The Future of TV Advertising

I had a Tivo, and like all other people who have one, or any other PVR (Personal Video Recorder or Hard-Disk Recorder), I love it and am bothered if I have to watch TV without it. I've switched to MythTV, which is better and provides automatic commercial elimination to boot.

While it's not the core function of the box, one big reason people love these boxes is that they get to watch TV without commercials. You watch all TV recorded from the hard disk, and you rarely watch it live, so you can quickly skip over commercials with the 30 second skip button or the very fast "Fast Forward" scan.

This is a bit of a free lunch. I watch the program for free and don't see the advertising. Exposing me to the advertising is how the broadcaster pays for the program, and if I don't get exposed, there's no reason for them to broadcast it. But almost all PVR owners do it, and most people want to do it. (Though in a surprising reversal, I Tivo-recorded the superbowl and watched the ads and fast-forwarded through the football.)

We want it in part because for most of us, TV advertising is a terrible financial deal. The TV network charges the advertiser only around a penny for each viewer, sometimes less. That means a penny for 30 seconds of my attention, or $1.20 for an hour of it. Of course, even without the Tivo we don't watch all the commercials in a show, and that is factored into the price. For example it's expected we'll leave the room for a snack or other purposes some of the time, and today it's even expected we might watch some portion of our shows on VCRs where we commercial skip (though still get minimal exposure.)

Still, if the average person misses half the ads, that's just $2.40 an hour for my time. Less than half of minimum wage. If, like me, you're a professional who gets many times that figure as a wage, the disparity is even greater.

For a typical hour of TV with 15 minutes of advertising, I would much rather pay them the 30 cents than give them my time to watch 30 commercials. But that choice is not available. One can buy pay TV but it's not the same set of shows. So I skip the ads, and so do many others. Oh, sometimes I see them but today it's rare.

Commercial elimination will get better too. The new Replay box offers automatic commercial elimination, as have many VCRs for several years. Replay was sued over this and went bankrupt. MythTV has the feature today. It's not perfect, but it's possible to make it perfect in a war the networks can't win, even with lawsuits.

I have written an analysis of why we can't be so sure ad-skipping will be ruled legal.

This can't last. As more and more people get PVRs -- and they will -- fewer and fewer people will be exposed to the ads, and the economics of free TV fall apart. That's actually a good thing because those economics are such a poor deal, but the collateral damage in the collapse will be a bad thing.

Product Placement

Of course, one answer to this is already widely used, namely ads embedded in shows. That means either product placement or the rising trend of placing small ads in the bottom or corner of the screen while the program is on. It's yet to be seen if they can generate the revenue needed to support the shows.

Also popping up are sidebar ads, which appear in a bar at the side or bottom of the screen, while the main program is running. These are most common for other shows on the same network right now.

DRM

One of the ways they will try to save the advertising based TV industry is to release shows only in encrypted form, and control the devices (like TV sets) which can decode them. This is already done with DVDs. DVDs are encrypted, and only licenced DVD players can decode them. People who published the results of reverse engineering on DVD players have been sued, so far with success and made to shut down. I've been on that losing side, defending the rights of the reverse engineers.

With a DVD, you may notice there are times in the movie when the fast forward button doesn't work, such as when the copyright notice is being displayed. Annoying, and an example of their possible vision of the future.

They might wish to make it so you can't FF over the commercials in your TV. To do this they would have to make it so that all TV playing devices -- every digital TV set -- is licenced and follows the rules of the studios that licence it. Their first goal here is to make it impossible for people to copy programs and give them out to others (or violate other rules they set on their playback) but the technology can also make it possible to forbid playback without the commercials.

To do this they have to lock things up all the way to the TV monitor, and that's what they hope to do. Along the way, they will make all the existing HDTVs sold obsolete, which annoys the people who have bought them.

Interactive Ads

I have another solution for them. It gets rid of some of the DRM needs, though unfortunately not all of them.

Start by making all TV available for pay, for a similar price to what they make now, though alas probably with a significant markup to cover the costs of sales, marketing and collection of the fees. (It is far more efficient for them to sell viewers to advertisers at $10,000 per million than it is to sell programs to one viewer at a time. However, computers can make this more efficient if the viewers also buy in bulk.)

The price may be higher than you think. At $1.20 per hour of TV viewed, this means that average family that watches 6 hours a day faces a whopping bill of over $200 per month. That's a bill most users won't pay, yet amazingly they offer a whopping 45 hours/month of their time watching ads, assuming you never have 2 people watch TV together. Factor that in and the number of hours is immense. Raise the efficiency to match the ad industry (which is paying 30 cents for each hour of TV you watch) and the price is a more manageable $54/month.

Whatever the price, many homes will still want it for free.

To make this work, every home needs a PVR style box or other smart "set top" box. These boxes would start out by delivering commercials at any time. They could come in breaks in programs, or be invoked on their own.

At the end of the commercial, the box would offer a multiple choice question about the ad. The question would be simple, perhaps just asking what product was advertised, or what the slogan is. Or it might just ask what special word the box flashed up in the middle of the ad.

