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The Association of National AdvertisersNovember 7, 2003Confronting The DVR:Technology Offers New Solutions For TVAdvertisi...
Agenda•    Digital Video Recorders sluggish market performance picks up pace•    Future DVR consumers profiled•    Digital...
DVR penetration will grow to 24.7 million homes by the end of 2007,enabling one-fourth of all US homes to fast-forward com...
DVR growth has very sluggish, leading many to dismiss it as a  threat to advertising                        12,000,000    ...
Interest is highest among typical TAF groups - early adopters of   technology comprised of attractive demographic segments...
Initial interest in DVRs falls rapidly in the face of actual product   specifications - a market dynamic that favors the s...
DVRs integrated into satellite receivers have been the most successful   in the market to date                            ...
But integration into cable and DBS set-top boxes has already begun   to spur market growth        •     250,000 Explorer 8...
A simple calculation delivers worrying results                   TiVo: 80% of prime time broadcast network TV viewing in T...
All television programming is vulnerable to DVRs, but viewers   “value-stack” determines the most vulnerable content      ...
Digital multichannel video homes offer a platform for emerging   advertising formats to combat DVR penetration            ...
A number of technology vendors have solutions that leverage the      multichannel video providers digital TV platforms    ...
Consumer interest in interactive TV is moderate, but the technology      offers advertisers considerable value            ...
Targeted advertising can leverage digital ad insertion infrastructure                    ACTV’s Spot On technology trialed...
Household penetration of VOD to grow steadily, driven by MSOs  need to differentiate from DBS and drive digital revenue   ...
Advertisers can use VOD to reach this rapidly growing segment ofhouseholds                   Cox running “FreeZone – ad sp...
DVR downloads provide a partial solution for the DVRs impact ontelevision advertising                   TiVo is the only D...
Branded entertainment opportunities stretch beyond productplacement and sponsorship                  Also developing addit...
The Format Evaluation Matrix: Advertisers must develop analytical tools    to select appropriate approaches and formats mo...
The Format Evaluation Matrix (continued)                           Scale: 0-100                          Form at          ...
Conclusions/Recommendations •       One in four US homes will have a DVR in five years •       There will be no single rep...
The Association of National AdvertisersNovember 7, 2003Confronting The DVR:Technology Offers New Solutions For TVAdvertisi...
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Next.gen.tv.advertising

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Next.gen.tv.advertising

  1. 1. The Association of National AdvertisersNovember 7, 2003Confronting The DVR:Technology Offers New Solutions For TVAdvertisingAditya KishoreSenior Analyst, Media and EntertainmentThe Yankee Group617 880 0304akishore@yankeegroup.com © Copyright 2003, the Yankee Group. All rights reserved. 2003
  2. 2. Agenda• Digital Video Recorders sluggish market performance picks up pace• Future DVR consumers profiled• Digital multichannel video platforms offer new advertising opportunities – EnhancedTV – Targeted & addressable advertising – Video On Demand advertising – DVR downloads – Branded entertainment: Beyond product placement and sponsorship• Evaluating the right approach• Conclusions/Recommendations© Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 2
  3. 3. DVR penetration will grow to 24.7 million homes by the end of 2007,enabling one-fourth of all US homes to fast-forward commercialsSource: The Yankee Group, 2003 U.S. Households in millions 25 24.7 20 17.7 15 10.9 10 5.8 5 3.2 1.8 0 2002 2003 2004 2005 2006 2007 Total DBS Cable OtherNote 1: The total of all DVR households is NOT the Note 2: “Other” category consists of standalonesum of the other three. Some households may have units and DVRs integrated into electronics devicesmore than one type of DVR. such as TVs, game consoles and DVD players © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 3
