• by Paul Gough , May 5, 2003

It's not yet the end of television advertising as we know it today, but maybe that's only a half-decade away.

A presentation at the Yankee Group's Connected Consumer Summit on Monday afternoon in New York City outlined some of the forces driving the future media economy, and what marketers and content providers can do to be prepared.

"PVRs are not going to go away and video on demand is increasingly going to challenge traditional television advertising," said Aditya Kishone, an analyst with the Yankee Group who specializes in ITV and PVR. The Yankee Group predicts that both video on demand and PVRs will increasingly gain a foothold in American homes. More than 32 million households will be VOD-enabled by 2006, the same year that there will be 19.1 million PVRs operating.

"It's not a very rapid change. It will be years before the 30-second commercial is laid to rest, but the value of that commercial will steadily go down (sooner)," Kishone said. That's already been happening for several years, he said.

Kishone said that advertisers who had traditionally depended upon TV spots would be exploring and employing techniques like product placement, interactive television and targeting. "Television advertising is going to change," he said.

Kishone said that armed with ITV, the industry was getting ready to target the $200 billion consumers spend annually on direct marketing products. With do-not-call lists popping up at both the state and federal levels, Kishone said that at least some of the $30 billion to $40 billion spent annually on telemarketing will be diverted to interactive applications, though not necessarily television.

"There are substantial opportunities for advertising," he said.

On the content side, consumers have shown a strong interest in some of the features ITV provides. These applications include getting additional information for a television show, changing camera angles (particularly on sports programs) and playing along with a game show on TV. What ITV hasn't been able to do is pay for itself. "We haven't seen the consumer willing to pay for the (ITV) service and I don't think we will in the future," Kishone said.

Brighter is the outlook for VOD, which has seen a significant amount of deployment and use in the past 18 months, sparked by aggressive rebuilds of about 70% of the nation's cable infrastructure. Cable operators are depending on VOD to drive revenues in the future, as well as differentiating from DBS and adding and keeping subscribers. It's being embraced by at least one group of VOD households among Cablevision's Long Island, N.Y., customers. The average digital subscriber accessed 5.5 VOD programs in January 2003. That isn't to say that the consumers paid for 5.5 movies during the month; some of the figures include free VOD, which cable operators use to attract and educate consumers about the service. But it's the bane of programmers, who don't like to see their products given away. Compare the 5.5-a-month figure to a VOD predecessor, pay-per-view, when 20 months ago, consumers used that service about 1.4 times a month.