New TV recording devices a potential ad gold mine

That's why this week, Replay Networks and TiVo, providers of digital video recording services that are the heir apparent to the humble VCR, have been busy adding marquee names like Disney, Showtime, and Time Warner to their roster of investors.

Both companies offer consumers the ability to watch their favorite shows at any time by recording them on a device that shares some characteristics with digital VCRs. But the services offer many enhancements that make them a potential gold mine for advertising. With these devices, advertisers and broadcasters can more sharply target their pitches to audiences.

By investing in these device makers, the media heavyweights can also guarantee that advertising remains a part of the TV experience.

The recorders let users create a customized television lineup or check out customized guides for viewing at any time. Also, viewers can easily search for shows they want to watch, perhaps by themes such as sports or mysteries, or by an actor's name. Plus, shows are stored digitally on the device's hard drive, just like a computer's hard drive.

The recorders also offer the ability to pause a live broadcast if, say, the doorbell beckons in the middle of a San Francisco 49ers game. The viewer can then resume the program without missing a beat.

These abilities have advertisers and programmers both terrified and excited--terrified because consumers can skip through commercials more easily; excited because they have the ability to target ads to specific audiences and to see if consumers are responding to those ads.

But along with the new technology comes more control for the viewer. One point of contention is a button that Replay features which effectively cuts out commercials by letting users skip ahead 30 seconds. This makes broadcasters more than a little antsy. (See related story.)

Replay said it will not feature the button in advertising at the request of its investors, but that the button will remain on the remote control.

With the flurry of cross-pollinating deals (some have invested in both TiVo and Replay), the strategy for Disney, CBS, NBC, and others is clear: Own a piece of the future or it will come back to haunt you.

"The main reason [these companies are investing] is that people are starting to realize the consumer benefits from watching TV off of a hard drive," said Jim Plant, director of marketing for Replay. "They want to be in on that."

And if they aren't in soon, they could miss a huge opportunity later. Within five years, Plant thinks that most TV will be watched from a hard drive, either through recorded content or watching live content that is later reviewed, such as replaying touchdown.

At the core of these new services are customizable program lists, dubbed electronic programming guides (EPGs). On TiVo's device, viewers indicate preferences, such as recording an entire season of Ally McBeal. TiVo and Replay also can potentially gather information on aggregate viewing habits and help advertisers reach a more targeted audience.

Replay's Plant said his company is not gathering any such data, and has no plans to. The company's attraction to advertisers is in applying a Web banner model of advertising to TV--that is, if users opt to click on an icon or image to see more of an ad, an advertiser is willing to pay more for that viewer, even though any individual information is not passed to the advertiser.

Forrester Research predicts that advertisers will rush to reach viewers through banner ads, info pages, and content showcases, generating $3.2 billion in advertising and $1.1 billion in commerce by 2004. And there's plenty of room to grow from there: According to Veronis Suhler & Associates, the total amount spent on TV advertising in the United States in 1998 was approximately $49 billion.

Advertisers, and the broadcasters that sell ad time on their shows, are hoping to get more out of money spent. That may seem odd, given that recording shows allows users to zip past ads.

But the new technology could help ads be more effective. Eventually, programming could be sent to the receiver at night, allowing viewers to see miniseries and other shows that normally only run once a year, industry executives have said.

And there are new possibilities for building ad revenue, too, both from increasing the use of current programming and by offering interactive advertising and new ad sponsorship capabilities. Advertisers could do video previews of products addressed at a particular group of viewers, for instance, those tuning in to a "showcase" portal that features only content from Showtime, which is an investor in both companies.