The death of the 30-second TV commercial
Devices like the new Apple TV box and digital video recorders from TiVo, Motorola and Cisco could help bring an end to the traditional TV ad.
NEW YORK (CNNMoney.com) -- It has already revolutionized the music business with its iPod device and iTunes music store. Now will Apple help kill the television's industry historic reliance on the 30-second TV commercial to help pay the bills?
Apple (Charts) is expected to begin shipping its new Apple TV device sometime this week. The product, in theory, should make advertisers nervous since it will allow consumers to easily transmit TV shows purchased on iTunes (which do not include commercials) from the iTunes library on their computer to their TV set for viewing there.
Experts aren't convinced that Apple TV will be as big of a hit with consumers as the iPod was right off the bat -- after all, people have to pay for a TV show they could see for free on network TV. But devices like Apple TV, along with digital video recorders made by the likes of TiVo (Charts), Cisco Systems (Charts) and Motorola (Charts), are rapidly changing how people watch television.
"There's no question that one of the problems with the traditional 30-second TV ad is digital video recorders. The whole market is under threat from TiVo-like functions. And it's going to get easier to avoid commercials with Apple TV," said Tim Wilson, a general partner with Partech International, a venture capital firm that is looking to invest more heavily in online video and other forms of new media.
Advertisements during TV shows, long considered a nuisance by many consumers, are no longer required viewing.
"The role of advertising is shifting. It's about giving consumers control of what they want. Apple TV and other devices are clearly doing that," said Mike DiFranza, the chief executive officer of Captivate Network, a company owned by newspaper publisher Gannett (Charts) that runs ads on digital screens placed in elevators in office buildings.
As such, many marketers that are still interested in advertising during prime-time television are being forced to think of different ways to reach consumers.
"The ad industry is changing," said Jeff Binder, senior director for connected home solutions with Motorola. "The 30-second mass spot is probably ten years from being extinct. Almost all advertising a decade from now will be addressable. Consumers may opt-in for certain commercials."
Technology is wreaking havoc on the traditional TV business model. Typically, networks and advertisers meet during May to have so-called "upfront" negotiations in order to hammer out ad prices for the next TV season.
This year, as was the case last year, there is expected to be a debate regarding what ratings figures should be used to set commercial rates. The big networks will argue that figures which include DVR viewers should be used since that shows a larger audience. But major advertisers are likely to contend that DVR viewers are not as valuable since many of them skip through commercials.
Last spring, the top broadcast networks took in an estimated $8.9 billion to $9 billion in upfront ad spending for the 2006-2007 TV season, down from $9.1 billion for the 2005-2006 season. This year, upfront commitments could fall further.
And spending in the so-called scatter market, which is ad inventory that is not sold during the upfronts, may not be enough to lead the networks to a big overall gain in ad revenue this year.
According to figures from research firm TNS Media Intelligence, network TV ad spending is expected to increase by just 0.6 percent in 2007, following a 2.5 percent jump last year.
And it may only get worse for the big networks. Advertising experts said that the TV business faces many challenges ahead and that advertisers realize that there are more effective ways to spend their marketing dollars, be that through online media or even "old" media like outdoor advertising.
"We live in a sound bite society and people want to pick up information and advertising when it's convenient, be that in an elevator or sitting on the train looking at their Blackberry," said Captivate's DiFranza.
"When people are sitting down at home to be entertained, there probably is a higher inclination to focus more on the show and less on the advertising. It is fascinating to see what's going on in the media industry. Consumers have taken control," DiFranza added.
Partech's Wilson agreed. He said that one big problem for the TV networks as well as advertisers that are hoping to get their message across on primetime TV shows going forward is a shorter attention span for many viewers.
The beauty of online video is that it allows people to watch short video clips, not hour-long or even half-hour TV shows. With that in mind, advertisements might need to get shorter, as well...or at the very least, more relevant.
"People are eating content in bites instead of big dinners. The 30-second ad comes under pressure when you snack instead of consume a meal," Wilson said.
But Motorola's Binder said his firm is working on ways to incorporate advertisements into programs stored on a DVR. That could take the form of banners or billboards that pop up when people are zooming past traditional 30-second commercials as well as ads that are more targeted based on which show is being recorded.
"Technology will allow the ad industry to morph so you don't just have blind fast-forwarding," he said.
To that end, one media buyer said the key is for advertisers to make sure that commercials are more relevant to an appropriate audience and less about reaching a mass audience. Viewers may feel less of a need to skip commercials if the ads are actually for something they want.
"There's more niche programming so aligning creative messaging with appropriate content will be a big win for advertisers in the future," said Jen Soch, vice president and group director of advanced TV with MediaVest, a media buying firm. "The 30-second commercial is certainly at a changing point but it's still an extremely viable business option for advertisers."
In addition, the major TV networks could wind up not losing that much in the way of ad revenue as long as they continue to focus on putting more of their shows on their own Web sites with commercials.
Brad Adgate, senior vice president of corporate research for Horizon Media, a marketing and media buying firm based in New York, said that advertisers are increasingly finding that online commercials can be an efficient way to reach more affluent customers that are likely to watch TV online.
"There is an appeal to broadband video. People do have tendency to watch shows online close to the original air date and there is an acceptance of the commercials since the content is free. There is some value there," he said.
Still, it could be a rocky couple of years for the TV networks since the increase in broadband spending isn't expected to offset the decline in traditional spending for some time. As such, Adgate said he expects ad spending during this year's upfront TV season to be slightly lower than last year.