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Viewing revolution the ad men are watching closely

September 5, 2002

Video recorders that can skip the commercials present a challenge for advertisers

 

THERE WAS MUCH TALK among delegates at the Edinburgh Television Festival about the desperate state of things at ITV. Once the dominant British television channel, ITV1 has been losing both viewers and advertising revenue recently and BBC1 has overtaken it in the ratings for the first time.

 

The consensus among the delegates was that Dawn Airey, the chief executive of Channel 5, was to be poached as a star striker to captain the ITV team for what is rumoured to be a record transfer fee.

 

Roy Thomson once described the main Scottish ITV company, STV, as a "license to print money". Later, Gus MacDonald, then the chief executive of Scottish TV, described the UK cable television industry as a “licence to bury money”. These days, SMG the owners of Scottish TV are no longer printing money and are struggling to retain their independence as one of the indebted cable companies, Telewest, has put its 17% stake in SMG up for sale.

 

There is much talk about the cyclical downturn in advertising revenue, which has affected ITV particularly badly. But what if it isn’t cyclical? What if it is part of a long-term decline? And if it is, where are the factors that will drive this long-term decline?

Well, my vote goes to a new technology product pioneered by a Californian-based Scot, Mike Ramsey, whose business, TiVo is currently the second-fastest growing firm in Silicon Valley. Ramsey, who graduated in electrical engineering from Edinburgh University created the first commercial Personal Video Recorder (PVR).

 

Most people find it difficult to predict which technology products will be successful. The technology graveyards are full of failed products, such as the Rabbit mobile phone system, eight-track music cartridges, and the C5 personal electric vehicle.

 

 But I am willing to stick my neck out here. I will eat a sackful of sombreros if millions of homes don’t install a PVR within the next five years.

 

A PVR is an intelligent video recorder. It doesn’t use tape, but records programmes on to a computer disk, capable of storing many hours of programming. It knows which programmes are on, when they are on, and what they are about, and it makes it very simple to record the programmes you want. Even better, you can train it to record automatically the kind of shows you particularly like, and it will do so anytime they are broadcast. The net result is that any time you want to watch television, there are good programmes stored up on your PVR.

 

These devices are relatively expensive - £300 or more at a time when ordinary video recorders have dropped below £100. They also need a £10 a month subscription to maintain their programme guides. Since they are also a bit complicated and difficult to explain, most electrical retailers are not promoting them heavily. Fewer than 50,000 PVRs have been sold in the UK since their launch a couple of years ago.

 

But nobody who owns a PVR will ever give it up, and owners invariably recommend it enthusiastically to others. The relentless price/performance gains of computer technology are such that they will soon drop in price. Eventually, they will become as common as video recorders, and television will never be the same again.

For owners of PVRs always say two things: they almost never watch live television and they never, ever, watch any adverts.

 

Since the PVR makes it easy to record all the programmes you might want to watch later, you can always have a stack of decent programmes waiting for you. And when you do watch the programmes, it is a doddle to skip through the adverts. This has annoyed US industry heavyweights such as Turner’s Jamie Kellner. Skipping commercials is theft, he says. “Your contract with the network when you get the show is you’re going to watch the spots. Any time you skip a commercial... you’re actually stealing the programming?”

 

A batch of US companies, including Disney, NBC and CBS, have now sued a PVR manufacturer, SonicBlue, for making a device that automatically skips adverts - the viewer doesn’t even have to fast-forward through them. Everybody expects SonicBlue to win.

 

But if nobody is watching the adverts, the advertisers will surely stop paving for them, and the money that funds television programmes will vanish.

 

Anybody want some shares in ITV companies?

 

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