November 26, 2004
TiVo Pop-Up Ads Raise Consumer Concerns
SAN JOSE, Calif. - Digital video recording pioneer TiVo Inc. has long promised "TV Your Way." But the company's plans for pop-up ads and restrictions on copying have sparked worries that the service may be eroding consumer control in favor of Hollywood and advertiser interests.
Is it becoming TiVo - their way?"Consumers are very distrustful of technologies that seize yet another opportunity to offer up advertising," said Mike Godwin, legal director of Public Knowledge, a public interest group. Whether the fears are founded or not, he said, "it feels like TiVo is taking away some of the prerogatives and flexibility that TiVo TV watchers have become accustomed to."
TiVo officials say that starting in March users will begin to see static images, such as a company logo, appear on their television screens as they fast-forward through commercials. The billboard-like ads - which will last about four seconds for a fast-forwarded 30-second spot - may offer giveaways or links to other ads.
For some ads, viewers could choose to provide advertisers with their contact data so they can get more direct marketing.
A pop-up recording "tag" is also planned: a "thumbs-up" icon would appear during TV show promotions and allow users to instantly place those programs in their recording queue.
TiVo officials contend that the new features will not be any more intrusive than the "thumbs-up" icons that already appear during some commercials and shows. But to some customers, the impending advertising changes smack of betrayal from the innovators whose hard drive-based gizmo lets TV viewers record programs, fast-forward through ads and pause at will.
"It's crossing the line," said Darren McClung. The 24-year-old Kansas City, Mo. systems administrator says he didn't mind as much when TiVo introduced ads in its main menu area, giving users the option of watching them.
But with ads set to appear over the very commercials he's trying to skip, "they've moved from unintrusive to intrusive advertising, and that's troublesome," he said.
Some skeptics also worry that TiVo's planned use of Macrovision Corp.'s new copy-protection scheme signals more boundaries on what shows they can or cannot record - even as TiVo prepares to unveil a new service later this year, called TiVoToGo, that will let users record shows onto DVDs or transfer them to computers.
Macrovision has developed a feature that will allow content providers - the people who produce television shows - to place restrictions on how long a digital video recorder such as TiVo can save certain kinds of programming. For instance, movies could disappear after seven days.
TiVo officials say the new restrictions will apply only to pay-per-view and video-on-demand programs. If Macrovision expands the feature to any other content, the deal is off, said Brodie Keast, executive vice president of service business at TiVo.
"We believe the consumer should be in control of entertainment - either free over-the-air or paid broadcasts - and this doesn't change that in any way," Keast said. "But reaching this kind of compromise allows us to innovate freely."
Industry watchers say TiVo has no choice but to make peace with networks, cable and advertisers.
"TiVo has to become more advertising-friendly because, at the end of the day, TV runs on advertising dollars and companies that are part of that food chain have to acknowledge that," said Tim Maleeny, director of strategy at Publicis & Hal Riney, a San Francisco-based advertising firm.
Josh Bernoff, analyst at Forrester Research, said, "Any product that's part of a cable and satellite world has to obey some of the restrictions that go with it."
The restrictions are tightening.
For instance, HBO says it plans to introduce in June a copy-protection technology that will restrict viewers to only one digital copy of its regular shows - and no copies of its on-demand programs.
As it is, TiVo is fighting an onslaught of competitors, including cable operators, who now offer digital video recorder-equipped set-top boxes of their own. The Alviso-based company has yet to post a profit.
It reported Monday a net loss of $26.4 million, or 33 cents per share, on revenue of $38.3 million for the third quarter ended Oct. 31. Its subscriber base has more than doubled from a year ago to about 2.3 million, but roughly 61 percent of subscribers come through satellite operator DirecTV, which is expected to offer a competing DVR soon.
That is expected to help boost the number of U.S. households with DVRs well beyond the 6.5 million that currently have them.
For its part, TiVo tries to balance between customers' desires and Hollywood's demands.
Hollywood studios sued TiVo's rival, DVR pioneer ReplayTV, over its automatic commercial-skipping recording feature - a function TiVo and other DVR makers could have adopted but didn't. ReplayTV's rebel stance bankrupted its former owner. New owners have removed the ad-skipping feature.
TiVo has worked for years with advertisers, trying to find new ways to market to an increasingly fleeting television audience. As part of its delicate dealings with Hollywood, TiVo sells data on the viewing patterns of its users, such as when they choose to watch instant replays or when they fast-forward.
TiVo executives acknowledge that they're walking a fine line with their new advertising strategy.
"Those who feel that they've been 'sold out,' I can understand that," Bob Poniatowsky, a TiVo product marketing manager, wrote recently in an online posting on the TiVo Community Forum. But "that's simply not the case here."
Advertisers - and TiVo- will have to tread cautiously nonetheless, said Maleeny, the advertising strategist. Consumers already encounter hundreds of ads a day all around them - from billboards to newspapers to the Internet.
"It's easy in this environment," Maleeny said, "to suddenly cross a line from being inviting and intriguing to being intrusive and obnoxious."
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