  4. 4. DVR growth has very sluggish, leading many to dismiss it as a threat to advertising 12,000,000 10,000,000 8,000,000 U.S. Households 6,000,000 4,000,000 2,000,000 0 One Year Two Years Three Years Four Years Years Since Market Introduction PVRs VCRs DVD Players CD Players DBS Digital Cable Residential Broadband Cellular Phones HDTVSource: CEA, Company Reports, The Yankee Group © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 4
  5. 5. Interest is highest among typical TAF groups - early adopters of technology comprised of attractive demographic segments User/Interest Groups Age Income 50% U.S. Multichannel Video Households 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Console Music Video 18-24 25-34 34-49 $75-$100K $100K- $150K+ Gamers dwnld. dwnld. $150K DVR InterestSource: The Yankee Group’s Digital Home Entertainment Survey, 2002 © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 5
  6. 6. Initial interest in DVRs falls rapidly in the face of actual product specifications - a market dynamic that favors the service provider • A significant number of all multichannel video subscribers – 24% - are interested in time-shifting television • But interest declines substantially when specific products and prices are discussed • Gamers demonstrate higher interest in many interactive digital video services, including DVRs DVR/Game Satellite PVR DVR/Cable Console/DVD Player STB Multichannel Video HH 9% 8% 14% Broadband HH 11% 12% 13% Console 15% 16% 24% GamersSource: 2002 Digital Home Entertainment Survey © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 6
  7. 7. DVRs integrated into satellite receivers have been the most successful in the market to date Standalone ReplayTV Other 5% 2% Standalone TiVo 17% Echostar/DISH 41% Cable 16% DIRECTV 19% Integration with a satellite receiver and no monthly fee coupled with regular promotion and communication have driven Echostar’s success Note: Does not include PC-based DVR productsSource: The Yankee Group, 2003 © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 7
  8. 8. But integration into cable and DBS set-top boxes has already begun to spur market growth • 250,000 Explorer 8000 integrated DVR-STBs in the field for Time Warner • Promotions offering subscribers the first month free have helped spur adoption – But churn could be a factor once promotion ends – Subscriber demographics broader than traditional TiVo adopters • Advance Newhouse, Cox have deployed DVRs in multiple markets; more to come in 2004 • Charter has ordered 100,000 Moxi units for deployment this year itself • Comcast running advanced trials; expected to deploy before year-end in multiple markets The cable-DBS rivalry, thrown into high gear by Newscorp’s arrival and Telco-DBS partnerships, will help drive DVR penetration in 2004Source: Company Reports, the Yankee Group © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 8
  9. 9. A simple calculation delivers worrying results TiVo: 80% of prime time broadcast network TV viewing in TiVo homes was time-shifted during the fall 2002 season Other research suggests that time-shifting is somewhat less pervasive in DVR homes overall Percent of U.S. Households with DVR 20% Percent of programming that is viewed time-shifted in 40% DVR households Percent of advertising that is forwarded while viewing 70% time shifted programming Percent of all advertising that is forwarded in DVR 70% of 40% 28% households Percent of advertising that is forwarded in all US 28% of 20% 5.6% households Wasted revenue 5.6% of $50 billion $2.8 billionSource: The Yankee Group, 2003 © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 9
  10. 10. All television programming is vulnerable to DVRs, but viewers “value-stack” determines the most vulnerable content “Event” Viewing • The Superbowl • The Bachelor Finale Archival Viewing • Discovery documentary • Classic movie Appointment • Season premieres and finales Viewing • Special sweeps/stunting episodes • The West Wing Typical Viewing • Friends • CSI:Miami • 24 Uncommitted • Least uninteresting content Viewing • Channel surfingSource: The Yankee Group © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 10
  11. 11. Digital multichannel video homes offer a platform for emerging advertising formats to combat DVR penetration U.S. Households in millions 61 66.1 55.6 49.5 43.3 37.7 35.4 39 31.5 31.5 27.1 23.7 22.6 27.1 18.9 25.6 16.6 14.8 24.1 15 22.4 20.7 14.9 18.8 11.5 8.9 3.5 1999a 2000a 2001a 2002e 2003e 2004e 2005e 2006e 2007e Digital Cable DBS* Total Digital * DBS includes non-primary residencesSource: Company Reports, the Yankee Group DBS does not include suspended and commercial accounts for DirecTV © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 11
