You don't have to be a brilliant market sleuth to see that there's a digital revolution brewing in the entertainment industry. It's also quite obvious that the old guard doesn't like that idea very much. But here's another early sign that the incumbent media businesses are indeed trying to adapt to the new, consumer-friendly reality.
The major TV networks are now negotiating advertising deals based on time-shifted audience ratings. So far, CBS
This is a big deal to many companies in the entertainment sector. It's obviously validation for TiVo's technology, as the content providers have decided that DVRs now play an important part in the end-consumer market. According to Nielsen, 17% of American households have one today, and that number is growing fast.
For the networks and advertisers, it's a concession to market forces. Last year, some ad contracts were never signed because the TV networks refused to take DVR figures into account. On the flipside of that coin, other deals never happened because major advertisers didn't want to pay full price for airtime that would almost certainly be skipped by a small but significant part of the audience.
This is a $9 billion business annually, and the top five advertisers -- led by No. 1 Procter & Gamble
Instead, marketers are coming up with other ways of conveying their messages, hopefully ones that are harder to skip. Product placement is one golden oldie making a serious comeback. Coca-Cola
How now, show wow?
Fox's talent show So You Think You Can Dance provides a good example of the time-shifting economics. On May 24, 8.6 million viewers watched one episode live -- commercials and all -- and another 994,000 fired up their DVRs within three days of the broadcast. But two-thirds of the time-shifters skipped over the commercials.
Still, that meant 324,000 extra pairs of eyeballs for those commercial breaks, for a total revenue-generating audience of 8.9 million. That's a 4% increase that would have been lost entirely if those viewers didn't have a recording device at all.
For some shows, the difference is even more dramatic. NBC's The Office, which appeals to a tech-savvy audience more likely to own and use a DVR than the average American, adds about 12% to its commercial audience when you include time-shifted views that did not skim over the ads.
I'm one of the DVR users the networks don't want to see, zooming past the ads at every opportunity and watching almost everything either from DVR recordings or on-demand channels. Live TV is becoming extinct in my house, though that might change when football season starts again (go Noles!). And sports is indeed the one kind of programming where industry executives don't think digital recorders will have an impact, so those events still get their ad rates negotiated on old-fashioned live data.
For the rest, it's a brave new world. Buena suerte, folks.
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Fool contributor Anders Bylund owns shares in Walt Disney and Coca-Cola, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure will make your day, every day.