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ALEX CHADWICK, host:

This is DAY TO DAY from NPR News. I'm Alex Chadwick.

This week we've been looking into the future of television. So far we've examined how new technologies will affect how we watch TV and what we watch. Today, reporter Rick Karr wraps up his series by looking into ways in which these technologies will alter the business of television--that is, who pays for TV.

RICK KARR reporting:

For nearly 60 years, the fuel that fired TV's economic engine came straight from advertisers' pockets. They paid billions of dollars a year for 30- or 60-second opportunities to pitch their products to captive audiences. But according to Alan Wurtzel, NBC Universal's president of research and media development, the television business passed a major milestone in 2003 when viewers spent more than advertisers.

Mr. ALAN WURTZEL (NBC Universal): It's cable. It's buying DVDs or discs or any of those things. It's downloads. It's VOD.

KARR: That's video on demand.

Mr. WURTZEL: It's any of those kinds of ways in which consumers pay directly as opposed to having an advertiser pay and support the programming.

KARR: Wurtzel says the people are willing to spend billions of their own dollars because most of those technologies allow them to control their own viewing--to watch whatever they want whenever and however they want. But technology won't make television commercials disappear. Industry insiders say advertisers still think TV's a good way to deliver certain kinds of messages. And Wurtzel says while we may not want to admit it, we actually kind of like ads.

Mr. WURTZEL: People don't like bad commercials. They actually like commercials. They like commercials they find either interesting or enjoyable, that aren't, you know, irritating or repetitive, and, in fact, when we've asked people, you know, how would you feel about never seeing commercials again, they actually say that that would be a horrible thing 'cause commercials are a part of sort of the social fabric.

KARR: Technology is already changing the kinds of ads we see on TV. The force that's driving that change is the fast-forward button on TiVos and other digital video recorders. Early reports suggested that TiVo users skipped through two-thirds of the ads in shows they recorded, but there's no solid data on that. The Nielsen ratings only started measuring the use of digital video recorders two weeks ago, and it'll take the industry months to make sense of the results. Nonetheless, TiVo chief executive Tom Rogers, a former colleague of Wurtzel's at NBC, has been trying to convince advertisers that unlike viewers who head to the bathroom during commercial breaks, TiVo users still see ads.

Mr. TOM ROGERS (TiVo): When you're fast-forwarding, you are very focused on that screen: when the commercials start, when they end. You may not be hearing the commercial in full, but there is clearly some impression coming through by virtue of the intense focus of I'm going to go right to the end of this commercial and then stop and pick it up. And that does have some value and advertisers have talked to us a lot about how to enhance that fast-forwarding experience.

KARR: Some advertisers have decided to escape the threat posed by the fast-forward button or the bathroom break by relying more on product placement.

(Soundbite of program)

Unidentified Man #1: Coldplay.

Unidentified Man #2: Yeah, it's called "Talk," something my girlfriend's really good at.

KARR: The current term of art is product integration. That's when the product becomes part of the story. It's likely to show up more often in the future of television. But it makes the union that represents television writers uncomfortable. Late last year, the Writers Guild of America, West called on the television industry to change the way it handles product integration. Guild President Patrick Verrone says entertainment and advertising should keep one another at arm's length, that there should be a firewall between the two like the one that exists in journalism.

Mr. PATRICK VERRONE (Writers Guild of America, West): For example, if I said to you today we need to have Burger King in this report, I think you would feel a little bit jiggy about that, and now you have it there, so it's up to you whether or not you want to bleep that, but the point is that there's a level of discomfort that I think writers and, as I say, all talent find when they're asked to effectively endorse and bring in a product that they don't necessarily stand by.

KARR: Verrone says the Writers Guild doesn't necessarily want a ban on product integration. The union knows it's an important part of the industry's financial future. The guild simply wants writers and other talent to have a say in how it's handled.

Mr. VERRONE: We're not trying to bite the hand that feeds us; we're just trying to force it.

KARR: Advertising executives say that product integration is useful but that like TV ads it's inefficient. Not everyone in an audience is interested in every product that's advertised. It's the same problem that 19th century retailer John Wanamaker summed up when he said that he knew he was wasting half of the money he spent on advertising; he just didn't know which half. Advertisers say technology will help them overcome that inefficiency. Tim Spengler is director of national broadcast for the ad placement agency Initiative.

Mr. TIM SPENGLER (Initiative): It's going to kind of be one consumer at a time vs. this sort of mass drop and grab everybody at the same time.

KARR: Spengler says, for example, that you and your neighbor might watch the same show but see completely different ads. She might get SUV commercials because she's been in the market for a new car, while you might get ads for a new computer because that's what you've been oogling online.

Mr. SPENGLER: There'll be a way to track what a consumer's doing on the Internet in terms of searching for information and then serving ads relevant to that customer's needs on television as well. I think as the Internet and the TV combine, you're going to see that information sharing going across both platforms.

KARR: Some television executives think technology will offer us a choice as well: Watch shows that include advertising for free or pay to see shows without ads. Eric Ellenbogen, chief executive of the firm Classic Media, says advertisers could even end up paying viewers to watch ads.

Mr. ERIC ELLENBOGEN (Classic Media): Perhaps those advertisers, rather than paying a network for a broad message--those payments go directly to consumers so that a consumer willing to take advertising and its monitored that they actually take the advertising as opposed to fast-forwarding through it, that their cable bill can be brought down.

KARR: Ellenbogen says some viewers will choose to keep paying their cable bills in full and paying for on-demand shows without ads. Raleigh, North Carolina, television station owner Jim Goodman says some network executives envision a future in which viewers pay for everything they watch and advertisers are out of the picture.

Mr. JIM GOODMAN (TV Station Owner): Because they think they can make more money that way. You know, if you have 50 million people pay $50 to see the Super Bowl, that's more money than advertising's going to be on free TV.

KARR: Goodman thinks that's shortsighted. The business of television, he says, isn't all about short-term gain. It's also about building and sustaining an audience. He wonders how networks and producers expect to attract viewers whether they pay-per-view or watch ads if everything about television changes.

Mr. GOODMAN: Nobody can produce the audiences that we can produce in the network broadcasting model; it's been very successful.

KARR: Towards the end of our interview, Jim Goodman laughed and said pretty much the same thing several other TV executives had when they spoke with NPR. `Call me back in 10 years,' he said, `so we can go over all of this again.'

For NPR News, I'm Rick Karr.

CHADWICK: You don't have to wait 10 years to hear more about the future of television. Just go to our Web site, npr.org. You'll find all three parts of Rick Karr's series there.

I'm Alex Chadwick. You're listening to DAY TO DAY from NPR News.

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