Monday, January 5, 2009

A New Model for Television Advertisements?

As more consumers integrate DVRs (Digital Video Recorders) into their television viewing habits and use a bundle of media services, how will the current television advertising model change?

DVRs allow consumers to record their favorite programs and fast forward through commercials.
  • In 2004, only 4% of US households used DVRs.
  • In 2006, 12% of US households used DVRs.
  • In 2008, 30% of US households used DVRs.
    (source: ZDNET Research)

The recent popularity of DVRs has encouraged an emphasis on product placement within television shows, because consumers are spending less time watching commercials. In fact, over 88% of DVR users usually skip through commercials when watching television programs. It's no coincidence to see an energy drink or new automobile featured in a television show. Although I don't know how much money the big three auto manufactures will spend on product placements this year.

Additionally, as more mainstream media companies provide bundle (cable, phone and internet) services to consumers, how will these services affect the future of television advertising?

Internet Advertising Model
When a consumer surfs the internet he or she is displayed advertisements that are relevant to a viewer's interest. For example, if I write about a recent mountain biking trip or photography exhibition on my Facebook profile, banner advertisements relating to extreme sports clubs or photography contests will probably be displayed on the page. The advertisements are reflective of my personal interests and I am more likely to click on them, because of the relevance.

The media provider (Facebook, Blogger, MySpace, etc) makes money by displaying the advertisements and the return-on-investment is justifiable for a company, because the clicks or results are measurable. The media provider can provide detailed reports of how many consumers click on a advertisement, which makes the CPC (cost per click) or CPA (cost per action) justifiable for the company's advertising investment. The company knows exactly how many consumers are viewing their product or service.

Will we see a change in the current television advertising model?

Although consumers like to think that their viewing habits on the internet are private, the information is recorded in the modem. Now, since more consumers are using bundled media packages to save money on cable services, what if the current model for television advertisements changes?

For example, a consumer's modem can send information to the service provider about the viewing preferences of a user. Similar to banner advertisements, the television can then display commercials that are more reflective to a viewer's interests. Although this strategy will not dissuade more consumers from using DVRs to watch television shows, it may encourage viewers to fast forward through less commercials and watch the commercials that are tailored to their preferences.

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