TV advertising's DVR challenge

The game will last for approximately the first two months of the fall television schedule, according to a CBS representative. Clues will be scattered throughout CBS television programs, commercials, the AOL Web site and other media properties, AOL said.

The game could be a sign of a new tactic in the television advertising battle. As TV show downloads and ad-skipping DVRs pull viewers away from live advertising, the networks must find new ways to draw them in. The solution may be low-tech creativity: constructing new blends of advertising with content viewers are compelled to watch.

CBS isn't alone. Since May 3, ABC has featured fictitious ads for the mysterious "Hanso Foundation" during commercial breaks of "Lost." Viewers who stayed tuned during commercial breaks were rewarded with "ads" featuring phone numbers and Web sites leading to clues about the show.

The clues are part of the "Lost Experience," an alternate-reality game deployed globally in various languages via TV, the Internet, print media and phone. The game's breadth of distribution forces fans to translate for one another and share clues in order to advance discovery. The story line comes strictly from the writers of the show. But the idea for the game was a creative and commercial endeavor that came from a collaboration between ABC Marketing and "Lost" executive producers Carlton Cuse and Damon Lindelof, according to an ABC representative.

"Over the next 12 months, we'll continue to see experiments (in content placement) like this," said Todd Chanko, a JupiterResearch analyst who recently released a report on television advertising. "This is about consumer re-education. We are re-educating people on how to watch TV with their DVR, if you fast-forward without paying attention, you will miss some juicy content, or a possible coupon as in the case of (a recent KFC commercial). More and more commercials will be loaded with features."

Broadcast networks, which base their advertising revenue on ratings, among other things, have been closely monitoring the situation as more and more households buy DVRs or switch to on-demand content for entertainment. As this happens, advertisers are looking for other ways to place their bets.

Undermining the 30-second spot
About 60 percent of advertisers said they plan to decrease their budget for conventional commercial spots as DVRs increasingly become standard accessories in households, according to preliminary research findings released in March by the Association of National Advertisers and Forrester Research.

"Almost 70 percent of advertisers think that DVRs and video-on-demand will reduce or destroy effectiveness of traditional 30-second commercials," the report said.

Networks have been experimenting with online sales of downloadable shows, both with and without commercials, with some degree of success. But even those offerings have to be marketed. While some downloadable shows attract an audience without conventional network television exposure, most rely on standard TV promotion to spark interest. Networks also still need a way to hold on to television advertisers, the revenue model on which the networks' local, affiliate stations depend.

Of course, not every show lends itself to clue-spottings and contests, so networks are experimenting with still other types of content placement.

NBC's popular sitcom "The Office," for example, put together fake public-service announcements that mimic NBC's own "The More You Know," a series of PSAs featuring actors, writers and directors delivering the messages. Because "The Office" PSAs so closely resembled actual PSAs, viewers did not realize they were fake until the announcement series took a bizarre, humorous turn. The fake PSAs also can be viewed for free on "The Office" Web site. An ad streams silently next to the video while you watch it.

In this case, an advertiser who places a spot next to the online version of the PSA can claim at least one advantage over the advertisers flanking the same PSA on television. Thanks to online tracking software, it's relatively easy to obtain demographic information on the viewers who click on the online PSA video, while the television advertisers flanking the same PSA during a commercial break have much less precise information about who was reached. The ANA/Forrester report found that 97 percent of advertisers wanted better measurement of audience viewership for actual commercials, not just a TV program ratings system.

Nielsen, the TV ratings company, acknowledges that it does not yet include enough DVR-equipped households to mimic the national landscape. According to Laura James, a spokeswoman for the company, 5.7 percent of Nielsen homes have DVRs. By the end of the year, the company hopes to raise that figure to 12 percent, the percentage that Nielsen feels reflects the number of DVRs in U.S. households.

The DVR mainline
Another potential source of DVR-viewing statistics is the DVR service TiVo, which can access second-by-second raw data on its subscribers' viewing habits. The company, however, has not yet begun releasing all that data to the public, said Davina Kent, vice president of national advertising sales at TiVo.

Its "Total TiVo Rating" is calculated by averaging the total number of viewers per second for a given program. The percentage is taken from a random sampling of 20,000 TiVo households. For example, TiVo released ratings to CNET News.com showing that 14.3 percent of all prime-time television from the week of April 17 through April 23 was watched as "playback viewing," not live.

TiVo can also use its second-by-second data to determine viewership of commercials among TiVo subscribers. These are the type of metrics, Mirque believes, advertisers are looking for.

"We need more transparency in the numbers. Right now, Nielsen does the research, they give that data to the networks. The numbers are based on program ratings. That is a proxy. I don't think it's relevant anymore. In this age of technology, advertisers are asking: Can we get better data? Can we get minute-by-minute? There should be better metrics," said Mirque.

While advertisers may want better metrics for measuring viewers, consumers are looking for better content.

"Our learnings show that if content is entertaining, relevant, and the information has a special offer, users will want that content. What they will shy away from is a typical 30-second spot," TiVo's Kent said.

TiVo is using this discovery to proactively deal with commercial skipping. In early May, it launched "6069753"="">TiVo Product Watch, a feature that allows subscribers to create searches that will place commercial content in their DVR inbox. Instead of the typical 30-second spot, the content consists of infomercial-like programs ranging in duration from 1 to 60 minutes. Many are in the form of how-to segments that feature product placements.

Interactive ads
There is also a tag feature that TiVo has implemented to take interested viewers to more, advertiser-related content, while their programming remains on pause. Recently, TiVo expanded this feature to make the tag content interactive. The first brand to launch with this feature is Lexus. Its tagged ad brings TiVo viewers who click on the tag icon during the commercial to a build-a-car feature.

While this solution is great for advertisers and TiVo, it does nothing to help the networks, who are desperate to keep their advertising revenue. Networks can, however, learn from TiVo's research.

Another report, from JupiterResearch, which gets its data from market research company Ipsos, recently confirmed that the majority of DVR owners do use the device to skip commercials.

According to the report, $74 billion will be spent on television advertising in 2006 in an effort to reach 112 million households in the U.S. Of these households, 23 million, or 20 percent, will use DVRs to watch TV in 2006. If all of these DVR households were to practice commercial skipping every single time they watched television, it would represent $15 billion in wasted advertising dollars.

While some market observers might dispute that figure, it does convincingly point to trouble for networks, which stand to lose millions if they do not come up with a solution soon.

"Advertisers love sight, sound and motion," said Mirque, "(But) as DVR penetration and new media is getting into more households, we have to ask: Where does TV fit into the media?"

But JupiterResearch's Chanko sees options, saying that DVR ownership does not necessarily portend the complete breakdown of the ad model.

"It's just not true," said Chanko. "People used to get up and go to the bathroom, get a snack during commercials. Now, though they may be watched in fast-forward, people are actually watching frames of commercial content. Networks and advertisers should start taking advantage of the fact that while material is fast-forwarded, consumers can perceive individual frames."

Chanko suggests that advertisers use the displayed key-frames creatively to convey their brand logo, or release coupons that may get viewers to stay tuned.

When there were only three networks and practically everyone was watching "I Love Lucy," said Mirque, the old joke was that water pressure in America dropped drastically during the commercial breaks. The DVR is not really anything new to advertising, she said, alluding to those breaks. The technology has just made commercial skipping easier.