Do DVR users watch ads ?

Like many folks, we’ve had a DVR for over 10 years in our house.

The first DVRs that came from WebTV Networks and then TiVo brought us a new user interface to the old set top box guide.

In addition to a new UI, the DVR brought something else. As I wrote last week the DVR was more than just a glorified VCR. It was something completely new and refreshing. Beyond season events or one click recording, I could actually pause live tv. Or I could go back 30 seconds. Or I could record a show and then start watching the show 25 minutes later so I could catch up in real time by skipping all of the ads.

The only live stuff we watch is sports like the World Series that is going on at the moment. Other than live sports, we watch everything from disk [actually live content is also buffered on the disk but I digress :) ] – and we skip the ads entirely. Lauren and I actually compare how well we can time the fast forward button with the end of the commercial break.

These days over 30 million US households have a DVR. That DVR is either purchased at retail (TiVo) or users lease a DVR from their satellite/telco/cable operator. Consumer pay extra for our DVRs because the value prop is clear.

This Sunday, the New York Times had an article that caught my eye – DVR, Once TV’s Mortal Foe, Helps Ratings. In the story, Nielsen says that 46% of DVR owners watch commercials during playback.

That is in contrast with TiVo’s recent research which states that 84% of commercials aren’t watched. There is another important data point shared in that report:

“As we see every month, there is little correlation between the top rated programs and top viewed commercials”

Essentially, if you are buying TV ads on top tier shows like LOST, CSI and 30 Rock, you are overpaying since +80% of those ads are being skipped entirely in the 30million households with a DVR. And that number is only growing.

Many will remind me that the TV industry is huge with big ad dollars, a proven business model and great content. I agree – but it seems like traditional monetization models need to evolve. And even for live television (where I’m forced to watch the ads), well, the ads aren’t relevant or targeted. How many times did Fox show me the same Chevy ad during the ALCS and World Series. They could show it to me another 100x and I’m still not buying a Chevy.

At some point the set top box needs smarter software. It needs to tell the content owner what’s going on. It needs to tell the advertiser what’s going on. And it needs to keep the users needs front and center.

Not surprisingly, I think the web (mobile and PC) are going to be a huge part of the solution. Two way networks, rich analytics, modern advertising platforms, search, discovery and social nets. And that’s just the tip of the iceberg.