For a while, it looked like PVR would deal the killer blow to an already staggering ad industry. But it didn't. Does that mean PVR will never be a threat? It depends on who you listen to, Alex Benady discovers.

In the gory, masochistic fist fest that is Martin Scorsese's boxing film Raging Bull, the hero Jake La Motta, played by Robert De Niro, decides the path to victory lies in assuming the role of a human punch bag. His strategy is to soak up all the punishment his opponents can dish out, but somehow stay on his feet.

Over the past decade or so, the ad industry has taken a series of beatings that would make La Motta proud.

Thwack! The growth of multichannel TV. Jab! The threat from management consultants. Jab! Tobacco advertising legislation. Left hook! The threat to advertising junk foods. Right hook! The growing power of clients. Uppercut!

Increasing consumer resistance to advertising's smooth-tongued blandishments.

But, bloodied, dazed and a little confused, the industry remains standing.

But fate, as ever, has a horseshoe in its glove and it is shaped like a personal video recorder. This invention, we were led to believe, would deliver the knock-out blow by allowing an ad-adverse public to skip commercial breaks altogether.

When the first PVR was launched by the US-owned TiVo in March 2000, the consensus, in the media at least, was that the industry might as well throw in the towel. But, to everyone's amazement and relief, far from a killer punch, all TiVo delivered was a feeble, limp-wristed slap.

It was complicated to explain, badly marketed and almost laughably expensive.

Not only did you have to pay £299 to acquire a box, you needed the interest from £3,000 in your deposit account to pay off the ongoing £10 a month subscription fee. Sales never exceeded 40,000 and TiVo slunk back across the Atlantic with its tail between its legs.

But, of course, the threat hasn't gone away. Instead, the role of bringing PVRs to the mass market has been assumed by BSkyB with its Sky + box.

Reactions to date have been mixed. There are those, including many of the agency chiefs spoken to for this article, who point out that ad avoidance is nothing new. And, in any case, they say, total sales of PVRs in this country are just 200,000 four years after they were launched. In the words of one agency chairman: "The threat, if indeed there is one, is many, many years away."

On the other hand, there are those such as professor Mark Ritson of the London Business School who argue that although at first glance Sky + is just another TiVo, it would be an error for the ad industry to suppose that it is going to fail, or that its impact lies in the distant future.

"Sky is a highly skilled marketing organisation that has, not once but twice, successfully introduced radical new media technology. That's why it has the best word of mouth for a technology product since Google." To which he might add, Sky also has a captive market of seven million customers and deep pockets. "Sky + has fast forwarded the TiVo debate by about five years," Ritson concludes.

So, who is right? Are PVRs a distant irrelevance or an imminent threat?

While peering into the future is necessarily an imperfect art, a body of evidence is slowly emerging that points to a consensus about the likely medium-term impact of PVRs on the consumption of TV advertising and hence the ad industry.

The total effect on ad consumption depends on the percentage of homes with a PVR; the amount of viewing that is time shifted within each home and the proportion of that time-shifted viewing that fast forwards through the ads.

Currently, only about 0.8 per cent of households have PVRs. But Sky is committed to doubling its current level of about 150,000 subscribers by June. It is spending £20 million on advertising to ensure it happens and there is no reason to suppose sales will not continue at a similar rate after that, Mark Bignell, the head of TV buying at OMD, says. "This isn't just about a new-product launch, but Sky's entire business. It's reached a plateau in subscriber numbers, so the only way for it to grow is to extract more money from existing subscribers. Sky + is excellent at that. It has promised the City and it tends to deliver on its promises."

Sky, however, isn't the only company in the market. There is a huge head of steam building up in the consumer electronics industry behind PVRs.

Philips, Panasonic and Sony are all working on versions. And Pace, which supplies set-top boxes to Freeview, already has its own model on the market.

All the evidence points to the fact that we are at a tipping point in PVR ownership, forecasters say. The market research company Datamonitor estimates that more than a quarter of UK homes will own a PVR by 2007.

Mediaedge:cia says that figure will arrive in 2010.

Starcom MediaVest predicts that 30 per cent of households will own PVRs by then, while PHD reckons that as many as 50 per cent of homes could have one by 2010.

Of course, not all PVR homes will avoid all ads. In fact, ads can only be avoided by fast forwarding recorded programming.

Justin Gibbons, the director of strategic services at PHD, believes that we are embarking upon a paradigm shift in the way people consume television, away from passive consumption to much more active management of what they watch. His research suggests that just 4 per cent of ads are currently avoided in Sky + homes, although he expects future levels of ad avoidance to be "far higher".

MediaVest, meanwhile, puts current levels of ad avoidance at around 35 per cent in Sky + homes. "With the caveat that all current information is by definition for early adopters who tend to like technical features and may well be intoxicated by novelty value, we estimate that viewers with PVRs avoid a little over a third of advertising," Jim Marshall, the chairman of Starcom UK, says.

Even Sky, which you might expect to play down the impact of its new box on advertising viewing, is predicting substantial declines in advertising eyeballs. "Our research shows that people watch 28 per cent fewer ads, but 20 per cent more television, which leads to an overall decrease in advertising consumption of 17 per cent in Sky + homes," Brian Sullivan, the director of new-product development and sales for Sky +, says.

"But there's no corresponding decrease in advertising awareness," he adds. This counter-intuitive finding is supported by research carried out by MindShare, which found advertising recall in Sky + homes "only marginally down".

