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DVR Threat Gets Downgraded

Madison Avenue can breathe easy, at least for a while. New research suggests that the overall impact of digital video recorders (DVRs) may not be as bad as everyone thinks.

That seems to be the takeaway from separate studies that have quietly been circulating from Nielsen, a major media buyer and the ad industry’s leading trade groups. Their major shortcoming is that they are still largely guesswork, based on scenarios derived from crude data and assumptions about how people use DVRs.

For example, even Nielsen doesn’t know what the current penetration of DVRs actually is. In a massive report issued Aug. 31 to help major advertisers, agencies and networks prepare for the introduction of DVR households into its national TV ratings sample in January, the ratings giant estimates that the technology will be available in 8%-12% of U.S. TV households. It estimates that penetration will be 12%-24% by 2007.

Slower Growth Than Predicted

Last week, big media-buying shop Magna Global USA issued a similar report suggesting that the rate of DVR penetration has actually begun to ebb from earlier projections. The report, an update to a quarterly tracking study, forecast that DVRs will likely grow to represent only about a third of U.S. TV homes, about the same as the pay-TV universe.

“New data points suggest DVRs will not grow as fast as widely anticipated,” concludes the report, noting that only a small percentage of satellite- and cable-TV subscribers are signing up for DVR services and that the rates are beginning to moderate for major operators.

Early DVR adopters tend to be heavy subscribers of pay-TV services, something that could impact audience shares when Nielsen begins factoring them back into its national ratings sample in January. To date, Nielsen has been excluding DVR owners as part of a subset of “technically difficult” households it was unable to measure until this year, when it began installing TV meters capable of measuring digital platforms like DVRs and video-on-demand. Because it has been withholding those homes, some believe that ratings for pay-TV services have been artificially suppressed. Nobody on Madison Avenue complained about this because they don’t buy ads on pay-TV channels anyway.

But when Nielsen begins adding DVR homes back into the national ratings, some believe, it could trigger a ricochet effect, with pay-TV audience shares surging and commercial channels eroding. But Nielsen appears to have a solution.

In addition to the pay-TV–centric DVR homes it will be adding into the sample, Nielsen told its customers, it will add a corresponding number of “replacement homes”: DVR homes that are lower users of pay-TV services than the early DVR adopters.

Under its current plan, between 180 and 200 DVR households will be introduced back into the national sample each month for the first six months of 2006, with 125 DVR households added each month for the remaining six. Nielsen has not indicated what percentage of its sample will be ultimately represented by DVR homes.

One thing is clear from the way Nielsen is adding the homes back into its sample: The impact on national TV ratings will be gradual and moderate. “In short, the results suggest that the likely effect on viewing in 2006 will be small,” Nielsen says. But dig beneath the surface, and big changes may be in store for some people on the fringe of the ratings. The study suggests that cable networks and network fringe dayparts could be particularly impacted.

The Effect on Commercial Ratings

According to Nielsen’s scenario for July 2006 ratings, the effect of “live” plus playback-DVR ratings on some dayparts and genres is enough to give media planners pause. While the overall impact on TV ratings will be a 0.5% increase over July 2005 ratings, some dayparts will rise considerably above that. Those for early-morning broadcast TV, for example, will jump 1.5%. Household ratings for movies will jump 3.4%. On the opposite end of the spectrum, ratings for “music” programming—a genre that covers CMT, Fuse and MTV2—will decline 2.9%.

Of course, the Nielsen calculations do not address an even more insidious concern for Madison Avenue: the effect of DVR viewing on commercial ratings. Nielsen’s report does not address this, but a study also released on Aug. 31 by the American Association of Advertising Agencies and the Association of National Advertisers suggests that the overall difference between program and commercial ratings is worth a second look.

“Overall, about 5% of the reported audience to a program is lost at the time of national commercial positions,” the report says. While the ad associations do not consider that an alarming figure, probably not enough to significantly alter media-planning and -buying patterns, they note that the study was based on relatively crude Nielsen data: only 60-second ratings intervals for cable networks and syndicated TV shows, 30-second ratings intervals for the broadcast networks.

Most important, the study is based on 2004 data, before Nielsen adds DVRs back into its national ratings sample.

Niche Networks

Still, the report reveals some interesting patterns among networks, especially niche cable networks: “Some of the differences call for further investigation.”

As an example, it points out that Hallmark and TV Land lose the least of their 18-49 audiences at commercials, with less than a five-point drop. MTV viewers, the report says, are the most likely to switch out, causing drops of at least 15% in all studied demos. And, in total day, Fox News exhibited about half the drop-off of CNN.