TiVo looks to tune in to advertisers

The company plans to unveil a new feature this fall that will bring Web-like, interactive ads to TV. But will advertisers warm up to its latest experiment?

Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
Stefanie Olsen
7 min read
TiVo plans to unveil a new feature this fall that will bring Web-like, interactive advertisements to TV, highlighting early efforts to reinvent television for the age of the digital video recorder.

The San Jose, Calif.-based company's devices let TV viewers pre-record shows and skip past advertisements at the touch of a button. Now TiVo is stepping up efforts to showcase ways digital video recorders (DVRs) can help advertisers get their messages across to people who aren't forced to watch ads sandwiched in the middle of shows.

The company hopes advertisers will warm to its latest experiment, due out in the next few months. Known as Video-to-Video, the idea is to let viewers click a button on their remote control to immediately watch a 3-minute video describing products and services that might appeal to them. The marketing clips are promoted through small icons that appear on the TV screen as viewers fast-forward past regular ads.


What's new:
TiVo plans to debut a new feature this fall that lets viewers click a button on their remote control to watch a 3-minute video on products and services that might appeal to them. The marketing clips are promoted through small icons that appear on the TV.

Bottom line:
The new feature could help usher in changes to TV advertising that ad executives say is sorely in need of an overhaul. But the biggest hurdle may be in finding ways to grab the attention of consumers who are accustomed to ever-greater control over what they watch.

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Video-to-video is similar to a service TiVo has previously sold without much demand. But the company hopes the new promotions will better lure marquee advertisers. Many issues have yet to be worked out. But for advertisers, TiVo's new feature could help usher in changes to TV advertising that ad executives say is sorely in need of an overhaul.

"The initial thought is a DVR is a threat or shock to the system. But this genie is not going back into the bottle," said Tim Hanlon, a senior vice president at Starcom MediaVest Group who is in charge of exploring advertising opportunities for new TV technologies such as TiVo.

The TV model "is nearing an end to its practical usefulness, and it's not TiVo's fault," he said. "There's a whole witches' brew of opportunity of video on interactive TV, and advertisers have to rethink how they approach it--and not with more 30-second commercials."

Digital video recorders like TiVo have long been considered a threat to TV advertisers because they make it a cinch for people to ignore commercials. More than 50 percent of people surveyed with a DVR say that skipping commercials is their favorite feature, according to Forrester Research, which analyzes the market. Because much TV programming is sustained by advertising, however, TiVo has a vested interest in protecting it.

Eye on revenue
If it works, TiVo's new feature could be a low-resource, high-return proposition and would help to goose revenue for a portion of the company's business that is currently contributing only single-digit percentage points, according to TiVo. The company isn't looking to compete with advertisers, however. After initially selling the data from the service to prove the concept, it hopes to license the technology behind Video-to-Video to advertisers, according to TiVo President Martin Yudkovitz.

"We're in the software business. We want to sell this to advertisers and share in that revenue or license this technology," Yudkovitz said. "We measure everything super granularly, so every bit of information is worth its weight in gold."

Analysts don't expect the service to significantly contribute to revenue in the near future. But as TiVo's subscriber numbers increase, its attractiveness to potential advertising partners and customers increases.

David Farina, an analyst with investment bank William Blair & Co., estimates that advertising and audience measuring accounted for about $6 million of TiVo's revenue in 2003.

"Is it material now? No, but I expect it will be in a couple years," he said. Farina has an "outperform" rating on TiVo, and he or members of his family own shares in the company. William Blair has received compensation from TiVo for banking services. "Advertising wasn't relevant before, because (TiVo) didn't have a big enough base, but it's always been a core part of their strategy."

TiVo recently added two top media executives to its board of directors: Chuck Fruit, senior vice president of worldwide media for Coca-Cola, and Joe Uva, CEO of agency OMD Worldwide.

TiVo also gives advertisers a number of options to reach viewers who are inclined to fast-forward past ads, including offering screen space on its programming guide page and hard drive space for pre-recorded ads that offer sweepstakes and other incentives to entice viewers to watch them.

