• by Joe Mandese , June 28, 2004

A precursor to Publicis' modern day Zenith Optimedia Group once shook up the TV ad business with calculation on the impact a new TV technology - cable television - was having during the mid-1980s. Ted Bates' so-called "5 percent solution" radically changed how TV ad budgets were planned. Last week, Zenith released a new calculation that might well be called the "2 percent dilution" and it is a statistic that could be every bit as transformational as the earlier one.

Digital video recorders (DVR) "must have destroyed about 2 percent of the USA's spot audience so far," is the chilling numeric at the heart of the new report, "Television in the Americas," released by the Publicis media shop. While the report focuses mainly on the shifts occurring between ad-supported and subscriber-support TV revenue models - a development that could be equally as significant for Madison Avenue - the agency's 2 percent estimate is the first to quantify the economic impact DVRs have had on the current state of the TV advertising marketplace. Two percent of a roughly $60 billion TV advertising marketplace equates to $1.2 billion in lost advertising exposures.

The Zenith calculation is based on April 2004 estimates for DVR penetration in 3.5 million U.S. TV households, which time-shift 68 percent of their TV programming and skip 77 percent of the ads in that time-shifted programming.

While others estimate DVR penetration is now higher and is growing fast with the accelerated marketing of satellite and cable TV operators, Zenith nonetheless predicted that the technology is "not likely to present a material threat to ad revenues" during its latest forecast period, which runs through 2012.

The bigger factor, according to Zenith, is the shift occurring between advertising and subscription TV models. While Zenith does not forecast that subscription revenues will overtake advertising during the period, it predicts subscriptions will account for 48.5 percent of TV industry revenues in the Americas by 2012.

"Programs must ultimately be paid for by advertisers or viewers," notes the report. "If viewers start avoiding ads in large numbers, using [DVRs] or some other form of technology, then at some point the lines... must cross and subscriptions will become the larger source of television funds."

TV Ad Expenditures, Subscription Revenues In The Americas

       Ad Expenditures   Subscription Revenues 
1990   $33.733 billion         $16.700 billion 
1991   $33.706
billion         $18.185 billion 
1992   $35.266 billion         $19.517 billion 
1993   $37.918 billion         $20.806 billion 
1994   $40.502 billion         $22.486 billion 
1995
$44.212 billion         $25.269 billion 
1996   $48.386 billion         $28.422 billion 
1997   $51.995 billion         $32.029 billion 
1998   $55.309 billion         $35.445 billion

1999   $58.002 billion         $38.658 billion 
2000   $63.220 billion         $42.027 billion 
2001   $60.034 billion         $46.509 billion 
2002   $60.753 billion         $51.789
billion 
2003   $60.832 billion         $56.690 billion 
2004   $64.676 billion         $60.172 billion 
2005   $66.606 billion         $64.756 billion 
2006   $69.289 billion
$68.798 billion 
2007   $73.545 billion         $72.959 billion 
2008   $78.374 billion         $76.999 billion 
2009   $83.550 billion         $81.445 billion 
2010   $89.118 billion
$85.644 billion 
2011   $94.968 billion         $90.392 billion 
2012  $101.168 billion         $95.416 billion 

Source: Zenith Optimedia Group, "Television in the Americas.