The Competitive Impact of Targeted Television Advertisements Using DVR Technology

Digital video recorders (DVRs) are an emerging technology that is fundamentally changing the competitive landscape in industries that advertise on television. Perhaps the most familiar impact of DVR technology is that it enables consumers to avoid advertisements by fast forwarding through them. However, this “zipping” of ads is only one aspect of the impact of DVR technology. DVRs also collect a wealth of information at the consumer level that can be used by …rms to target their advertisements more e¤ectively. We examine how this targeting capability moderates the impact of ad avoidance in a competitive setting. Insights are provided on how best to manage this emerging technology in terms of the key managerial decisions of product pricing and advertising e¤orts, as well as its impact on pro…ts in a competitive (duopoly) marketplace. [Submitted: December 28, 2011. Revised: July 2, 2012; November 21, 2012. Accepted: February 1, 2013.] Subject Areas: Ad Skipping Behavior, Digital Video Recorder, Product Competition, Targeted Advertisements INTRODUCTION AND LITERATURE REVIEW Digital video recorder (DVR) technology is fundamentally changing the nature of television advertising, and thus the competitive landscape in industries that advertise on television. The DVR has penetrated the home electronics market with surprising speed, becoming an integral part of the television viewing experience for many consumers. In fact, DVR penetration in the U.S. more than doubled, from 17% to 38% between 2007 and 2011 (Steinberg & Hampp, 2007; Nielsen, 2010). Given the important role of television advertising for many …rms, a careful response to this trend is warranted. However, the impact of DVR technology on television advertising e¤ectiveness is not clear. A critical advantage of DVRs from the …rm’s perspective is their ability to track viewing patterns at the individual consumer level, enabling …rms to target their advertisements (ads)