Deloitte predicts that digital video recorder (DVR) penetration in two large markets will exceed 50 percent of TV households by year end 2011¹; but also predicts that TV advertising will be almost entirely unaffected despite that level of penetration. While DVRs provide the technological capacity to skip ads, the majority of DVR owners are likely to continue watching the vast majority of their television live. TV ad rates may go up or may go down for various reasons this year but DVR penetration probably won't be one of them.

A decade ago, as DVRs became more affordable and widely adopted, industry commentators claimed that the television commercial was in trouble². Their reasoning was that as DVR owners could readily fast forward through all advertisements, this would reduce the value of TV advertising³. Initial surveys of DVRs owners tended to bear this out: self-reported ad-skipping was high⁴.

Whether or not ad-skipping was as high as was being claimed, the DVR threat remained only potentially devastating while very few viewers owned them. This remained the case for the first half of last decade: DVR ownership was only 17 percent in the US in 2006⁵.

However, DVR ownership in many major television markets took off in the last five years. The falling prices of DVRs have enabled existing pay TV broadcasters to subsidise the entirety of their cost for a growing proportion of their customer base; new pay TV entrants have typically had no option but to offer a DVR to attract customers. DVRs have also entered homes “through the back door”, via the tens of millions of hard-drive equipped games consoles possessing full DVR functionality that have shipped in recent years. And the cost of non-subsidised DVRs has been dropping steadily to the point where entry models are available for $100⁶.

The growth trajectory in DVR ownership suggests that penetration among television owners in the US and UK should cross 50 percent in 2011-2012 making it theoretically possible for half of all households in these markets to avoid television commercials altogether.

However Deloitte’s view is that the DVR, even in markets where the devices are in the majority of homes, is unlikely to have a material impact on the value of television advertising in 2011⁷. This is principally because the majority of viewing in these households will be “appointment to watch” television, be this sport, a talent show, a soap opera, reality TV, a quiz or a news bulletin. This type of programming usually crowds out time available to watch pre-recorded content.

Further, viewers are likely to attach increasing value to ‘first broadcast programming’ in the next few years as the volume of social commentary, both that occurring organically as well as that encouraged by the broadcaster, steadily grows⁸. viewers are likely to become even more locked into the schedule and therefore less able to skip advertising⁹.

The 15-25 percent of programming which is fast forwarded through is not necessarily a squandered resource. Studies show that even ads viewed at 12x speed are still retained by viewers, and by including more distinctive imagery advertisers can further enhance the impact of fast-forwarded ads¹⁰. Programmes that have a higher incidence of pre-recording (often programming targeted at younger audiences), advertising at the end of breaks can be sold at a premium as recall for such slots is likely to be highest¹¹. Fast forwarders will be concentrating hard to spot the last commercial to ensure they do not miss the resumption of the programme.

These trends notwithstanding, there are likely to be some programs which are watched mainly on a pre-recorded basis, just as there will be some DVR owners who only watch pre-recorded content. But such programming and such behaviour will not represent the mainstream. The type of programming that is watched mostly pre-recorded will typically be non-mainstream content which is scheduled outside of peak hours¹². DVR owners who watch everything pre-recorded are likely to be individuals who watch just a few hours of content per week, rather than the typical average of 25-35 hours per week¹³.

In 2011 (and beyond) DVR owners are likely to default to the schedule when turning on the television, and only resort to the menu of pre-recorded content after a few minutes of channel surfing have proved fruitless¹⁴. In one study of DVR owners in the UK, 70 percent always checked to see what was on broadcast first; only 16 percent checked out their pre-recorded options first (see Figure 1).

Figure 1: Viewing behaviours of DVR owners.

Source: Deloitte LLP UK, July 10. Sample: 958 DVR owners

In 2011 and beyond many surveys of consumer behaviour are likely to indicate rampant advertising skipping; measured data, rather than self-reported data paint a different picture. The television industry needs to be alert to wherever respondents may distort – deliberately or subconsciously – their response.

Bottom line

Even though DVRs offer the ability to avoid all television advertising, it would require two fundamental changes to viewing behaviour to happen: viewers would need to pre-record absolutely everything; and they would need to keep their eyes closed while fast forwarding. Neither is likely.

In an industry adept at creating live television and among a viewership that consumes an average 20 hours per week (and over 35 hours in some markets) pre-recording everything is nigh impossible. Secondly skipping through every advertisement, including the end “bumper” advert, requires a precision that most of us lack. The advertising based funding model is not broken, at least by the DVR.

Even if DVR users only occasionally watch pre-recorded content, this does not mean that the service is not valued or that the devices should not be subsidised. Occasional usage will engender loyalty. So if a DVR allows a viewer to watch both his or her simultaneously-broadcast favourite shows or if it means that going out does not missing out on the latest episode of a preferred soap opera, this is good for the broadcaster, for the program maker and for the advertiser.

Indeed the television industry should constantly look at ways of making their DVRs easier to use, for example by integrating remote recording of programs with Web-based television schedules or program reviews¹⁵.

The television industry should also focus on how the DVR can enable it to add value for advertisers: is it doing enough to harness data on which adverts are watched, which are always fast-forwarded, and which are rewound and watched again? This data could be combined with repositories of pre-loaded advertisements stored on the DVR that could allow a degree of personalized advertising serving to be provided. Further, programs watched several days after first transmission could be combined with updated advertising, with a new commercial, for example, replacing an advertisement for a one-day sale.

