TiVo success rattles TV industry

LOS ANGELES -- When Lexus adapted a TV ad campaign for users of TiVo, the digital video recorder, the automotive company and its advertising agency knew they were entering new territory.

After all, TiVo is designed to let viewers skip commercials. Here was an attempt to turn expectations on their head.

Lexus says its one-month campaign on TiVo, which offered a chance to win a new car, drew a response from nearly one-quarter of all 280,000 TiVo subscribers.

By comparison, regular TV advertising is usually considered successful with response rates of less than one percent.

"We're extremely ecstatic," said Mike Wells, vice president of marketing for Lexus, the luxury division of Toyota Motor Corp. "A lot of companies see TiVo being a negative thing. We see it as an opportunity."

TiVo Inc. of Alviso, Calif., along with rivals SONICblue Inc. of Santa Clara, Calif., and Microsoft Corp.'s Ultimate TV, threaten to redefine the ground rules for the $59 billion television industry.

"A lot of advertisers and broadcasters are in a great deal of denial," said Tim Hanlon, a vice president and director of Starcom MediaVest Group, a media agency in Chicago.

Personal video recorders house hard drives that store hours of programming. They can be easily customized using built-in, constantly updated TV schedules, to record shows so the consumer -- and not the networks -- controls viewing times.

Owners of one of the newest PVR models can even share programs over the Internet.

Not only does the technology allow viewers to decide exactly what they watch and when, it also allows them to pause live programming and skip commercials altogether.

By allowing users to digitally record copyrighted programming, it also raises the prospect of widespread theft of content -- an issue that already has hamstrung the online music industry.

But personal digital video recorders also offer tremendous power to marketers if used properly. The technology can report intimate details of consumers' viewing habits, which broadcasters, content distributors and advertisers could use to direct tailored messages.

"What Lexus has done, I think, is indicative of what most marketers need to do," said Hanlon, who has advised some of his own clients, including the Miller Brewing Co., to adopt similar campaigns.

Effective for client

The ad agency for Lexus, Team One Advertising, a division of Saatchi and Saatchi, worked with TiVo to create special software to run the ads.

Viewers called up the spots on their TiVo boxes from the menu of recorded programs, then submitted answers about the ads on a Lexus Web site for a chance to win a Lexus ES 300 sedan. More than 64,000 responses were received before the campaign ended Dec. 14, Lexus said.

So far, Lexus is the only company to try to adapt the TiVo platform for its own needs.

Eric Scheirer, senior analyst with Forrester Research Inc., calls the technology "inherently threatening" to broadcasters.

"Once PVRs become mainstream, ad agencies will start to question whether TV ads are the most effective way to spend clients' money," he said.

While NBC and ABC declined to discuss the effect of PVRs on their businesses, CBS said any talk of fear is over exaggerated.

While there's no industry consensus on this number, there is agreement that the upside for networks could be detailed data about the viewing habits of PVRs users.

"There will be targeted advertising like you've never seen before," said Kenneth Potashner, of SONICblue.