Direct response TV marketing depends on two things: An inventory of inexpensive airtime and an audience capable of being surprised to find that yes, they actually do need that all-in-one screwdriver set or miracle skin cream. But trends coming in television over the next few years may lead a lot of DMers to decide that, in fact, show business has no place for them anymore.
One factor already putting pressure on marketers is a change in viewing behavior due mostly to the growing use of personal video recorders (PVRs), which are in about 40 million U.S. homes today. That figure includes both the subscription TiVo service, with 4 million customers, and the more numerous unbranded set-top boxes with built-in PVR capabilities offered by cable and satellite operators.
Research shows consumers like PVRs for one big reason: The ability to zap ads. A December 2005 survey by WPP Group’s Mindshare market research division found that while 90% of PVR users valued the ability to time-shift their favorite programs, almost as many said they liked skipping commercials. A 2004 Lyra survey found that a third of PVR owners deliberately watch 60% to 100% of their programs on delay so they can zip past ads.
That’s a large share of the viewing market that is almost unreachable, and it’s got the ad community so up in arms that TiVo and cable operators such as Comcast have been moved to try making peace with advertisers and agencies. In March 2005, TiVo began testing a “tag” system that placed a marketer’s brand or offer over part of the screen when users fast-forwarded past a spot.
TiVo is preparing to roll out a much more ambitious ad-friendly offering this spring: “searchable” commercials. According to Davina Kent, TiVo vice president for national advertising sales, users will set up a profile specifying what product categories and brands they might be interested in seeing ads for. Those ad files will download automatically to a special TiVo folder, to be opened and watched at the person’s convenience.
“Our experience has shown us that consumers are interested in relevant advertising on their own time, as long as they’re still in control of their television viewing,” says Kent. “Advertisers may use the service to break out of the 30-second spot and offer longer formats that are more valuable to the viewer. And since viewers are choosing to open the ads, they’re more qualified for the advertiser’s offer.”
Because TiVo will be able to know how many viewers opened an ad file and even how many watched it to the end, the company is mulling a performance-based fee structure for these ads — a kind of pay-per-click model for TV ads, Kent says. That could bring those ads within the price range of at least some direct response advertisers.
“The beauty of the system is that it’s all measurable,” Kent says. “We can track what search profiles are set up, what downloads are made, how many viewers they have, all of which allows an advertiser — especially a DR advertiser — to determine return on investment.”
But Robert Medved, president and media director of Cannella Response Television, doubts that searchable ads will be effective for direct marketers. “Basically, in the DRTV world, we’re appealing to a customer who’s bored,” he says. “They’re not actively looking for an abs product or a course on how to make a million in real estate. DRTV exists in a space where people have down time, and their brains are fried, and they’re flipping channels or surfing the Internet looking for something to do.”
Ad-zapping isn’t the only static in the future. The advent of addressable ads — commercials targeted to specific subsets of the TV audience — may ruin the DR economics by squeezing prices upward. Cable companies have begun to realize that the households they serve may be more useful to advertisers in segments rather than en masse. So they’re experimenting with insertion techniques that let them divide those markets into more meaningful demographic groups and insert commercials customized for those buyers.
In 2004, Comcast’s Spotlight ad arm collaborated on an addressable campaign that sent specially tailored 1-800-Flowers.com ads to 3.4 million Los Angeles homes. Affluent users saw a spot depicting flower arrangements costing $100 and up; less wealthy households saw one featuring $20 bouquets. The test nearly doubled the average number of orders to 1-800-Flowers in that market and spiked average order size.
But for DRTV marketers, addressability offers both pluses and minuses.
“On the upside, if I aim my commercial at the appropriate household, my response rate should go up, just like a direct mailer selecting the right mailing list,” says Tom Alison, executive vice president for strategic business development at SendTec, an integrated marketing agency that handles both DRTV and online advertising. “The downside is, targeting and addressable anything is more expensive than mass and cheap. And two-thirds of the reason DRTV works is mass and cheap. Targeting changes the economics, and not in favor of DRTV.”
The ability to target TV ads may also boost competition for ad slots and thus cut back on the inventory of remnant airtime available to direct marketers. While neither Alison nor Medved sees this happening in the next five years, beyond that, increased competition for addressable ad slots could push many of today’s DRTV marketers off the air.
“Right now, the cable TV industry itself is fragmenting to survive,” Medved says. “As that space becomes even more fragmented by the use of addressable ads, you will get players coming in who are less concerned with making money strictly off the ad and more with supplementing an overall campaign. That will affect the true direct marketer, because he won’t be able to compete and pay those rates.”
Alison agrees. “If we start controlling the commercials a household sees and make ads totally or even partly independent of the programming they’re watching, some of today’s low-cost avails may become prime time. In a household that sees limited television but only watches at 1 o’clock in the morning, a marketer might be willing to pay prime-time rates to reach that person.”
However, the picture isn’t all fading to black. If the TV half of DRTV seems likely to put future marketers in a bind, innovations in the response channel may actually help them survive. In particular, direct advertisers may benefit as order fulfillment migrates from call centers to the Internet. Most DRTV ads involve two-step offers: A viewer is led to contact the merchant for a fulfillment package — for example, a product videotape — before buying. But with the wide availability of high-speed home broadband, response ads can now send consumers to a URL instead of the phone. There, a well-designed Web site can offer them video, audio, Flash animation or applications that help convert them to a sale.
“When I was EVP at NordicTrack, we spent $5 million a year sending out videocassettes,” Alison says. “Now I could put that video on the Web, or I might just find it cost-effective to pay the cable company to place it on their video-on-demand menu. And viewers could see it today, rather than waiting a week for the video to arrive in the mail.”
There’s a negative side to the Internet as fulfillment center, of course. A consumer may get a look at your competitors’ search ads, find a better price for your product, or stumble onto a (YourProductHere)Sucks.com Web site. And without a live operator to upsell prospect, marketers will have to make sure their basic $19.99 offer is a profitable one.
But overall, Alison says, these developments are giving DRTV marketers more than the changes in TV’s front end are taking away.
“Entrepreneurs will always find ways to use new technologies to sell people something,” he says. “When they do, those techniques will get picked up and dispersed by other marketers and by agencies. We will just have more and newer arrows in our quiver, and we’re going to have to learn to shoot with them.”
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