The Digital Video Recorder: Unbundling Advertising and Content

Randal C. Picker
2003 Social Science Research Network  
Next time you turn on your television, actually watch the commercials and you will quickly see how poorly the economic model of TV is working. They put on a commercial for dog food, but you don't have a dog. You are happy to ogle the Coors Light twins-the current iteration of how drinking beer inevitably leads to better opportunities with the opposite sex-but you actually don't drink beer-apparently having missed the central message of the ads-so Coors is wasting its money. Many of the
more » ... ls are for product categories that you do not purchase, and others are for products, such as cars or computers, that you use constantly but purchase only sporadically. Most ads are targeted at no more than the broad side of the barn: Adults 18-49 or Women 25-54 or some other rough demographic segment. We are at a point where this model can be altered dramatically. The digital video recorder (DVR)-the best-known names are TiVo and ReplayTV-takes home-taping of TV programs to a new level by dropping the tapes used by the VCR and instead recording to a hard disk. The continuing, dramatic drop in the cost of a gigabyte of storage makes it possible to switch from clunky tapes to smooth digital storage, plus the DVR comes with software to make it much easier to record your favorite shows-tell it to record Friends forever and it will. The DVR also promises that we never need watch another commercial, and some versions of ReplayTV make it possible to redistribute copied programs to other viewers. It would be easy to dismiss the DVR as just an updated VCR and to assume that we should apply the same rules to both. But responses to drops in transactions costs can be highly non-linear. As Napster and its successors have made clear, tolerated offline practices-for music, physical sharing of tapes and CDs-might have dramatically different consequences when moved online at vastly lower transaction costs. The DVR is just one manifestation of the possibilities of adding intelligence and easy storage to a box in your living room. In so doing, we are changing the amount of control that can be exerted over the content on the TV screen. As the tech seers have predicted, 1 television is moving away from being a synchronous medium-you watch content delivered in real time-to one in which content is captured for viewing at a later time. The VCR hints at all of this, but the DVR should amount to a substantial change in transactions costs relative to the VCR. But the DVR-and I will use this as a convenient short hand for a device with intelligence and storage that intermediates television delivery-is much more than just a souped-up VCR. Smart devices such as the DVR will allow us to unbundle content and advertising. Content that comes from broadcasters bundled in one form-the TV show itself, the station identifications, the ads selling Budweiser and the promos for a very special Dawson's Creek-can be reshaped and separated before the viewer sees it. The kill-the-commercials *
doi:10.2139/ssrn.450180 fatcat:gvkxk3epsradtkwa4c4t5hpwcy