Selling Life Jackets on the Titanic: How TiVo Is Cashing In on the Interactive Age

Editor's note: Davis Freeberg is a TiVo shareholder.

by Davis Freeberg

I'll never understand why, but every year advertisers pick May to set the rates that they are going to pay for their next season's shows. This inevitably leads to a lot of cliff hangers and a sudden end to the television season. Almost instantly I go from having TiVo storage space anxiety to needing to upgrade my monthly Netflix plan because there's no damn good TV on. Despite my objections, nonetheless, this is a key time for advertising executives everywhere.

What's different this season though is that DVR technology seems to finally be turning the corner from yuppie early adopter toys to mainstream usage. With DVR penetration rates estimated to be at 12% of TV viewers and with it expected to hit 18% by the end of the year, advertisers are now beginning to finally ask themselves what it is exactly that they are paying for. On April 27 & 28th TiVo kicked off their own advertising road show and iMedia Conection has a podcast of Davina Kent, TiVo's VP of National advertising giving a detailed presentation about how TiVo intends to utilize their advertising platform in the wake of a new TiVonation.

During her presentation, Kent pointed out that TiVo's 4.4 million subscribers actually represent over 9 million individuals. Yep, imagine that, TiVo's not just for the single guy anymore. Interestingly enough, of these 9 million people there seems to be a little bit of a demographic difference between subscribers who have hooked their TiVo's up to broadband vs. those who haven't. In households with broadband enabled TiVo, TiVo's median household is 3 people vs. 2 people for subscribers who don't hook theirs up. Now I don't want to read too much into this, but between the recent "Kid Zone" announcement and now this stat, I'm getting a little freaked out. I might just leave mine unplugged until I'm sure I'm ready to make that kind of commitment.

One of the things that Kent was very clear about was that TiVo's vision hasn't changed. What it all "boils down to" is that TiVo is still all about being "the best way to watch TV." TiVo doesn't want to clutter up the television experience, they want to enhance it.

"The consumer is in charge and we need to respect that," said Kent. "Our consumer satisfaction rate is very high and if you respect that and remember that they're the ones who decide, not the networks, not the advertiser and not us, TiVo, then they actually will interact with your advertising on their own time."

What I really like about Kent's statement is that it emphasizes TiVo's use of opt in advertising. If you don't want to interact with the ads, you don't have too. It's up to the advertisers to give you a reason to be there. This of course flies in the face of the typical advertiser strategy of the past 50 years of bombarding you with commercials whether you want to see them or not. It also means that more creative advertising needs to be done (we all watch the SuperBowl commercials, right?) and that certain products will most likely have an advantage over others (yes, maybe I want to watch a slick new commercial on the hot new Lexus coming out but I might feel differently about the hot new adult diaper coming out).

Kent said that according to TiVo's data that about 70% of what TiVo owners watch is time shifted and that TiVo owners tend to fast forward about 70% of the ads when viewing pre-recorded content. With past advertising experiments TiVo has found that the best way to reach TiVo Shifters is when TiVo's interactive ads are used in conjunction with a television commercial spot. This helps to drive traffic to the expanded advertising that TiVo has developed. Kent said that the average TiVo household makes "something like" 357 clicks per day. With 4.4 million households, this works out to be over a half a billion clicks every single year. [Correction: this works out to be a half a trillion clicks per year!] No wonder my fast forward button wore off on my remote. All of this clicking offers advertiser a unique opportunity to latch onto the active nature of watching TiVo vs. the passive nature of traditional TV.

During the presentation Kent demoed TiVo's new "product watch" and mentioned that at the time, they were debating between calling it "Ad Search" or "Products By Request." I personally don't think I would have gone with either of those names myself, but both are still better then product watch. Product watch sounds so impersonal. Personally I would have gone with the Advertainment Spotlight, (hint, hint, TiVo) but a rose by any other name...

During the demo of the Advertainment Spotlight Kent said that most of the content being produced for TiVo is ranging between 2 - 6 minutes in length. TiVo's testing showed that subscribers preferred being able to watch the longer content over the 30 seconds spots that run on the air today. This preference gives an advertainer the ability to create a more significant brand impression, but also requires that they be unique and entertaining (again think big SuperBowl spot creativity guys).

Kent touched very briefly on some of the couch commerce initiatives that TiVo is also building which would allow advertisers to push their advertising from brand awareness to actual on the spot sales. She highlighted the ability for customers to purchase tickets from Fandango, for instance, and confirmed that TiVo owners will actually be able to order a pizza when the Pizza Hut commercial airs.

Kent also ranked the interactive applications that TiVo customers use the most in popularity. They've found the most success with their games, the Oscar voting application, Yahoo! weather, Live 365, podcasts and movie tickets. The games that TiVo offers are pretty simple, not exactly competition for the XBox 360. One is called same games and works like connect four and the other is called mind reader and is a 20 questions type program. When CNET Games asked about them, Kent described them as passion projects for TiVo software engineers and that they would welcome the opportunity to work with outside developers for more content.

Kent also mentioned that the company is considering how or if they want to include advertising for podcasts. She said that the company hasn't made any decisions about podcasts yet, but that they are trying to weigh the rights of content owners vs. TiVo's desire to give advertisers access to the longtail. I'm not sure how this will end up working out, but in my opinion, I would think that anything visual should certainly be fair game for TiVo to work with, but that I would be less comfortable with having TiVo interrupt my podcast every 10 minutes with a commercial break.

All and all it is interesting watching TiVo as the vanguard of where advertising is headed on your television. Advertising, ironically enough for an ad zapper, is probably more important to TiVo than just about anything for them right now. While TiVo makes far more money from a standalone subscriber, the explosion of TiVo users in the years ahead are more likely to come from the major cable deals that they are striking with folks like Comcast (and many more surely to come shortly). In these deals TiVo makes much less money per subscriber but is entitled to valuable advertising revenue from a far greater audience. The right cable deal could quickly turn TiVo's 9 million viewers to 18 million and 36 million and well, now were talking more than monkey peanuts. This is actually pretty exciting to me and I like having a gatekeeper to our living that still feels that as Kent put it, "remember that they're the ones who decide, not the networks, not the advertiser and not us, TiVo."

Editor's note: Uh, ok Davis, whatever you say, that's all good and fine, uhhhh, now when's that Series 3 Box coming out again?