The Effects of TiVo On Advertising – Marketing Essay
Putting “TiVo” and “commercial” next to each other may seem paradoxical. TiVo is initially selling its feature of skipping commercials. However, with the launch of
TiVo, many advertisers feel threatened for their commercials not being broadcasted to what they had paid for. In order not anger major supporters of TV programs, TiVo has been trying to be commercial-friendly and has eliminated the feature of skipping commercials. In the August issue of Television Week, TiVo recently signs contract with five brands to advertise. The proposed advertising method is a branded tag on TiVo consumers’ screens, and they can find out more information by pressing a button on their remote.
This “branded tag” operates similar to Internet advertising. Consumers are exposed to promotional messages but not forced to watch them. Given its similarity to Internet advertising, advertisers can offer incentives for people to click the branded tags. For example, TiVo could count the number of clicks in a certain designated period. For each click of the tag, advertisers would offer certain amounts of monetary reimbursement to the consumer. Or the reimbursement could be used as credit in paying the monthly TiVo subscription fee. Advertisers could also give exclusive offers to only those who clicked the tag. Money is usually the best incentive to get people to do an act.
TiVo now has 3.3 million users. Assume they all clicked the tag for Tylenol once in a month, and each click is worth $0.45. Each month Tylenol would have to send out $1,685,000 of reimbursement, and $20,220,000 for a year. That is only about 2.6% of its total sale of $786.5 million sales in 2004. Assume all TiVo viewers on average $6 on Tylenol products in the month within clicking the tag, Tylenol makes a profit of $5.55 per viewer after issuing the reimbursement. Therefore, Tylenol still makes $18,315,000 for the month. Even though it has to pay consumers to watch its commercial, Tylenol is not losing money.
Consumers would be happy to watch commercials knowing that they are being paid to watch. Although consumers are willing to spend over $100 to avoid commercials, they are also willing to spend several seconds to make some money. Offering reimbursement should compensates consumers’ frustration for unable to avoid ads, yet advertisers still get their messages across. After all, Tom Rogers the CEO of TiVo sees TiVo “as a platform for dealing with, and allowing for the growth of, the advertising business.”