Within a few years television viewers will have little problem avoiding advertising thanks to the combination of video-on demand (VoD) and the spread of personal video recorders (PVRs) like TiVo or Replay. That is clearly a threat to the traditional broadcast model and ultimately for the film and TV productions that are funded by broadcasters.
Although PVRs have so far only reached 1.7 million homes in the US and fewer abroad, the killer combination could be available to half the US population by 2007, according to new data from Forrester Research.
Electronics manufacturers and pay-TV broadcasters intend to build PVRs into set-top decoders and DVD player/recorders, lifting the total in use in the US to 30 million within five years.
Forrester reckons that viewers will by then watch 28% of their TV on-demand and skip 19% of the scheduled advertisements. News weather and sports will continue to boast immediacy, but other forms of traditional programming will suffer more. According to Forrester's survey 76% of advertisers will respond by cutting their ad spending. To make up for the loss of effectiveness there will be an ever greater emphasis on other forms of advertising, such as product placement, sponsoring and "enhanced TV" adverts.
Forrester suggests that a syndication model will be the most successful in VoD and be operated by aggregators which bundle up content and sell national ads. Cable operators will pay the aggregators from consumer subscription fees and the aggregators which bundle up film and TV content will pay syndicators like King World and major content owners, notably the major studios.
Ad skipping will shave about 10% off ad revenues - not the full 19% -, but VoD advertising will generate $4.6bn, while advertising on programme guides and other forms of interactivity are forecast to generate another $1.6bn of ad revenues.
Consumers will also generate other forms of revenues for their on-demand services. Transactional VoD (film and programming buys of approximately $8 per household per month) could generate $3.3bn; while subscription VoD to services launched by the likes of HBO or Showtime generate a further $1.5bn. PVRs will themselves generate another $1bn (both Replay and TiVo now charge monthly fees) although these may increasingly be bundled in to other subscription packages.
Forrester suggests that studios and other content owners will be winners under this scenario as will gatekeepers such as cable operators. The losers will be network broadcasters with broad programming remits. On-demand reduces their ad values. They will need to cut costs and find new revenue streams.