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Monday, July 31, 2006 - Page updated at 12:00 AM

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Advertisers face TiVo challenge

San Jose Mercury News

Tech-savvy couch potatoes have given TV commercials the cold shoulder for the past few years, ever since TiVo and its ilk unleashed the power to skip ahead and get back to the show.

Now advertisers are scrambling to figure out new TV advertising models in this age of complete viewer control.

Some advertisers are hoping a new breed of commercials will actually strike a chord with users of digital video recorders by tempting them to use the pause, fast-forward and rewind technology to see the latest creative twists in advertising.

Take, for example, a recent KFC commercial for its new Buffalo KFC Snacker sandwich, which contained a subliminal message and secret code that only could be cracked if played back slowly, frame by frame, with a digital video recorder.

Viewers could then enter the code (buffalo) on KFC's Web site to get a coupon for the sandwich. The company gave away 75,000 coupons.

Never mind that such ad campaigns have to practically become news stories to work.

The ad's secrets were so hidden that viewers wouldn't have known about them if KFC hadn't leaked the story to the media.

Still, it's clear that advertisers are going to make more of these so-called "DVR-ready" ads. What isn't clear is if these efforts will be successful enough to convince advertisers that television is still a good place to hawk Cadillacs and Dial soap. The challenge is how to appeal to the growing number of viewers with DVRs who are enjoying their TV commercial-free.

KFC is not alone in trying new approaches. In the past couple of months, Coca-Cola and General Electric have aired TV ads that contained hidden messages or scrambled entertainment.

And TiVo itself has launched several features to coax TiVo users to watch commercials about products and services in which viewers have expressed an interest.

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"We think about consumers and respect the fact that they are in control of television viewing," said Davina Kent, TiVo's vice president of national advertising sales. "We only choose things that are opt-in, meaning that they can choose to view on their own time."

For example, in a deal that blurs the line between commercials and programming, TiVo users watching an episode about the BMW M series on the show "Test Drive" will be able to stop the program at any moment to request and watch an ad about the BMW M series.

In its news release, TiVo said the ability to place ads with products in the show, which appears on the Speed channel this summer, "opens up more opportunities for advertisers to extend their in-program product integration."

Yes, those products that appear like silent supporting actors in sitcoms and TV dramas may soon come with ads a click away.

Subscriptions growing

Founded in 1997, TiVo popularized technology that allowed viewers to download TV programs to a hard drive and decide when they watch a television show. They can also zip past advertisements.

Now, more than 4.4 million households have TiVo subscriptions. Together with cable companies that also sell digital video recorders, 13 percent of households have the technology, according to Forrester Research. By 2008, Forrester predicts, 20 percent of households will have it.

It's always been a battle for advertisers to get viewers to actually watch TV ads. The remote control and the VCR both made it easy to jump around TV channels and duck the product hawking.

But DVR technology has taken ad skipping to a whole new level. One industry observer calls it "remote controls on steroids."

It's so easy and quick to skip ads that some studies show more than 50 percent of DVR users do it (which makes one wonder about the 50 percent who don't do it).

This has made it tricky for networks and advertisers to figure out how to price ads without reliable statistics to tell them how many people actually are watching programming vs. the advertising.

Nielsen and TiVo, which can measure second by second what people are watching, including advertisements, are working together to provide a more detailed picture. But so far, advertisers have balked at paying advertising rates that include the DVR audience.

"I'm not aware of anything that is particularly effective," said Allen Banks, executive vice president and director of media at the advertising firm Saatchi & Saatchi.

"Advertisers are trying a number of different things to utilize the technology. The reality is that if an advertiser is buying advertising on television, there's no win-win here," he said.

Banks pointed out that DVR technology works better for some products than others. "There are a lot of products that don't have a lot of pizzazz. It's just the stuff people consume. To suggest there are ways to use the technology is na´ve," he said.

But others are cautiously optimistic. "There hasn't been a technology invented that can't be leveraged for a marketing tool," said Don King, group director for Sprite, Coca-Cola, North America.

Model will be obsolete

As more households have DVRs, TV commercials as we know them, will become obsolete, say analysts. TV ad models might become more like Internet ads, where advertisers pay per clicks.

TiVo, too, has a strong incentive to become more advertiser-friendly. Growing competition from cable and satellite companies has put pressure on TiVo to cut the price of its device.

Far from seeing itself as an enemy of advertisers, TiVo has pitched itself as an advertiser ally.

Since TiVo receives information about its users' viewing and clicking habits, it can offer advertisers detailed research about how their ad campaigns are working — and the advertising also opens up new sources of revenue for the company, though TiVo won't say how much.

TiVo has introduced several ways people can watch ads beyond the ones squeezed between TV programs.

Viewers can visit its "Showcase" and see ads. And when people fast-forward through ads, a banner ad appears asking the viewer to click for more information.

Interacting with users

In May, TiVo launched "Product Watch," which allows TiVo users to subscribe to brands or categories. For example, viewers can ask to receive travel and leisure information to be downloaded to their TiVo hard drive.

They might receive four two-minute-long vignettes about recreation vehicles and travel from Go RVing, a coalition of RV makers and enthusiasts.

The viewer can also ask to be sent more information or to be contacted by an RV dealer. The service is available to people with TiVos with broadband capability, about 400,000 households.

"What's interesting about TiVo is that they are certainly trying to interact and engage with their users," said Jim O'Rourke, who works in brand media for The Richards Group, a branding agency based in Dallas. He helped create the Go RVing TiVo campaign. "It's something we can't afford to ignore."

When TiVo announced some of its advertising initiatives, Dave Zatz, who writes a TiVo blog called Zatznotfunny, predicted dark days ahead.

But so far, the 34-year-old network engineer from Maryland has been pleasantly surprised.

"I'd rather have less advertising," Zatz said. "But if we have to have it, I'd like to see advertisers get more creative and trade us for our time."

Copyright © 2006 The Seattle Times Company

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