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TiVo Pauses Fast-Forwarding

This article was updated on Nov. 23, 2004 to clarify users' two-step process for opting into advertising via Tivo.

One of the beauties of DVR systems such as those offered by TiVo (Nasdaq: TIVO  ) , Echostar (Nasdaq: DISH  ) , and cable provider Comcast (Nasdaq: CMCSA  ) is getting the television program you want when you want it. Insipid, annoying commercials can be bypassed with a click of the fast-forward button. Same with watching a movie on DVD or one that you've recorded on video. Hello, feature; goodbye, condescending commercials. Heck, just flipping through channels during commercials provides a feeling of superiority over advertisers.

TiVo, a Motley Fool Stock Advisor selection, is quickly realizing that the fast-forward feature is a problem for its service, which is increasingly supported by advertisers. TiVo is trying to balance the competing interests of companies that want to put their product in front of its estimated 2.8 million subscribers against those of viewers who couldn't care less about them. To this end, TiVo is introducing a static pop-up ad -- a "billboard" -- that will freeze on the screen as the user skips past the ad. Called a "fast-forward tag," advertisers can pay for a logo or other image to display while viewers otherwise ignore their ads. (They can't buy a tag during a competitor's spot.)

While it does offer advertisers a way to keep their company in front of a viewer, it shouldn't take them long to wonder whether it's cost-effective to advertise through TiVo in the first place if viewers are skipping the ads or why they should have to pay twice for the chance to advertise their wares.

TiVo has gained in popularity, particularly as the price has dropped from $400 two years ago to $99 this holiday season. The number of households with TiVo is expected to increase from 5% to 41% in five years.

Though it has been marketed as a way to watch television commercial-free, TiVo has apparently been working behind the scenes from the beginning to incorporate advertising into the service. Already viewers are able to click on a "thumbs up" logo that is displayed during an ad if they want to receive more information about the product. It plans to offer true interactive viewing -- what it's calling "couch commerce" -- through contests, giveaways, and links to other ads. By opting in through a two-step process of selecting the promotion with the remote and then consenting to be identified, the viewer's contact information is downloaded to that advertiser to permit even greater targeted marketing opportunities.

While technology exists to allow viewers to avoid commercials altogether (privately held ReplayTV had this capability until it bowed to the demands of the entertainment industry and removed it) TiVo has always restricted viewers to fast-forwarding through them. The new technology is built into the system itself and has some wondering whether it might not lead to the company eliminating the subscription fee altogether in order to bring in more viewers, or else risk alienating those who subscribe to be able to avoid commercials.

"TV Your Way" may be fast-forwarding to become "Advertising Their Way."

Fool contributor Rich Duprey watches only commercials featuring the Coors Light twins. He does not own any of the stocks mentioned in this article.

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