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Big Media Hopes To Kill The Ad-Zapping DVR With Video On Demand

After missing opportunities to make VOD a mainstream technology, TV networks are embracing it to capture tech-savvy viewers - and make them watch ads

When veteran tech executive Scott Maddux brought a digital video recorder into his home in 1999, the machine radically changed his boob-tube habits. At last, he could save shows to watch later and skip programs he wasn’t ready to see. ”I lived and breathed TiVo for a few years,” he recalled. “That was a transformative moment. It changed my relationship to the television.”

These days, Maddux still likes having a DVR, but it doesn’t dominate his TV-watching life the way it once did. The device “ has seen some diminishment in unique value,” said the 50-year-old San Francisco resident. In his house, his two children are agnostic consumers of TV programming – they think nothing of streaming something on Netflix, watching video on an Apple iPad, or, increasingly, searching out a show like “Bob’s Burgers” on a hub the family’s Comcast cable system offers for on-demand programming.

Compared with new technology introduced in recent months, he said, “the DVR is an antiquated box.”

Death Of A Wonder Gadget?

The wonder gadget that upended the TV business is slowly, inevitably, being upended itself – most noticeably by other technologies that give TV fans access to their favorite programs as they wish. With video on demand, consumers don’t need to shell out another 10 bucks to their cable operator for DVR service, or worry about start times or an overflowing cache of video. Even TiVo, the San Jose company whose quirkily-named recording device became the representative for the gizmo in its early days, has placed more emphasis on services other than playback. Just as Netflix rendered many DVDs nearly obsolete, so too has the modern rush of digital automation begun to turn the digital video recorder into a cultural artifact, something akin to a Rubik’s Cube or hula hoop.

Perhaps that’s unfair. After all, the TV business changed irrevocably in 2007 because of problems created by the DVR. People who had the device fast-forwarded past the ads that bring millions of dollars to CBS, NBCUniversal, Walt Disney, Viacom, 21st Century Fox, Time Warner, Discovery Communications and others. And they watched their favorite shows hours or even days after the shows aired, bringing down the ratings. To compromise, advertisers and TV networks altered the way they conducted business, with sponsors agreeing to pay for three days’ worth of viewing, not just live audience – but only if those later-day viewers didn’t zap past the commercials.The agreement was rare, complex and – in the TV business – seismic.

But now video on demand is capturing more of the networks’ attention – largely because it allows them to offer viewers the convenience of watching  favorite shows as they wish while disabling their ability to speed past the ads that pay for so much of it

According to Rentrak, consumers in 2012 spent an average of 8.5 hours a month watching VOD content, up from an average of five hours in the prior year.  Fox has been preparing to offer advertisers the chance to “swap” commercials that accompany video-on-demand selections, so that they are “current,” not stale. The idea could help the network gain money from sponsors leery of delayed viewing after the current three-day standard. CBS this season ran promos suggesting viewers use VOD if they missed episodes of its serialized drama “Hostages.” And many TV networks now include VOD views as a way to meet the audience guarantees they give advertisers.

If the DVR is fading away, its death will be slow and gradual. But it is coming. Media-research firm Magna Global predicts 48% of U.S. TV homes will have a DVR by the end of 2017, up from 41% at the end of 2012. Neither the introduction of Dish’s ad-blocking Hopper device or DirecTV’s Genie, which records five shows at once and can play back recordings in any room of the house with just one box, has helped boost desire, the firm said. Meantime, Magna expects 61% of U.S. homes to have access to video-on-demand via their cable, satellite or telco systems by the end of 2017, compared with 56% in 2013. Indeed, VOD’s reach has grown, said Magna, even though subscriber numbers for cable and other video distributors have remained stagnant.

Even if the DVR has given rise to a generation of TV-viewers accustomed to “ad zapping” and “when-you-want” watching, the younger demographic is growing more accustomed to programming that is available at the push of a button – if it isn’t on the air at present, it’s available at some point on Hulu or Netflix. Post-millenials won’t feel the need to cast a net to capture their favorite show; they will simply expect programs to be available from the electronic ether on a whim.

