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Get Four
|  | MAY 11, 2006
By Ron Grover Are DVRs Killing Network TV?As more households get digital video recorders and commercials can be easily "zapped," it's harder for networks to get top dollar for adsLast night, I did my part to break the hearts of network executives. Well, me and my trusty TiVo (TIVO ), the digital video recorder that comes with my subscription to DirecTV (DTV ). Like a growing number of folks in America, I'm taking control of my TV habit with the kind of death-to-advertising attitude that should have network executives reaching for their Maalox. I'm sure the network brass wanted me to settle in and watch Amazing Race on CBS (CBS ) or Heist on NBC (GE ). Instead, I fired up my TiVo and watched The West Wing, Desperate Housewives, and Grey's Anatomy. Of course, those shows were originally aired on Sunday night. And note that I say I did indeed watch the shows. As for the commercials, if I saw one it was by mistake. PLUMMETING VIEWERSHIP. That's right, I zapped my way through the evening, cutting down my three hours of tube-watching to maybe two hours and a few minutes. Given that the average rate of a TV commercial is around $20 per thousand viewers, I figure that advertisers wasted about two cents for every TV commercial they aimed my way -- and about $1 or so for the Grover household -- on that one evening's viewing. Multiply that by the 12 million households that have DVRs. Even if fewer than half those folks were zapping away, the damage for a single prime-time night can easily add up to anywhere from $2 million to $5 million. And as sure as there's a Nielsen, things are only going to get worse for the TV networks. For years, we journalistic wags have been proclaiming the slow death of network TV. And, indeed, the Big Guys (originally three, and now four) have taken it on the chin for much of the last two decades (see BW Online, 5/15/06, "Blood, Sweat, and Ratings"). First it was syndication in the '80s, then the rise of cable TV in the early '90s, and most recently the computer -- whether to watch DVDs, play games, or surf the Net. And the fall-off has been pronounced. In 1987, 75% of Americans gathered in front of the boob tube were watching ABC, NBC, or CBS during prime time, according to Nielsen. Right now, only about 36% are watching the Big Three. Throw Fox into the mix, and it's still only up to 45%. AD-AVERSE. Network biggies have always been able to make the argument that they nevertheless deserve hefty ad rates for the folks sticking around. In fact, rates have continued to climb even while viewership has fallen. Why? If you believe the networks, it's because they are still able to deliver more eyeballs than any other outlet in the fast-fracturing media world. Well, now there are numbers that might question just how attentive those eyeballs really are. Thanks to Nielsen, which in December began recording the numbers of folks who watch TV shows after first recording them, we're starting to get a pretty good idea of just how effective -- or maybe ineffective -- TV ads really are. In mid-April, the most recent period for which Nielsen has numbers, 367,000 homes used their DVRs to record Fox's (FOX ) American Idol, the nation's top-ranked show, and another 286,00 recorded ABC's (DIS ) Grey Anatomy. That may not sound like a lot -- in fact it's just a little more than 2% of each show's audiences. But the real numbers are likely higher. Nielsen currently has DVR meters in only about 450 of the 12,000 homes in its sample -- less than 4%. The estimated penetration rate for DVRs in the 110 million U.S. homes with TVs is about 11% -- some 12 million homes. BATHROOM BREAKS. And there is plenty of zapping going on. About 87% of folks who own DVRs fast forward through the commercials, says In-Stat, a research outfit for the consumer-electronics industry. What does that mean for the advertisers who pay $705,000 for a 30-second spot on American Idol? Of the 18 million homes that watched it, probably a million did so on delay -- and almost 900,000 of them zapped the commercials. The numbers are likely only going to get worse for the guys in Armani. Mike Paxton, an analyst with In-Stat, figures the army of folks with their remotes aimed at DVRs will grow by maybe 4 million a year in the future. That means that in two years, more than 20% of the U.S. will have the ability to skip commercials. Not surprisingly, advertisers don't want to pay for eyeballs they're not reaching. Equally unsurprising is that network brass is fighting back. They say that folks have been ignoring commercials without any electronic help for years, using those 30- and 60-second slots to run to the refrigerator or bathroom. And they point out that old-fashioned VCRs gave people the ability to fast-forward through commercials. Some even believe that, armed with DVRs, folks will watch more network-TV shows because they can record those that air opposite other hot shows. PRICE WAR. Both sides have valid points. But anyone who has ever spent a half-minute with a DVR knows just how easy it is to zap a commercial. Just aim the remote control and watch disjointed images dance past you -- sans sound -- in a matter of seconds. "There are a growing number of these machines out there and folks are using them in ways that ought to make network executives very nervous," says Brad Adgate, a researcher with media buying company Horizon Media. Indeed, network execs and ad buyers are gearing up for an imminent -- and nasty -- battle over the price of ads. In mid-May, the two sides begin the annual mating dance called "upfront," haggling over the price of ads for next season's TV shows. Last year, upfront ad sales fell by about 3%, to $9.1 billion, according to advertisers. The drop off was in part caused by a weak economy. I suspect that if the numbers are down as well this year, it may be just because a lot of folks like me love their DVRs a heck of a lot more than they love those commercials.  Grover is Los Angeles bureau chief for BusinessWeek Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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