• by Paul Gough , October 2, 2003

Personal video recorders (PVR) may only be in 2% of the nation's TV households right now but a new study is joining the chorus predicting that PVRs will contribute to the demise of the 30-second commercial and that the ad industry needs to find alternatives quick.

The Yankee Group said in a recent report - titled "The Death of the 30-Second Commercial" - that one-fifth of TV households (or 19.1 million homes) will have some sort of PVR, either standalone like TiVo and Replay or through a cable or satellite provider.

At nearly 20% penetration - and the knowledge that 80% of programming is time- shifted in PVR households and 70% of advertising is fast-forwarded while viewing time-shifted programming - the report provides scenarios that have to give pause to both the television industry and Madison Avenue. The Yankee Group calculates 11%, or $5.5 billion, of the $50 billion spent on TV advertising will be wasted, thanks to PVRs alone. That doesn't include other factors that threaten to siphon viewership away from traditional TV advertising.

"I think it really starts to be less effective as PVR penetration takes off, which we're anticipating will occur over the next two years," said Aditya Kishore, an analyst at The Yankee Group in Boston who wrote the report.

Kishore writes that the crunch will come in mid- to late 2005, when PVRs will reach 10 million households, and spending large amounts of money of TV advertising will be harder and harder to explain. Kishore said.

It's hard to underestimate the danger, said Kishore.

"This is a huge threat, and certainly first in the line of fire is the programmers and broadcast networks and cable networks," Kishore said. "So much of the business of the entire television industry is on advertising." Kishore said that while there's no clear model emerging yet, there are pieces of the possible strategy in sponsored programs, product placement, downloadable commercials onto PVRs and other targeted solutions.

Madison Avenue and network TV is already spending time thinking of ways to beat PVRs. A Fox executive disclosing this week that the broadcast network spends a lot of time trying to figure out how to survive in the soon-to-be media landscape. So do most if not all media agencies. CBS has been actively studying PVR use in viewership panels for several years now.

For all the fear about PVRs, not everyone is convinced that there's a need to worry. At last week's Forecast 2004, a conference sponsored by MediaDailyNews publisher MediaPost Communications, a top CBS executive did his own math. The data seemed to show that broadcast TV doesn't have to worry too much about PVRs. Even with a 50% penetration - well above what even the most bullish forecasters are predicting anytime soon - network TV would only lose about 14% of its commercial audience level, said David Poltrack, executive vice president of strategy and research at CBS TV.

With research in hand that found that ad recall is double-digits lower for households with PVRs compared to others, Poltrack predicted only about a 6% loss in commercial advertising effectiveness if half of all TV homes have PVRs.

"Are we on the verge of chaos," Poltrack asked. "My answer would be no."

Speaking with investors Wednesday in New York City, WPP President Martin Sorrell said he saw the advertising industry changing with the implementation of PVRs. He said PVRs are putting the onus on advertising agencies to find new ways of getting the message out and connecting with consumers.

Sorrell said that alternatives to the 30-second commercial, such as sponsored programming and spots in live events that aren't as time shifted, will become prime in the future. He also said that non-network TV alternatives, such as direct mail, outdoor and radio, would also become more important to media plans.

But at the same time, he didn't think PVR penetration would be fast-tracked along the two- to four-year timeline that's been predicted. Sorrell thinks it's more like five- to seven years.

"I don't think it all happens as fast as some people predict," Sorrell said.

Despite the dire title of The Yankee Group's study, Kishore doesn't think that the 30-second commercial's mortality is imminent.

"It's not vanishing overnight. It's just that I think we can predict its eventual death. It'll be a very, very slow death. I think there's a lot of years still left for the 30-second commercial," Kishore said.

He said there's really no way to say that PVRs aren't going to have an impact.

"I think those arguments are gradually dying out. People are starting to realize that they're going to have to deal with PVRs," Kishore said. "The genie is not going back into the bottle. Once important industry segments get to that realization, it sets the stage for a lot of changes."