And that new tech has spurred cable companies and others to turn what was once a clunky VOD experience into a more user-friendly one. “The cable industry is embracing the concept of video on demand and advertiser-supported video on demand, because with the competition from the Netflixes of the world and online streaming, it is important that they too can deliver universal access for programs,” said David Poltrack, chief research officer of CBS Corp.

You might say VOD has come from behind and is gearing up to win the race. “It almost feels like the lazy man’s DVR,” said Steve Kalb, senior vice president and director of video investment at Boston ad agency Mullen.

Missed Opportunities

It wasn’t supposed to be this way. In 2003 and 2004, whispers about a new “killer app” service called “Mystro” from a massive media conglomerate called AOL Time Warner began to surface. The technology would let viewers access their favorite programs as they saw fit and give media companies more control over how people accessed the content. But copyright issues prevented Mystro from dazzling. During an overlapping time frame, satellite-broadcaster DirecTV, then newly under the control of Rupert Murdoch and News Corp., began enticing potential subscribers by packaging DVR service into its offering – prompting cable distributors and others to follow suit.

“Had video on demand worked out, we would never have had DVRs, and we would not have had the issue of commercial skipping,” recalled Alan Wurtzel, president of research and media development at NBCUniversal.

No matter how its power grew, however, the industry it disrupted kept fighting back. TV networks might quietly bump their schedules so the last minute of a TV episode fell outside the time parameters of a recording. In 2005, execs from the nation’s six broadcast networks – this took place before UPN and the WB merged to form the CW – made a rare joint appearance in a press conference to convince advertisers DVR users were more rabid viewers of TV and would even rewind to watch a really great ad.

Advertisers, meanwhile, tried to co-opt the technology and make it work to their advantage. In 2006, KFC tested a novel spot that required DVR users to rewind their recording or even stop it to see a code,, which could later be entered at the chicken-chain’s web site to get a free “snacker” sandwich. General Electric and Coca-Cola’s Sprite would soon follow with variations on the theme. AOL and Fox tested a five-second “pod buster” that came on just as an ad break was about to end – presumably the exact moment when a fast-forwarder would resume regular speed and thus be forced to come face to face with the commercial.

“People were going to be blasting through advertising, and we wanted to try to slow them down,” recalled Tom Trenta, a marketing consultant who helped KFC devise what was then billed as an “anti-TiVo’ ad. In the end, advertisers abandoned the device, because, said Trenta, it had become “something to fight rather than to embrace.”

Even though the majority of DVR owners wer ignoring commercials, they still provided the TV networks with hard evidence their programs were more desirable than nearly anything else on the boob tube. More broadcast programming was being saved for later viewing than most other stuff.

Zapping The Zappers

With that in mind, ABC in 2008 allowed big cable operator Cox to distribute popular shows like “Ugly Betty” and “Grey’s Anatomy” on video on demand for the first time, a move that would draw more of the cabler’s subscribers to what was still an emerging technology. The only condition: Cox had to disable a viewer’s ability to skip past the ads. That idea has been implemented time and again, creating a situation where viewers must sacrifice their ability to ignore the commercials that provide so much revenue to the networks in exchange for the convenience of watching an episode of their favorite program whenever they choose.

Ad buyers like the new technology and what it might be able to deliver. Video-on-demand viewers are less prone to graze other networks and likely pay more attention to what’s in front of them, said Kris Magel, executive veep and director of national broadcast for media buyer Initiative. “They are less distracted and the ads are more powerful,” he said.

VOD has its controversies. TV networks don’t keep old episodes available forever – the better, perhaps, to monetize other methods for delivering content to fans. And if people hate to watch ads, or feel they are forced to watch too many of them, VOD won’t alleviate those concerns. But for TV networks, it may be the next best thing until the next best thing comes along.

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