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Digital Video Recorders (DVRs) like TiVo and the ones you can get from your cable company have become ubiquitous -- it's just a hard drive and some software -- and soon, very soon, these DVRs will be as standard as the remote control.

The implications? Eighty percent of viewing will not be live. Seventy percent of pod-based commercials are already being skipped by DVR users. This means that networks and dayparts will become irrelevant and immaterial.

My daughter loves "Buffy the Vampire Slayer." (She loved it before she went to college. I assume she will give it up now.) But she had no idea what network broadcast the show. From her perspective, Buffy came out of the TiVo box…. it was just there. As traditional TV ads die out, permission-based advertising emerges -- branded programming, product placement overload, and infused ads.

My friend, Chuck Fruit, at Coca-Cola, did the deal with "American Idol." You cannot get away from the Coke advertising on "American Idol."

Desperate advertising

Similarly, about six months ago an episode of "Desperate Housewives" uniquely promoted Buick. One of the housewives -- desperate for money and embarrassed -- had to take a job as a model at a car show. As she is up on the rotating stand giving a pitch on the Buick LaCrosse, her skirt gets caught in the stand, and then one of her friends comes down the escalator. It was effective slapstick shtick there.

However, in the meantime the character gave a three-minute, feature by feature pitch that was as solid a commercial for the Buick LaCrosse as you could give. About five minutes after I saw that sequence I said to myself, "wait a minute! I just saw a commercial from General Motors They got me!"

It was a good ad.

Audience Diaspora

So where has the audience gone? It is on a two percent decline. Newspapers? Three percent compounded annual decline. And cable now has a larger audience than broadcast.

Historical CPM Trends

Source: Nielsen media Research

The chart above shows ABC's cost per thousand households in primetime over approximately a 20 year span -- and the price increased four hundred percent in that time, from five dollars per thousand to 20 dollars per thousand. In that same time, the consumer price index up less than two times. So, ABC is delivering smaller audiences for more money.

These price increases are hard to believe.

All us advertising lemmings go to New York in April and May and throw nine billion dollars against the network upfront season for programs that will not run (we have no idea what is going to be running after the first quarter) with dollars for which we don't have authorization. In April of 2005, we are in New York spending unapproved 2006 money -- it is a total charade, yet we still do it.

Ad-supported TV is a model that cannot hold.

John Hayes of American Express recently said that the "TV upfront model no longer cuts it." He now spends thirty-five percent of his budget on TV -- down from eighty percent in 1994. The same is true of McDonald's. McDonald's was two-thirds network TV and now they are down to one-third network TV.

Jim Stengel of Procter and Gamble, arguably the finest CMO in America today, told the AAAA in February of this year, "I believe today's model is broken."

We are spending enormous amounts of money with very little justification. It is the last part of business for which we have no return on investment, and for which we cannot demonstrate to our Chief Executive Officer gains and productivity.

Everybody else in business has done it: human resources, supply chain logistics, finance -- everyone else can demonstrate increased productivity, lower costs, payout of investment, except the marketing guy.

I was having dinner at General Motors and the chairman told me a story. He said, "I am sitting in my office, my manufacturing people come in and say, 'we can build an automatic transmission at GM for 700 dollars. It costs the Ford Motor Company 800 dollars to build that same transmission.' I say, 'Congratulations. Fantastic job. Keep up the good work.' Then, my marketing guy comes in and says, 'we are spending 700 dollars per car in advertising in GM, and Ford is spending eight hundred. We have to increase our spending to 800 dollars.' What is wrong with this equation?" He is right.

There is no real return on investment measurement for TV. No one believes the ratings numbers, and there are unreasonable cost increases.

It cannot last, and it's already starting to change.

In September, Procter & Gamble sharply reduced its TV spending. The largest TV advertiser (with the Gillette acquisition, they passed General Motors). The Wall Street Journal reported that, "P&G, the maker of Tide, Crest and Pampers, won't say how much it spends on in-store marketing. But, it cut its commitments to advertise on cable channels for the current season by 25percent. And, its broadcast-TV allotment is down about five percent."

The big guys are starting to move out, and others will follow.

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