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"With pressure from [digital video recorders], advertisers and ad agencies searching for something to replace the 30-second commercial are utilizing placement with a vengeance, especially in game, reality, and lifestyle programs."

TELEVISION soon will confront a dramatic dilemma--its advertising must change or networks will be forced to develop new sources of revenue. Television income derives almost entirely from advertising sales--especially the 30-second spot. However, they frequently exasperate audiences. Exercising their options, viewers have turned down the volume, flipped channels, or turned off the set during commercials. Now, individuals owning digital video recorders (DVRs) or personal video recorders (PVRs) automatically can delete all (or some) of the many commercials simply by touching a button, or they can last forward through commercials with ease--thanks to Sonic/Blue's ReplayTV with a delete button and TiVo with its fast forward button.

Unlike VCRs, which rely on the hassle of videotape, Sonic/Blue's boxes feature hard disks. Model 5160 features 160-hour capability, and recording a TV show is simple--hit a button once on the remote control and the show records digitally, hit it twice and every episode of that program is captured automatically. With Live TV Control, a person can elect to pause, show instant replay, or view in slow motion or frame-by-frame. The Theme Record feature categorizes by the film's star, theme, or key word. Sonic/Blue's 5000 model, compatible with cable, satellite, and antenna program feeds, connects easily to a home computer network through a built-in Ethernet port. This provides the ability to view digital photo slideshows on a TV set, and with broadband and Internet access, recorded shows can be sent to other locations. By using the ReplayTV's Commercial Advance button (the box recognizes signaled commercial breaks and deletes them), it is possible to play back recorded shows without commercials. With the QuickSkip button, specific commercials or certain parts of a film can be by-passed.

Launched in 1999, TiVo's Digital Video Recorder produces high-definition picture quality and has pause, rewind, slow motion, and instant replay "live" TV, with up to 60 hours of recording capacity. TiVo's DVR could produce 1,000,000 sales within a year. Forrester Research Group predicts that 16% of American homes will have a DVR by the end of 2005. TiVo's Season Pass feature will trace throughout a season every episode of a series, regardless of date and/or time changes. The WishList feature sorts programs by actor, director, team, or topic, and it skips reruns.

According to CBS research, 50% of viewers with TiVo watch prime-time shows by playback and avoid 70% of commercials. The fast-forward button features fast, faster, and very fast speeds to use to skip commercials. In a NextResearch study of 1,027 PVR users. 72% indicated that when they play back recorded shows, they watch ads only occasionally; 23% said they pass over all ads.

TiVo connects to an existing phone line without interfering with service; it works with antenna, cable, digital cable, satellite, or combinations thereof; and its website provides information for self-installation. It has an onscreen menu as easy to use as an Internet site. Having generated interest in many parts of the country, especially in California's Hollywood and Silicon Valley, TiVo appears to have a loyal and steadfast subscriber base. Federal Communications Commission Chairman Michael Powell, who admits to being a gadget freak, recently stated. "TiVo is God in my household. I can't wait ... each day to see what it has recorded for me."

America Online (AOL) members now can program their TiVo Series 2 personal video recorders through the AOL service free of charge. Using a button labeled "Record to my TiVo DVR," subscribers will be able to direct their own recording preferences. According to AOL, the service soon will be available via cell phones, pagers, and personal digital assistants (PDAs). TiVo also has developed a new audience--measurement tool that it claims will provide broadcasters and advertisers with the ability to analyze second-by-second specific viewing patterns within TV programs. The company is offering the TiVo Commercial Viewing Report, a quarterly subscription on viewing patterns within prime-time programs. Although TiVo will continue to sell its subscription service, it recently has concentrated on licensing its technology to hardware manufacturers and pay-TV operators. DirecTV and EchoStar are providing dual-purpose DVR set-top boxes. EchoStar currently has combined DVR set-top boxes in more than 500,000 homes.

Thompson Multimedia's Scenium Digital Media recorders can record up to 30 hours of programming, play DVDs, copy digital photographs, and transfer MP3 music files from a DVD or CD to a hard disk. Copyright infringement regulations preclude its copying a DVD movie to hard disk. Cable TV operators have begun viewing-on-demand (VOD) service to approximately 10,000,000 homes. The industry hopes to double the number of homes with VOD before 2004. Cable's digital recording function allows viewers to pause, record, and rewind films and TV shows and to fast forward through unwanted pitches. Cable operators and satellite companies expect to add high-speed Internet connections to TV set-tops and, with broadband, the capability to download a film from a directory of thousands.

Are TV networks and advertisers concerned? Indeed, they are. Although some speculate that the small number of homes having PVRs indicates commercials will remain unchanged for years to come, most advertisers are more realistic. Media moguls have discussed the threat of PVRs to the traditional 30-second advertisement at most conferences since 1999, when TiVo hit the market. At the Consumer Electronics Show in Las Vegas, Nev., in January, several presenters emphasized that the more than 2,000,000 DVRs in use indicate fast-growing popularity among the country's TV viewers: research shows that 70-80% of DVR users regularly bypass commercials. The ad industry is just beginning to realize that there soon may be a need for alternatives to the 30-second spot. Turner Broadcasting CEO Jamie Kellner has been warning consumers that TV households may have to start paying for broadcast programming. Viacom President Mel Karmasin forewarns that "we give you all this great content for free, and all we ask is that you watch our commercials. If the time comes when you do not watch our commercials, then we will have to make our money some other way." That "some other way" means the public will be expected to pay for watching "free" TV. However, that is highly unlikely--the FCC would interfere and the general public would rebel.

DVRs will not cause commercials to disappear from the airwaves--commercials of tomorrow will be integrated better and will become more relevant. TiVo's research department found that people do not reject advertisements per se, but rather the excessive number of commercials and subject matter that is dull, indiscreet, or just plain awful. Viewers watch tasteful, clever, humorous, and above all, meaningful ads. For example, commercials used on "Hallmark Hall of Fame" are so subtle and thoroughly integrated that viewers very well may believe the ads are part of the program. The 2003 Super Bowl, the second-most-watched game in football history (137,600,000 tuned in at various times, with an average of 88,600,000 viewers throughout the game), presented upbeat spots such as the Pepsi Twist ad with pop stars Ozzy Osbourne and the Osmonds, FedEx with its "Castaway" spoof, and Visa with National Football League twin brothers Tiki and Ronde Barber at a flower shop. TiVo monitoring indicates that more viewers watched the best commercials than watched the game itself. Although the Reebok pitch fell low on the list of favorite ads, many people actually remembered it more than the highlights of the game. ABC's Academy Awards telecast, which drew 2003's second largest female audience, included effective spots that followed Academy restrictions and maintained a sense of class and elegance. The tradition is for advertisers to show new ads, and for producers of commercials to try to outdo each other.

DVR companies and advertisers are working together to design expressly for the internet and TiVo's systems. For example, BMW has produced several short films attracting the attention of viewers and other businesses. One such series involved the talents of director Ridley Scott and actor Gary Oldman. Another short BMW film directed by John Woo and starring British film idol Clive Owen included one of the most exciting car chases in memory. BMW promoted the short films on its own "advertainment" site, BMWFilms.com, from which TiVo downloaded for its systems. The films also have appeared on several popular TV programs.