These figures suggest that the likely overall reduction in the consumption of television advertising due to PVRs will be somewhere between 5 and 10 per cent by 2010, rising to as much as 25 per cent, possibly as early as 2015, when PVRs will be the norm.

On the face of it, this is very bad news indeed. But television advertising accounts for slightly more than a quarter of adspend in the UK. So even in what some have called "the doomsday scenario", we are talking about effects on a quarter of a quarter of all advertising. While undoubtedly damaging, this suggests that PVRs won't be quite the cataclysm for the ad industry that many fear.

Certainly, the income implications for ad agencies don't seem particularly frightening, for the foreseeable future at least. For one thing, smaller advertising audiences don't automatically mean less money spent on TV. "There may be a reduction in advertising consumption. But it doesn't necessarily follow that a fall in TV advertising consumption will inevitably lead to reduced TV spends, fewer campaigns or fewer ads being made, for that matter," Derek Morris, the chief strategic officer of Publicis, argues.

And even if TV spends were slashed, the decline of the commission system provides some insulation for agencies from fluctuations in any one medium.

"These levels of change are unlikely to have a dramatic effect on revenues for creative agencies, as we tend to work on fees," Chris Pinnington, the chairman of Euro RSCG London, says.

"Even if we do less TV work, clients still have to communicate with consumers, so we will find other ways of capturing eyeballs and revenue."

Similar arguments apply to media agencies, most of which claim these days to be thoroughly media neutral and therefore say that they too are indifferent to which media and channels they plan and sell. "The only danger is if budgets start to leak out of the marketing communications system altogether. But brands are growing more, not less, important so that seems unlikely," Michael Baulk, the chairman of Abbot Mead Vickers BBDO, says.

But perhaps the picture isn't quite as rosy as the Panglosses of agency management would have us believe. Television provides agencies with very useful income outside the main body of their remuneration. In a classic display of adland bitching, several creative agencies helpfully pointed out for this article that: "The media agencies do make a lot out of kick-backs and over-riders from TV, which are unrelated to fees." Their media agency confreres meanwhile, anxious as ever to get to the truth, pointed out that "creative agencies make massive mark-ups on TV production".

It is clear that that television is disproportionately important to the agency world.

The danger is not that ad agencies will go bust, but that some demographic groups and areas of the schedule may become much harder to reach.

"I suspect that PVRs will create a hidden hierarchy of programming and channel types, with some parts of TV virtually unscathed and others hit very hard," Gibbons says. "The bigger the show, the bigger the likely drop off," David Fletcher, the head of research at MEC, warns.

The same principle applies to audiences. "The impact will vary across different audience types and age ranges. Young people are going to take to this with a vengeance while it's probably too late to learn new habits for many older viewers," Marshall says.

In fact, it is the TV channels and not the ad agencies that are most likely to be hit hardest. Paradoxically, it is the best programming that is likely to be most affected by PVRs. "Why would anyone record crap?" Gibbons asks. In his view, time shifting and, hence, ad avoidance are likely to be concentrated on soaps, dramas and film, while event television, big sporting events, news, daytime and anything involving the need to view now will get off lightly.

"The problem is that they are the mainstays of the schedules. One could imagine a situation where the stations have to start cutting back big investments in programming," Gibbons says. Advertising consumption in major programmes may be hit, but it could be the smaller channels that suffer the biggest decline in viewers. "Time-shifted viewing is likely to be watched instead of weaker programmes. So some of the channels with less distinctive output could go west," he argues.

For agencies, the entire debate about PVRs and how they should react is not something qualitatively new, but merely a sharpening of the trends and problems that the industry is already grappling with, agency thinkers argue. "PVRs will not be a killer in themselves but they will compound the existing difficulties in finding a mass audience," Bruce Haines, the chief executive of Leo Burnett, says.

Agencies will simply have to become better at what they do and develop new tools to cope with the complexities of post-PVR TV. "Media agencies will have to become more sophisticated in their analysis. We'll have to stop assuming uniform audiences and start looking at sub-audiences, each with their own different types of behaviour. We'll have to develop new types of trading currency. I suspect TV will end up being bought more like press," Mark Palmer, the managing partner, strategy, of OMD UK, says.

Creative agencies meanwhile say that PVRs should be a spur to better and perhaps new forms of advertising. "They will place a greater premium on creativity in both the broad and narrow senses," Morris argues. "It will mean that ideas that can run in all communications channels will become even more important. It also means that the 30-second ad is going to have to sharpen its act. Repetitive low-involvement, low-interest commercials will be history."

On the one hand, this should lead to more spectacular, must-see commercials, such as the latest Pepsi commercial with Britney Spears, Beyonce and Pink as gladiators, more entertaining ads and more interactive ads and, on the other, new genres of advertising such as infomercials that can be called up at the viewer's request.

Agencies will also have to master some new skills - chief among them being the ability to work closely and form real alliances with other companies - both in other marketing communications disciplines and new offerings such as content creation.

To date, even the industry admits it hasn't done much to prepare for the effects of PVRs. "We are often guilty of lazy conservatism," Haines admits.

But then advertising is an industry in which a large slice of an agency's business can walk out of the door, virtually overnight with one phone call. "We tend to plot scenarios and then leap at the last minute." Just like Jake La Motta.


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