  12. 12. A number of technology vendors have solutions that leverage the multichannel video providers digital TV platforms While branded entertainment will be the most utilized approach initially, advertisers need to explore technology based solutions as well Targeted/ Interactive Virtual Product Advertising Advertising on Addressable Advertising Placement Downloads Demand Advertising Solutions Consumers can Digital images of Commercials TV commercials Advertisers can interact with a the product can be can be can be delivered target specific commercial or inserted into the TV downloaded to on-demand commercials to directly programming itself a DVR specific homes purchase productsCompanies • ACTV • Wink • Princeton Video • TiVo • nCUBE Key • Visible World • OpenTV Image • SeaChange • Invidi • Concurrent Advertisers must begin to explore new forms of advertising today, even though current DVR penetration is not yet a significant threatSource: The Yankee Group © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 12
  13. 13. Consumer interest in interactive TV is moderate, but the technology offers advertisers considerable value • 1 in every 10 homes can use single screen % Interest in ITV applications among U.S. cable households enhanced TV; almost all are DBS homes Get info on a TV show 9% 14% • Wink reports 70% of Choose camera angle 13% 9% enabled homes use it Play along w /game show 7% 8% once a month 7% 6% • Two-screen In-show polling interactivity reaches E-mail 7% 6% even more homes; 1 Very Interested Buy directly from commercial 4% 5% in every 6 consumers Somewhat Interested surfs the web while Get product info. from commercial 3% 5% watching TV 0% 5% 10% 15% 20% 25% • Viewers are twice as likely to sit through a commercial if there is an interactive elementSource: 2002 Digital Home Entertainment Survey, DMA, Company Reports © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 13
  14. 14. Targeted advertising can leverage digital ad insertion infrastructure ACTV’s Spot On technology trialed in Denver by Comcast; Visible World used by Adlink for targeted advertising in Los Angeles region Industry Trends Comcast driving interconnects in 71 markets even as digital program insertion technology starting to generate “buzz” – Standards in place – Digital penetration crossed 20% of US homes – DPI technology lays foundation for addressable advertising But privacy concerns will emerge; stake holders must proceed cautiously 1-800 Flowers.com on LA interconnect, Adlink Case Study – Offered arrangements priced from $29.99 to $500 simultaneously to viewers in different demographic and economic segments over two and a half weeks – Contact information etc. can be customized by zone/neighborhood – 50% higher response rate than control ad without customization – CPM premium between 5% to 40%, depending on the granularity and dynamics © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 14
  15. 15. Household penetration of VOD to grow steadily, driven by MSOs need to differentiate from DBS and drive digital revenue 30.0% 29.0% 22.3% 20.0% 16.6% 10.5% 10.0% 6.4% 3.0% 0.0% 2001 2002 2003 2004 2005 2006 Percentage of U.S. HH with VOD availableSource: The Yankee Group © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 15
  16. 16. Advertisers can use VOD to reach this rapidly growing segment ofhouseholds Cox running “FreeZone – ad sponsored VOD service in San Diego Industry Trends – Experimenting with letting viewers choose to watch long form advertising MicrosoftTV launches Foundation Edition, allowing Operator to build VOD “Storefront” Programmers exploring “Video Brochure” concept – Tying VOD with text and graphics for sponsor microsite Guide vendors integrating broadcast and on-demand on single seamless interface to drive viewers Cox San Diego and “FreeZone”Case Study – Ad-supported content such as short films, sports and interviews with local celebrities – Includes permission-based follow-up interaction between advertisers and viewers – 50% of digital subs ordered 2 million videos over 12 months – Average of 3.76 videos accessed per viewer per week – Each unique viewer spent approximately 25.5 minutes per week viewing advertiser content © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 16
