Digital video recorders: How to get ahead of advertising

Has the rise of digital video recorders given TV viewers more power to skip adverts? Charles Arhur investigates

Advertising and TV executives, already suffering the worst recession in their sector for years, have a new fear: that the rise of digital video recorders (DVRs) that let people skip ads effortlessly will undermine their industry, just as MP3s have done the record business. And the World Cup, which has raised interest in DVRs to "tape" matches happening late at night or in the morning, has made the question more acute. Will football viewers just skip the ads when they come home to watch the match?

Some advertisers wonder whether the carefully designed structure of this multi-billion pound industry could be torn apart because DVRs such as TiVo, which can store up to 30 hours of TV on their hard disk, let viewers delay their watching of a program by just a few minutes. This allows you to watch what was shown a few minutes ago while the broadcast is being transmitted and recorded – and zip past the ads.

In the US, network executives are worried. "The free television we've enjoyed is based on us watching these commercials," said Jamie Kellner, chief executive of Turner Broadcasting, which produces CNN and other channels. "If you don't watch the commercials, someone's going to have to pay for television, and it's going to be you."

In the UK, the thought has occurred to Geoff Russell, director of media affairs at the Institute of Practitioners in Advertising, an industry body. "That's the likelihood if TiVo takes off," he said. "We would be concerned if it did, because it could affect the advertising landscape." More than 50 per cent of UK TV is funded by advertising. "If that wasn't to work, we would lose the mainspring of a significant part of the nation's listening and viewing."

TiVo has taken one step to try to appease broadcasters – but at the cost of annoying TiVo owners. Last week, a number of people found that their machine had recorded the BBC sitcom, Dossa and Joe. The BBC had paid TiVo to get it recorded. TiVo helped the BBC send an instruction during the box's overnight update of its programme guide, telling it to record the programme when it was broadcast. The BBC and TiVo could only respond to complainants that "users are in no way forced to watch the programme". But it's a sign that control is shifting to the user.

If things looked cold in adland already, they could be about to get worse. So far, about 1 million US homes have DVRs, though the number is expected to rise to 50 million in the next five years. In the UK, the current figure is probably closer to 100,000, where they are sold by TiVo and Sky. But that, too, is expected to soar. Presently, the price is high, at about £400 plus a £12 monthly subscription to get an "electronic programme guide" (EPG). More companies intend to offer DVRs later this year, which will push the price down. "If Sky and others are going to incorporate it in their settop boxes, the take-up will rocket – like DVDs, which went from nothing three years ago to millions today," said Neil Mortensen, head of research at Granada TV.

Nobody in the industry is resting on their laurels: they know the lesson of the music industry, where, five years ago, nobody had heard of MP3s or CD-burning. Today, those two technologies have left record labels questioning their future revenues and the basis of their business model. But UK advertisers and commercial TV companies point to one difference between the US and UK, which may be their saving grace: British viewers' ad-free choice, the BBC.

Also, there are fewer adverts here: terrestrial companies are limited to a maximum of 12 minutes of adverts per hour, and must only transmit an average of seven minutes per hour. Nor are they synchronised. In the US, adverts can take up to 20 minutes of every hour at peak time, which has led to buyers of DVRs starting recording at 9pm but only starting to watch at 9.20pm. The timings are often synchronised, making "channel-flipping" pointless.

"The BBC keeps people on their mettle," said Jim Marshall, chief executive of the media planning and buying agency Mediavest, which picks advertising times and places for clients such as the Central Office of Information, the UK's largest advertiser. "We have to produce entertaining, engaging ads. After all, everyone's got their own version of TiVo – it's called your legs. You can get up and walk out."

That, he said, leads advertisers to find ways to interest viewers during breaks. "If you look at ads for younger people, who are likely to wander if they're not interested, you get ads like the Nike football one, which almost tells a story. It's not a technological issue, it's a creative one."

Andrew Cresci, senior vice-president of TiVo, insists the product is not a threat to the advertisers: "Our investors include AOL, NBC and the Discovery Channel. We have avoided buttons that let you just skip the ads" – although the fast-forward button works at 30 times or more the normal speed – "and I've seen my kids stop and watch an ad that looked interesting to them."

So far, advertisers seem to have decided that DVRs are less of a threat than they feared when TiVo arrived in the UK 18 months ago. "The industry was concerned," said Mr Marshall. "But it didn't take off." But, he added, "it shouldn't be ignored. It's another option that has to be considered."