In Embracing Digital Recorders, Cable Co.s Take Risk

[Scott Greczkowski]

By JULIA ANGWIN, PETER GRANT and NICK WINGFIELD
Staff Reporters of THE WALL STREET JOURNAL
April 26, 2004; Page A1

TO READ THE ENTIRE ARTICLE CLICK HERE - YOU MAY NEED TO BE A WSJ SUBSCRIBER TO READ IT ALL

In late 2002, Comcast Corp. Chief Executive Brian Roberts warned cable-industry executives that a new technology was putting their livelihoods in danger. The technology: digital video recorders, such as TiVo, that let consumers store dozens of TV programs and zip through commercials.

A consumer who uses such a device "is getting all that content and recording it real easily, paying nothing extra to get it and stripping out the advertising," Mr. Roberts told an industry gathering.

But now Mr. Roberts is singing the praises of the digital recorder. Comcast, the nation's largest cable provider, is installing the device in customers' homes as quickly as it can. So are other top cable operators such as Time Warner Inc.'s Time Warner Cable unit. So far, only about 3.5 million homes have the recorders, but they are spreading fast.

The cable industry's embrace of digital video recorders, or DVRs, is a huge gamble. Cable companies are bulking up their profits by charging customers an extra $10 or so each month to use the machines.

But if people tune ads out, it could undermine the basic economics of the television business. Advertisers spent $54.5 billion on U.S. television advertising in 2003, according to TNS Media Intelligence, more than any other medium. Many of the companies that sell monthly cable-TV service also own cable channels that rely on advertising revenue. Time Warner, for instance, gets about 16% of its revenue from advertising, much of that from its cable channels such as CNN, TNT and TBS. Comcast already owns a handful of cable networks, including E! Entertainment Television, and has made a bid to buy Walt Disney Co., which owns ESPN and other cable channels.

Even if they don't own programming, cable companies still want people to watch TV commercials. They get some revenue from selling local advertising time. Just as important, ads pay for much of the cost of making TV programs. Cable companies pay fees to carry the likes of CNN and ESPN, but if those channels couldn't carry advertising, the fees would likely be much higher.

Before launching DVRs, cable companies focused on pushing video-on-demand services in which viewers can order movies and other programs from a central library, often at no charge. But eventually cable executives say they saw little choice but to introduce the new machines, in part because satellite-TV rivals such as EchoStar Communications Inc. were already doing so. "This is something consumers really want and ultimately that's what's going to drive everybody in a competitive business," says Mr. Roberts, the Comcast chief, in an interview. He says his 2002 speech was mostly targeted at cable programmers, not cable operators, and it didn't mean that he wanted to hold back the technology.

Read the rest at http://online.wsj.com/wsjgate?subUR...85324892853-IJjf4NolaJ3o52uan2IaquDm4,00.html

 

[silversurfer]

The advertisers are still going to get their money. They are just going to have to come up with more creative ways to do it. I have already seen a few clever tricks. I have noticed that most movie previews now a days are the first commercial. If I see that I tend not to skip it. Also I have noticed them trying to trick you into stopping your fast forwarding early by inserting a promo for the next episode which confuses me into thinking that is where I need to stop. You also have little (ok sometimes not so little) pop ups that come on the screen. Commercials as we know it are on there way out.....

 

[VideoGrabber]

SilverSurfer commented:
> The advertisers are still going to get their money. They are just going to have to come up with more creative ways to do it. I have already seen a few clever tricks. ... You also have little (ok sometimes not so little) pop ups that come on the screen. Commercials as we know it are on there way out... <

I think you're right, and frankly I find it quite disturbing. I already hate the constant bugs in the corner with the channel logos, impinging on my enjoyment of the programming and creating potential burn-in problems. Then there's the: "You're currently watching X, and next you'll be watching Y" popups. [It's good they tell us this, because the commercial breaks are getting so long I sometimes forget what the h@ll I was watching. ] Plus the animated, scrolling, whirling ads for upcoming programming. And on, and on. All distracting from what I'm trying to watch.

My concern is that eventually, as there is a growing feeling that commercials within temporally located breaks are too easy to skip or edit out, the commercials will come to be incorporated as part of the program itself. By using tech to squeeze and squash and manipulate (in a similar fashion to how they push program credits off into a non-readable, high-speed scrolling sidebar), they'll intertwine adverts and programs in a way that they CAN'T be eradicated or ignored.

I'm afraid it may come to that. Keep in mind that to the providers, the programs we're watching are irrelevant. Their only purpose is to keep us around for the next commercial message.

- Tim

 

[fuque]

"Zipping" and "Zapping" have been a problem (from the advertising industry's point of view) for years - long before there were PVRs, there were remote controls. Suddenly, people didn't have to get up out of their comfy chairs to change the channel when a commercial came on, they could just hit a button, and that ad that cost $1 million to produce and run is completely missed by the consumer.

Look for the product placements to increase bigtime - effectively, the shows themselves will become the commercials. Then they'll be ZIP proof.

 

[Stargazer]

Perhaps we will see less commercials as a result as well, and if product placement in shows would generate less money then you can bet that there will be a demand for increasing the rates for the channels.