  17. 17. DVR downloads provide a partial solution for the DVRs impact ontelevision advertising TiVo is the only DVR vendor who has been aggressively using downloaded advertising so far – But Echostar has crossed a million subscribers and cable is starting to explore DVR Industry Trends downloads too Advertisers include retailers, automobile manufacturers, but are mostly film studios – Format appears best suited for entertainment related advertising but could extend to other products provided commercial is “entertaining” DVR downloads can be targeted to suitable households Advertisers can collect actual viewership data rather than estimates – Interactive components and promotions can even generate direct responses But DVR will allow only for a limited amount of advertising TiVo downloaded nine promotional video segments promoting AustinCase Study Powers In Goldmember – Included full-length theatrical movie trailer, additional movie footage, a music video and a message from actor Mike Myers – 2/3 of TiVo households viewed the showcase over the two week campaign – Viewers spent an average of 6 minutes interacting with the video © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 17
  18. 18. Branded entertainment opportunities stretch beyond productplacement and sponsorship Also developing additional content and linking it to TV commercial – Contest/PromotionIndustry Trends – Online Movies: BMW Films.com – Standalone DVDs Ford and ’24’ present an interesting model for the future, particularly on-demand advertising – Single, long form commercial directly related to programming – Less likely to be skipped – Less likely to be resented if offered on VOD without Ffwd capability Barbie and the Nutcracker: Mattel’s holiday movie turns a profit!Case Study – Standalone video featuring computer generated Barbie created by advertising consultancy Science+Fiction – Sold at retail outlets such as Wal-Mart and Toys R’ us between Thanksgiving and Christmas 2002 – Mattel subsequently purchased broadcast slot on CBS for video – Sold $3.4 million videos and generated $65 million in revenue © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 18
  19. 19. The Format Evaluation Matrix: Advertisers must develop analytical tools to select appropriate approaches and formats moving forward Scale: 0-100 Form at Penetration Scale: 1-5 Quotient Assigned Product Show Enhanced PVR Targeted Broadcast Objective Weight Placem ent Sponsorship TV Dow nload Advertising Advertising Brand Building 4 5 2 2 4 5 Prom otion 2 2 5 4 4 2 Closed Loop /Direct Response 1 1 5 4 4 1 Targeted Segm ent Marketing 2 2 3 5 5 2 Im pulse Purchase 1 1 5 3 1 1 Total Value Per Form at Adjusted Total ValueSource: The Yankee Group, 2003 © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 19
  20. 20. The Format Evaluation Matrix (continued) Scale: 0-100 Form at Penetration Scale: 1-5 Quotient 100 100 10 2 0 99 Assigned Product Show Enhanced PVR Targeted Broadcast Objective Weight Placem ent Sponsorship TV Dow nload Advertising Advertising Brand Building 4 16 20 8 8 16 20 Prom otion 2 4 4 10 8 8 4 Closed Loop 0 /Direct Response 0 0 0 0 0 0 Targeted Segm ent 3 Marketing 6 6 9 15 15 6 Im pulse 0 Purchase 0 0 0 0 0 0 Total Value Per Form at 26 30 27 31 39 30 Adjusted Total Value 2600 3000 270 62 0 2970Source: The Yankee Group, 2003 © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 20
  21. 21. Conclusions/Recommendations • One in four US homes will have a DVR in five years • There will be no single replacement for the 30-second spot – It will remain a widely used advertising format • Advertisers must familiarize themselves with new techniques for reaching the consumer – The next three years must be a period of intense experimentation and trial • Advertisers should demand expertise in new advertising approaches from agencies • Anticipate that advertising will resemble guerilla battles more than structured, strategic wars – Opportunistic initiatives could reap great rewards • Cross functional expertise will be required as previously discrete roles merge • New metrics and analytical tools will be critical to evaluate multiplying strategic and tactical options © Copyright 2003, the Yankee Group. All rights reserved. ANA November 2003 21
  22. 22. The Association of National AdvertisersNovember 7, 2003Confronting The DVR:Technology Offers New Solutions For TVAdvertisingAditya KishoreSenior Analyst, Media and EntertainmentThe Yankee Group617 880 0304akishore@yankeegroup.com © Copyright 2003, the Yankee Group. All rights reserved. 2003

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