• by David Goetzl  @dgoetzl, December 22, 2006

When ratings come in for the next new episode of NBC's "The Office," the data are likely to show that a full one-fourth--25%--of 18-to-49 viewers watched via DVRs. Bottom line: networks' failure to get paid for more than just "live" viewing could cost them big dollars. And that may have a major impact on next year's upfront.

Recent episodes of the niche NBC hit have been posting jaw-dropping increases in the number of viewers watching in time-shifted fashion, likely with commercials skipped. In fact, "The Office" is believed to be the first show in which more than 20% of 18-to-49s watched an episode with a DVR in the week after its on-air premiere.

Signaling that the 25% mark is imminent are the DVR ratings for the Nov. 30 "Office" episode--the latest available--that showed 23% of 18-to-49 viewers watched via DVRs in the seven days following its Thursday night "live" premiere. The episode posted a 3.9 "live" rating--and this soared to a 4.8 in the "live plus seven" category, which adds DVR viewing in the week after broadcast to the "live" figure.

The striking increases augment recent Nielsen research showing that DVR viewing is growing at a faster pace than buyers and sellers thought just a few months ago. At the time, NBC research chief Alan Wurtzel called it "stunning" that 18- to-49-year-olds in DVR homes take in more than 40% of their prime-time viewing in time-shifted mode. "The Office" appears to be a prime example of the shifting dynamic.

"It may be an indication of how that segment of the audience will ultimately watch television," says Bill Carroll, vice president/director of programming at Katz Television Group. "They're not the people who are watching "According to Jim."

The Nov. 30 episode of "The Office" isn't an anomaly. DVR viewership for the comedy has been on a seemingly unstoppable trajectory, which should continue as more DVR homes are added to the Nielsen sample. (The figure is 11.4%, and expected to reach 12% by Jan. 1.)

The three preceding "Office" episodes--which all ran in the November sweeps--also showed that 20%-plus of the 18-to-49 audience watched the show with DVRs after the Thursday 8:30 p.m. broadcast. For Nov. 2, "live" 18-to-49 ratings were a 3.8, which leaped to a 4.6 (up 21%) in "live plus seven." The following two episodes both posted 22% jumps.

In light of the Nielsen research showing a boom in time-shifted viewing--probably more than networks anticipated--it appears that there is now much at stake. Significant DVR-infused ratings for pricey shows, such as "The Office," raise the question of how much money networks may be "leaving on the table" this season and whether they will be able to extract dollars for DVR ratings next season. (Advertising Age says a spot on "The Office" goes for $219,000.)

CBS CFO Fred Reynolds signaled recently that networks will take a harder line next round. Reynolds says many DVR viewers are actually watching commercials, meaning that CBS is "delivering free goods."

"We ought to get paid for it and ... we'll have a stronger position in the 2007-08 upfront," Reynolds adds.

For now, "The Office," which is sparking a DVR-ratings debate, will be a TV-based phenomenon.

NBC's top television executive, Jeff Zucker, recently said that the network has opted not to stream "The Office" on NBC.com in order to maintain its eventual value in syndication. But another reason may be to limit the number of DVR-aided viewers who watch it outside its broadcast window. (Another may be to preserve revenues from iTunes downloads.)

NBC executives were not available for comment.

In comparison to the much lower-rated "Office," top-five hits "Grey's Anatomy" and "Lost" have seen "live plus seven" ratings increase by a respective 18% and 17% over "live" ratings, but no episode appears to have crossed the 20% line.

Nielsen's report on the top time-shifted shows for 2006 was based on household ratings, not the 18-to-49 demo in which DVRs are more pervasive. The show posting the greatest increase between "live" and "live plus seven" household ratings in the Nielsen poll was NBC's "Studio 60," up 10.9% on average, followed by the network's "Heroes" at 9.1%.

Networks arguably took a pie-in-the-sky approach in the most recent upfront as they sought to press buyers to pay for some DVR-aided ratings. ABC's sales chief Mike Shaw led the charge. But buyers closed rank and refused, on the grounds that DVR viewership arguably is a euphemism for commercials-skipped.

Of course, if "commercial ratings"--and that is a big "if"--become an industry standard and provide hard data on the breakdown of how many commercials are watched and skipped with DVRs, the issue could become moot.

"Commercial ratings are the answer," says Geoff Robison, senior vice president, national broadcast for Palisades Media Group. "But I can't imagine the issue will be resolved by this upfront. It's a pretty steep mountain to climb that quickly."

On some levels, it isn't surprising that rabid DVR users are watching "The Office" via the devices.

Viewers have demonstrated a willingness to watch the show on-demand, with a large number doing so via iTunes downloads (costing $1.99 each), although NBC declined to provide exact figures. Yesterday, an episode of the "Office" was listed as iTunes' top-downloaded show, and the series accounted for three of the top 10, more than any other program.

"The Office" also runs in the same time slot as two strong-performing shows--"Ugly Betty" on ABC and "Survivor" on CBS--perhaps leading some viewers to record "The Office" and watch one of the other shows live. "Survivor" may fall into that category, since it has an immediacy factor with contestants voted off each week. "People want to see that in real-time," says Gail Ettinger, executive vice president, national broadcast at KSL Media.

"Office" viewers are also believed to be more upscale and tech-savvy than the general public--iTunes use is an example--and to own more DVRs on average. The show is in the top-10 most-recorded shows among TiVo users, considered to be even more upscale than the general DVR universe.

NBC executives frequently trumpet the role that iTunes downloads have played in improving ratings for the "The Office," arguing that alternative distribution forms add to--rather than cannibalize--ratings. But any ratings increases appear to be modest. Before the show was made available last season on iTunes, it was averaging a 3.9 in the 18-to-49 demo. It finished the season with a 4.0--a 3% increase. This year, it averaged a 3.7 "live" rating in sweeps--down from the pre-iTunes days.