• by David Kaplan , May 31, 2005

As if spotting a comet that's heading for earth at some future date, Forrester Research is predicting an ad-spending downturn to hit in 2007, when more than 50 million U.S. households will be using either digital video recorders or video-on-demand services.

Helping to fuel the coming downturn, according to Forrester's survey, authored by analyst Eric Schmitt, television advertisers are frustrated with standard 30-second advertising because of audience fragmentation. In 1960, the average U.S. household had access to 5.7 channels; today the same home has more than 100.

Secondly, ads are becoming more expensive, Forrester found. Between 1995 and 2003, the cost to reach 1,000 TV viewers in prime time increased 68 percent.

"So, by the end of 2006, when an estimated 97 percent of the country's 34 million-plus digital cable subscribers will have VOD and 17 million will own DVRs, TV ad spending will dip, but consumers' appetite for TV will remain voracious," Schmitt said. "Since the average U.S. household racks up more than seven viewing hours per day, there is every reason to believe that firms will pay to deliver their marketing messages through TV. But empowered consumers are rendering the workhorse linear 30-second spot increasingly impotent, forcing advertisers to seek alternatives."

The variety of targeted formats will help rein in costs of advertising, although Forrester believes marketers have been too slow in exploring these alternative advertising methods.

"It's sad to say, but I think the hammer of DVRs and ad-skipping is going to have to fall before advertisers are willing to spend decent money--even 1 to 2 percent of their overall TV budgets--experimenting with new formats," Schmitt said. "It's classic avoidance behavior."

Still, he did note that the gradual experiments being done should point the way for advertisers, and hopefully inspire the creation of additional methods.

"Interactive ads allow for high engagement and direct response," Schmitt said. "To date, the most widely adopted interactive ads have used technology that synchronizes a TV program to a Web site, as done by ABC's Enhanced TV. Video-on-demand ads are evolving fast in two flavors. Standard linear spots, which programmers package alongside the VOD content they provide to cable operators, and VOD inventory that operators themselves sell."