Broadcasters Pressed to Address PVR Growth

Broadcasters are beginning to feel pressure to reassess their business models as market and investment analysts note increased penetration of ad-skipping personal video recorders (PVR).

Two reports this week, one from an analyst at SG Cowen and another from consulting firm Booz Allen Hamilton, warn that TV broadcasters should seek alternatives to their traditional ad-based revenue models or risk losing ad dollars as consumers up their use of PVRs.

SG Cowen lowered its ratings on several TV broadcasters on Tuesday, when it cited an anticipated growth of PVR penetration to 15 percent by 2006, resulting in slowed revenue growth for ad-based broadcasters.

Cowen lowered long-term growth estimates downward for Tribune Company , Gannet Company, Univision Communications and Hearst-Argyle Television as a result of the likely negative impact of PVRs on growth rates.

The U.S. broker-dealer said while station owners were the victims of its lowered ratings, the big four networks were “equally exposed.” It said targeted cable networks were better positioned to create new revenue streams.

The report asserted the low level of penetration by PVRs thus far — 1.7 percent in 2002; 2.7 percent in 2003 — has allowed broadcasters and advertisers to put off addressing the risk. However, Cowen anticipates several factors will conspire to drive adoption to 11 percent within two years.

In the same vein, a report from Booz Allen Hamilton found the converged media centers known as home media networks (HMNs), which include PVR technologies, represent an accelerating threat to broadcasters’ ad-based revenue models. The report, which describes HMNs as converged digital media centers that combine TVs, stereos, PCs and broadband Internet access, found that consumers’ growing libraries of various digital media will accelerate the rise of these hubs.

Mike Katz, senior vice president at Booz Allen, said broadcasters may underestimate the speed with which HMNs could alter media use in the home.

“While television and advertising executives debate the impact of TiVo and other PVRs, they have barely noticed the HMN phenomenon creeping up and rearing to bite them,” Katz said.

Booz Allen predicts entertainment companies will increasingly struggle to profit from the traditional prime time TV model, since aggregate audiences will give way to “audience of one” media consumption patterns through the growth of PVRs.

It recommends broadcast content owners adopt alternate revenue models, such as “specific channels with a hybrid of on-demand and subscription pricing.”

“Entertainment companies will have much more detailed information about individual consumer preferences,” said Randy Lake, a senior associate at Booz Allen. “They can use this information for micro-marketing their content and offer advertisers unprecedented targeting.”