How the DVR is Saving TV Advertising
Key points:
1. Conventional wisdom told us the wide adoption of DVR technology would spell the end of the television-advertising model as users skipped commercials.
2. But the CW was wrong. Paradoxically—but not so odd if you think about it—DVR owners end up watching more ads.
3. What was once the networks’ and Madison Avenue’s worst nightmare may end up saving both.
The advent of the DVR was supposed to mean we’d watch fewer ads.
Armed with commercial-skipping technology, no self-respecting television viewer would choose to sit through the latest pitch from Madison Avenue. But that’s not what’s actually happening. Truth be told (say Nielsen ratings), we’re actually watching more commercials than ever.
About 10 percent more.
How does that happen? A quick illustration is in order.

Let’s use our good Minnesotan friends Ole and Lena to help us work through the logic. Ole is a prototypical male. He’s cheap. He won’t buy a DVR; he thinks they are not worth the extra money up front, much less the hit to the pocketbook each month for the privilege. Lena, on the other hand, thinks DVRs are cool; she’s okay with the few extra dollars per month, and she loves the ability to catch all of her favorite shows.
Let’s now assume Ole and Lena enjoy the same three television programs: The Office, House, and Gray’s Anatomy. For the sake of this illustration, each is shown at the same time on three different networks. Because he’s cheap, Ole needs to choose. He chooses The Office and only sees that show. Because he does not own a DVR, he sees all ads aired during that program (in this example, 10 ads). Lena, by contrast, can watch all three programs. She chooses The Office as well, and then records the other two to watch later. But let’s assume she’s a typical DVR user and skips, on average, 50 percent of commercials.
Here’s the question: Who watches more ads? Lena.
It’s a simple example, and the numbers are a bit off (more on that later), but the premise is sound.
Really? How’d that happen?
Conventional wisdom told us—and very smart advertising and network television executives believed it—that the introduction of TiVo and DVRs would result in far fewer ads viewed. The more pervasive the technology became, the worse it would get. That scared the heck out of advertising agencies and sent network television executives into a panic. The loss of revenue would hit the largest networks (legacy networks CBS, NBC, ABC, and Fox) hardest. With shrinking advertising revenue, they’d have less money to invest in programming. As budgets shrank, programming quality would decrease. Poorer programming would lead to fewer viewers, which would lead to even lower ad revenue. This downward spiral would spell the end of network television as we know it.
But a funny thing happened on the way down the drain. Let’s tease apart the underlying assumptions, and I think we’ll see why people like Lena are saving television advertising.
First assumption: Technology would allow people to skip commercials.
Yes, that’s technically true, but Marshall McLuhan was right—the medium is the message. Television is a passive medium. Voting for your favorite American Idol act aside, we don’t really want to interact with our TV. The Nielsen data show that 49 percent of DVR owners still watched the commercials. No, that’s not 100 percent, but we’ll see quickly why that’s still okay.
Second assumption: Time-shifting is a bad thing.
Time shifting refers to watching a regularly aired program at a non-regular time. In the Ole and Lena example, Lena ended up seeing all three shows, but obviously cannot see them at the same time. She time shifted House and Gray’s Anatomy and watched them later. This means advertisers can’t rely on everyone seeing the same ad at the same time (time-sensitive messages can be tricky), although they can see data on viewers who caught the show live, within 24 hours, within three days, and within one week. When you run the numbers, my Lena example was a bit much. Actual DVR owners end up seeing roughly 10 percent more commercials in total.
Third assumption: Programming would get worse.
With the prevalence of “reality television” over the past 10 years, one would be tempted to think all television was drifting down this death spiral. But let’s not confuse a fad with a long-term trend. The aforementioned The Office, House, and Gray’s Anatomy are quite popular. Add in CSI and Law and Order (and all their “versions”) and you get a pretty solid lineup of expensive, quality drama programming. But that’s just the “big shows” and “big networks.” Cable networks Discovery, ESPN, and MTV Networks have profitable niche audiences. Disney and Nickelodeon are huge with pre-teens. It seems as though predictions of the death of television were a bit premature.
But the networks aren’t the only ones who benefit; advertising is getting better, too. Knowing people will skip over boring ads, agencies are forced to up the ante. The net-net is that commercial advertising on the whole is getting better, not worse.
In an interview last week on NPR’s On the Media, New York Times writer Bill Carter went so far as to suggest the networks give away DVRs, and cable and satellite providers should quit charging people extra for them.
Now there’s a novel idea.
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