after year, the big networks imposed hefty price increases for ads, even as millions of viewers defected to cable, and early zapping technology--the remote control and the VCR--took hold. They have raised their per-viewer rates 110%in the last ten years, despite a 30% decline in their prime-time audience, more than making up for a 30% increase in the cost of living. Advertisers obligingly went along, buying on faith and lacking a way to precisely quantify how many viewers were not watching the ads.
Now all of that's changing. The threat posed by the fidgety remote control and the poky VCR pales in comparison with the digital threat.Eighty-five percent of TiVo homes skip most ads and can watch a half-hour sitcom in 23 minutes.
No problem, net execs say: While DVRs and other gear may proliferate, most viewers won't use the gadgets as ad-killers or pay for commercial-free programs. "This is the big myth. The big majority of people are not commercial avoiders," says David Poltrack, the head of CBS research and strategic planning, who has heard predictions of the networks' demise for 20 years. At worst, he figures, DVRs will erode audience by just under 3% a year. Alan Wurtzel, NBC's research head, says that networks can survive such losses, pointing to the huge checks that advertisers just wrote: "Until you can find an alternative that's better, they really will have no choice."
That what-me-worry attitude doesn't sit well with advertisers fed up with the networks' incessantly rising prices. "I guarantee you that will not sustain itself. Higher prices for diminished return? That gap can only get so big before people come up with alternatives," says C.J. Fraleigh, the General Motors advertising czar who oversees the nation's biggest ad budget, including $1.7 billion for TV. Fraleigh says GM will probably spend less on TV ads a few years from now; how much less will depend on how the networks respond.
The biggest broadcasters--Viacom's CBS, General Electric Co.'s NBC, Walt Disney's ABC and News Corp.'s Fox--could feel the sting worst and soonest. "Over-the-air broadcasters sustain the highest costs, and [unlike cable] you've got absolutely no money coming back from consumers in terms of subscriber fees," says AOLTime Warner's Ancier. But big cable channels like Disney's ESPN and Vivendi's USANetwork could be hurt, too. Advertising now accounts for 30% of the cable industry's $49billion in annual revenue, almost double the percentage a decade ago.
The networks could probably survive TiVo, which in four years has signed up only 800,000 subscriber homes. But they can't brush aside other players responding to TiVo. Cable and satellite services are beginning to offer cheap DVR features, too. Starting last month, customers who order EchoStar satellite TV service can get--free--a DVR with 100 hours of storage (120 gigabytes) and a "30-second skip" button expressly designed for ad-zapping. Cable companies, racing to keep up, are installing a TiVo-like disk into their set-top boxes. About half a million cable subscribers now have the devices, and half of the nation's 72 million cable homes could be similarly wired in five years, TBS' Ancier says.
Cable operators charge just $10 a month for DVR service--and nothing up front. (TiVo's slow uptake is due in part to the fact that users must pay, besides a $13 monthly fee, $300 for the hardware, then slog through a complicated installation.) In eight months Time Warner Cable has snagged 300,000 new DVR customers, despite scant advertising. TiVo took more than twice as long to hit that mark, despite having nine times as many potential customers. Comcast, the biggest cabler, now has 6.7 million digital subscribers and says all will be able to get a DVR box by early next year.
The cable cabal also pushes video-on-demand--individual shows sold to individual viewers at a few bucks a pop or less. Already 4 million cable customers regularly order their TV à la carte from an ever-expanding menu of movies, sitcoms, dramas and news shows, most of them ad-free or zappable.
(Excerpt) Read more at forbes.com ...
So watch the commercials. Don't make us go all Orin Hatch on your ass. We'll blow up your TV. Everybody pays.
You can't always avoid them if you're watching a game live (don't have DVR/TIVO). But when there is a choice, I'll watch something w/o commercials or tape the network show so I can zoom through the commercials. It wouldn't be so bad if they didn't assault your senses with one right after another. Few offer any imaginative or creative presentations. Most are loud, offensive or obnoxious or all three.
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