The rise of the DVR may however pose more of a threat for other parts of the entertainment sector. The ability to record with ease may well pose a threat to DVD sales and rentals. Making it easier to record films, regardless of the time they are shown, may well lessen a user’s perceived need to rent or purchase a DVD. Making it easier to record television may crowd out the time available to watch any films, including those rented or purchased in DVD format. According to one survey, of DVR owners who were recording more programs than a year back, 40 percent were purchasing fewer DVDs and 38 percent were renting fewer DVDs¹⁶.

¹At the end of Q2 2010, 40 percent of all US households had a DVR, a rise of 14 percent on the previous quarter. Source: Bigger TVs, DVR and Wi-Fi among Hot U.S. Home Technology Trends, Nielsen, 30 September 2010:http://blog.nielsen.com/nielsenwire/consumer/report-bigger-tvs-dvr-and-wi-fi-among-hot-u-s-home-technology-trends/

²Comment speculating on a DVR-driven end to traditional television advertising has been a constant of the last decade. Source: TV advertising's DVR challenge, CNET News, 23 May 2006:http://news.cnet.com/2100-1024_3-6075233.html;for a view from 2005, which estimated 50 percent of viewing would be skipped by 2010, see: Sky+ won't kill TV ads, says media buyer, Guardian, 28 November 2005:http://www.guardian.co.uk/media/2005/nov/28/advertising.broadcasting1

³One survey of marketers found that 75 percent would cut their television ad budget as a result of ad-skipping technology. Forrester report from February, 2002 cited in: The TiVo Effect: Advertisers See Less TV Ad Spending, ClickZ, 25 November 2002:http://www.clickz.com/clickz/news/1704616/the-tivo-effect-advertisers-see-less-tv-ad-spending

⁴One consumer survey in 2002, found that 72 percent of DVR users skip commercials. Source: Will TiVo revolutionize television viewing?, CNN, 5 December 2002:http://edition.cnn.com/2002/SHOWBIZ/12/04/hln.connect.tivo/

⁵CEA Finds American Adults Spend $1,200 Annually on Consumer Electronics Products, Consumer Electronics Association, 26 April 2007:http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=11274

⁶Bush 160GB Top Up TV Digital TV Recorder, Amazon:http://www.amazon.co.uk/Bush-160GB-Top-Digital-Recorder/dp/B002H9G5Z6/ref=sr_1_3?s=electronics&ie=UTF8&qid=1289717850&sr=1-3

⁷Duke study: TiVo doesn’t hurt TV advertising, Triangle Business Journal, 3 May 2010:http://www.bizjournals.com/triangle/stories/2010/05/03/daily6.html

⁸According to Twitter, “a lot” of the tens of millions of daily tweets are about television shows. Source: Twitter Plus TV Creates “Social Viewing”, GigaOM, 10 November 2010:http://gigaom.com/2010/11/10/twitter-plus-tv-creates-social-viewing/

⁹For an example of a smart phone application designed to foster commentary about television programmes, see: tvChatter iPhone Application from frog design Uses Twitter to Make TV Social, Frog design press release, 16 October 2009:http://www.frogdesign.com/frog-design-hosts-unique-digital-think-in-with-npr-10072009.html

¹⁰Why DVR Viewers Recall Some TV Spots, Wall Street Journal, 26 February 2008:http://online.wsj.com/public/SB120398730105292237.html?mod=blog; Also see: DVR Fast-Forwarding May Not be Fatal to TV Ads, PRNewswire, 3 November 2008:http://www.prnewswire.com/news-releases/dvr-fast-forwarding-may-not-be-fatal-to-tv-ads-65213522.html

¹¹Study: TiVo, other DVRs don’t negatively affect TV advertising, CrunchGear, 4 May 2010:http://www.crunchgear.com/2010/05/04/study-tivo-other-dvrs-dont-negatively-affect-tv-advertising/

¹²Programmes which have had this uplift in the UK include True Blood and Glee. Source: PVR pumps up the numbers, Broadcast, 18 March 2010:http://www.broadcastnow.co.uk/ratings/pvr-pumps-up-the-numbers/5011886.article?query=0

¹³For example, in Canada, while 86 percent of DVR owners pre-record content, only 3 percent of all viewing is actually of pre-recorded content. Canadians watch about 30 hours per week on average. Source: One in five Canadians own a PVR, Digital Home, 13 August 2010:http://www.digitalhome.ca/2010/08/one-in-five-canadians-own-a-pvr/

¹⁴On TV: perspectives on television in words and numbers, Deloitte LLP UK, August 2010:http://www.deloitte.com/view/en_GB/uk/industries/tmt/media-industry/81fdbc5df883a210VgnVCM200000bb42f00aRCRD.htm

¹⁵For example see: SundayTimes.co.uk's paying readers can set Sky TV recordings, Guardian, 27 April 2010:http://www.guardian.co.uk/media/pda/2010/apr/27/times-skyor see this video: TiVo Premiere app for iPad,http://www.youtube.com/watch?v=IQ82HW81t9o

¹⁶Deloitte LLP UK/YouGov, July 2010: sample, 567 DVR owners who were recording more on their DVR than a year back.