Viewers would answer on their remote control. Each time they get it right, they would get a credit on their TV bill. Get enough right, and the TV bill is free.

How much of a credit? Well, probably more than the penny paid to see an ad today. First of all, the ad presented would probably be a targeted one, possibly even based on preferences the viewer herself provided. Advertisers are willing to pay a lot more to show ads to people who are already interested in the products to be advertised.

Secondly, studies show that if you actually have to stop and think about an ad -- particularly to answer a question about it, you pay much more attention to the ad and remember it with far greater reliability. I would venture that ads that the user answered a question about are worth several times the value of ordinary, largely ignored ads.

One could imagine a price closer to a dime. That would pay the $200 TV bill by watching 2,000 ads, or about 17 hours of advertising. That sounds incredible until you remember that today's free TV required that family watch 45 hours of advertising.

Or to put it another way, to watch one hour of TV, you might watch a dozen tailored and interesting 30 second spots (instead of the 30 that typically appear) Get it down to the efficiency of mass ad sales and you might have to watch and get right the questions on 3 different spots to give the studios the same revenue.

Not bad, actually. Or you could just pay your bill and see none of the ads, possibly not even have the box. Or you might arrange to have the ads sorted according to either how interesting they are or how much credit the advertiser is offering to watch them. You watch them and answer the questions until they start getting boring to you, or until the credit they offer doesn't seem worth their time. A market is created.

I probably wouldn't mind seeing the most entertaining ads for a little credit, possibly even for no credit if they are entertaining enough. I watch the superbowl ads every year for their entertainment value, and I used to go to adcritic.com before it died.

Less DRM

One notable thing about this system is it doesn't require the studios have any control over your TV set and whether you skip the ads. That's good.

However, they still will insist on access controls to make sure that only paying subscribers (or subscribers getting adequate credit from ad views) get to watch the programs. And they will continue to push for controls that stop people from copying shows that they paid to see, both to stop people from giving them to friends, and also to stop multiple viewings when they feel they sold a ticket to a one-time viewing rather than the right to have a copy.

It doesn't solve those battles, but at least it might save the TV monitor itself from being a locked up device. Though alas, not necessarily, as some studios may insist that is the only way for them to forbid copying of the data stream that flows to a digital TV.

Other Options

Of course, some of the options being considered for other media may be applied to TV. These include package subscription fees (common for pay TV today), government subsidies and medium/pipeline taxes, and possibly even my propoposal for music -- a Don't Pay button using microrefunds.

Quick Review and the Nature of TV

I've recently discovered another fascinating way my Tivo has changed the face of TV, helping me to watch less TV or at least better TV.

It does this combined with the web. There are some TV series out there which have a bunch of decent work, but are not high enough quality to watch on a regular basis, at least if you want to conserve your time spent at the (original) tube.

These shows tend to have fan bases with web sites, and these sites like to have people vote on and rate the quality of the shows. They do it within days of airing. Of course, there are also regular critics and reviewers who rate the shows.

So now I have my Tivo record "Enterprise" (the new Star Trek series.) I decided after a while that Enterprise wasn't hitting my threshold, but the kid who grew up on Captain Kirk doesn't quite want to give it up yet. I don't watch the show right away. I go to a fan site called treknation.com which has a fan poll. Over 2,000 fans will have rated the show in a few days. I then delete the below-average shows and watch only the best. Suddenly an average TV series becomes for me, a top quality shorter series. The web sites can fill you in on plot details you missed.

I do the same for the show Stargate-SG1 which is in reruns and thus all the shows are rated. I'm watching only the 4-star episodes thanks to gateworld.net, which tells me when they are coming up.

What's the obvious next step? Automating this. Getting ratings services (either from fan polls or professional critics) to feed the data into your PVR, so you can tell it "Only record episodes of 3 stars or better" or "Record all new episodes, but delete if rating comes in below threshold X"

Indeed, down the road you might rate shows right at your remote control after you watch them, to be fed up into a collaborative filtering database. Those who watch and rate early might pay less than those who sit back and use the ratings.

This is closer to what happens for movies. Many wait for a movie to be out a few weeks and then gather opinions on if it's good to watch or rent only the best. But TV has never really had this. TV viewership has depended primarily on the quality and fandom of the series, not the original. At best, if you heard one was really, really good you might look for it in reruns.

For the viewer, it means the possibility of all quality TV. A fancier box with many tuners and today's $1/GB disk space could record all of prime time for you, or at least shows that meet your taste, to winnow it down within a few days to just the very best.

For the studios, it could be both curse and blessing. Poor quality episodes could end up with very limited viewership, as the early viewers watch them and quickly downgrade them to the point that nobody watches. Making a turkey could be a real financial disaster. (In movies, amazingly, if they have an expensive turkey, they _up_ the advertising budget to try to bring it a big first weekend to make back the advertising expense and a bit more, since they know word of mouth won't help them.)

On the other hand, the best -- or at least most popular -- episodes would gain high viewership, and high revenue (if they can map viewers to revenue, since PVR users are not watching the ads.)