For example, Porsche could create a 5-minute video of its new sports utility vehicle, showcasing it on the TiVo guide. Interested parties navigate to the video and opt in to get more information from Porsche about the car. Media executives said this model offers a win-win for consumers and advertisers, and has been successful.

In addition, TiVo has created a feature called Showcase that gives advertisers space on its devices to store a long-form ad or a sweepstakes ad for on-demand viewing. Subscribers could go to the Showcase area, click on the icon of a marketing partner, and have direct access to more detailed information about a product than they would get in a regular advertisement.

"TiVo's trying to be as deferential to the ad community as possible," Starcom's Hanlon said.

What's coming in the fall is a program that links consumers directly to enhanced video or content. For example, if an enhanced ad for Carnival Cruise Lines is aired during a program, viewers would see an icon promoting it. They could then click on the icon to watch a 3-minute video clip while their show continued recording in the background.

The feature would provide advertisers with a method of measuring viewer interest for a product while also instantly presenting those viewers with more detailed information for that product. Both qualities have been difficult, if not impossible, to offer from current TV advertisements.

TiVo's Showcase has been successful so far for advertisers, particularly car manufacturers and movie studios. The company said the program proves that people are interested in watching ads for products that they are interested in.

TiVo would not disclose current data on the reception that subscribers gave to the Showcases. In 2002, the company said about 66 percent of TiVo households viewed a Showcase promoting the "Austin Powers in Goldmember" film, spending an average of 6 minutes viewing the video clips.

Hurdles ahead
TiVo faces a number of challenges for its prospective service.

First, TiVo must convince TV networks to buy in to a service that essentially promotes ads that they've been paid to deliver. The networks could be a bottleneck for TiVo if they balk at adding special codes required to trigger TiVo's icons.

"TiVo's making money off ads that run over our air space--What's in it for ABC?," said Rick Mandler, ABC's general manager for enhanced television. "We're not going to pass those triggers through without a business relationship in place," he said.

TiVo and ABC have held talks over the issue but haven't come to an agreement yet, Mandler said.

Another problem could crop up over the storage required to hold large numbers of enhanced video ads on customer boxes. TiVo typically holds between 40 hours and 140 hours of content, depending on the model. Consumers may not be happy to carve out a big chunk of their precious hard disk space to advertisers.

"Because there's a scarcity (of room on the hard drive), someone has to pay for that privilege," said Josh Bernoff, an analyst at Forrester Research. "Advertisers are not only paying the network for their commercial, but they're also paying money to TiVo to get their extended version on the TV."

The biggest hurdle, however, may be in finding effective ways to grab the attention of consumers accustomed to ever-greater control over what they watch. People inclined to zip past commercials may find it all too easy to ignore backstops such as icons. As a result, advertisers will be increasingly pressed to create compelling add-ons and messaging.

For now, few broadcast advertisers will likely be willing to experiment with the possibilities afforded by TiVo, executives say. That's largely because TiVo has sold only 1.3 million devices, and broadcast advertisers are typically accustomed to reaching 30 million to 50 million people.

Consumers are buying DVRs at a fast clip, however, a trend that is eventually expected to tip the scale. About 3.5 million DVRs were shipped by the end of 2003, and that number is expected to expand to 24.7 million units by the end of 2008, according to The Yankee Group.

TiVo is helping to pioneer a futuristic vision of TV-watching that will let people access whatever information or video they want, whenever they want and for however long--without missing a beat. The long-term vision for TV advertising invokes a concept known as "telescoping," in which the lines between advertising and programming may blur beyond recognition.

For example, if a viewer is watching "The Apprentice" and likes the new BMW a young executive is driving, he could click on the car with the remote to get an informational video on the car and schedule a test drive with a dealer. He could then go back to watching the show at the exact point where he left off.

"This is first-generation stuff, and the end point of all this is experimentation," said Adam Gerber, director of innovation at MediaVest Worldwide, a New York-based ad agency. "The goal is true nonlinear TV. TiVo is the first step in getting us there."