For nearly 60 years, the fuel that fired television's economic engine came straight from the deep pockets of advertisers, who eagerly paid top dollar for the opportunity to pitch their products to captive audiences.
But the industry reached a significant turning point in 2003, when viewers spent more than traditional advertisers to get the content they wanted, via cable subscriptions, DVDs, Web downloads and video-on-demand. It turns the conventional business model on its head — consumers pay directly for desired programming, as opposed to having an advertiser pay and support programming.
People are willing to pay the premiums because they can watch what they want, when they want. But new technologies won't make television commercials disappear completely. Industry insiders say advertisers still think television is a good way to deliver certain kinds of messages. And in certain instances — the Superbowl or Oscars, for example — people actually enjoy watching the ads.
And technology is already changing the kinds of ads on television. The force that's driving that change? The fast-forward button on TiVOs and other digital video recorders. TiVO chief executive Tom Rogers has been trying to convince advertisers that, unlike viewers who head to the bathroom during commercial breaks, TiVO users still see the ads.
"You may not be hearing the commercial in full, but there is clearly some impression coming through by virtue of the intense focus," Rogers says. "Advertisers have talked to us a lot about how to enhance that fast-forwarding experience."
Others advertisers are relying more and more on product placement in the shows themselves — having a main character drink a Pepsi in a scene, for example. "There'll be a way to track what a consumer's doing on the Internet... and then serving ads relevant to that customer's needs on television as well," says Tim Spengler of the Ad Placement Agency Initiative. "I think as the Internet and TV combine, you're going to see that information sharing going across both platforms."
Some TV executives are going one step further: They are looking at technologies that will allow viewers to see programming for free if they choose to sit through the ads, or pay a premium for ad-free content — the more ads you watch, the smaller your cable bill.