TiVo targets advertisers.

In an episode of Sex and The City, Cynthia Nixon's Miranda replaces a former flame with a newfound adoration for TiVo. Today, 3.5 million U.S. homes have DVRs--1.9 million of which are TiVos.

TiVo has partnered with companies such as Sony, Thomson, Toshiba, Humax and Pioneer to manufacture their hardware. A system with 40 hours of storage costs $149, while systems with 80-140 hours of storage are more expensive. Recently, TiVo announced HS lowest $99 box rate. The monthly charge is $12.95. Links to and from TiVo'S database are established via phone or cable modems at night when the phone lines tend to be free.

In 1997 TiVo's co-creators Michael Ramsey and Jim Barton met many naysayers when they created the first-ever digital video recorder. Opponents emphasized its similarities to the VCR, claimed it didn't warrant its higher price and declared it too difficult to use. Indeed, when first reporting on this new technology, VideoAge cited its 143-page set-up manual and the inclusion of five pounds worth of wiring.

To prove its advantages exceed those of the VCR, TiVo has continually added more features to its system, including the controversial TiVo ToGo, which allows users to send recorded programming to nine other boxes or computers via the Internet.

DirecTV's Bob Marsocci explained that he and his colleagues were bowled over by the system. "By October of 2000, we had established ourselves as a viable alternative to cable and were at a point where we wanted to continue our innovations," he said. "We saw all the benefits of the product. To us, pairing up with TiVo was a no-brainer."

The satellite service's association with TiVo has paid off for both parties. Marsocci explained, "Originally signing subscribers is important but retention is even more crucial. Our customers who have DirecTV and TiVo usually continue." DirecTV's average annual churn rate is about 1.4 percent but plummets to 0.5 percent when combined with the TiVo service. The hardware sold with DirecTV is less expensive than those sold directly through TiVo, as are its monthly fees. On the TiVo side, its second quarter report for 2004 quoted that, so far this year, TiVo gained 288,000 new subscribers, 225,000 of whom came from the company's partnership with DirecTV. The company's revenue for the quarter was $39.8 million, an 85 percent growth from the previous year. But as subscriptions have increased, high costs have ensued, leading to a net loss of $10.8 million during the second quarter of 2004. Subscription levels may soon hit a plateau, as well, as Rupert Murdoch has sold his TiVo shares and DirecTV has announced plans to introduce its own generic DVR with News Corp. sister company, NDS, which provides digital content to DVR boxes. The announcement has caused minor concern at TiVo, though the company hopes its technologically advanced DVR will surpass the capabilities of the generic DirecTV brand. Since TiVo is now unable to create its own alliance with a cable company, the DVR company will have to overcome its new threat by selling directly to consumers. The company has hooked up with Netflix to provide video-on-demand capabilities.

"The concern that TiVo and DVRs, in general, were going to hurt the ad industry was the initial knee-jerk reaction," insisted Kimber Sterling, TiVo's director of advertising and research sales. "Most ad professionals realize they've been through this before. The Internet was supposed to change and destroy all traditional advertising," he said. No longer a thorn in ad execs' side, he insisted, "DVRs will pose challenges to the existing model, but there are also going to be opportunities and those are more our focus."

Graeme Newell of 602 Communications, a promotional training company which runs workshops for programming execs, looked on the bright side: "At least TiVo users fast-forward through the commercials, rather than skip them altogether, which is something people do with a remote control."

Plans are in the works to use the fast-forward time slot to advertisers' advantage. "There are two ways that's being discussed right now," explained Sterling, "one is something that the advertiser could control: Creating something that's more visually compelling without an audio component. On the technological side," he said, "we are looking at some new ad products that would enable our current tagging technology to place a commercial image on the screen in fast-forward mode." This technology allows viewers to record a program by simply clicking on an icon during the show's promotion.

"TiVo is a real plus because people who have TiVo watch more TV," said Newell. In fact, a recent study showed that TiVo households watch 20 percent more TV than non-TiVo households, though 70 percent skip advertising spots. Newell clarified, "Not enough people own TiVo to say that it is responsible for the trend ... audiences are generally getting better at avoiding ads." He added, "We are going to move away from the traditional structure of promotions and move towards something more overt." Newell suggested infiltrating shows with promotions and predicted the lines between content and promotion will become more blurred.

"The reality is that DVR penetration is happening and is more or less assured, TiVo or otherwise," stated Sterling. "But," he said, "the reason that we're actually being embraced by advertisers, ad agencies and networks is because we are the only company that's gone to market with solutions or products that will make DVRs have a large upside to advertisers and presented research that will tell advertisers what's working and not working in these homes." He added, "Our clients are the major advertisers and, from their standpoint, there's really only one DVR to talk to today."

TiVo urges advertisers to explore creative options. Long-form advertisement, according to Sterling, "take advantage of [an advertiser's] opportunity to speak to the consumer for longer than thirty seconds." BMW pioneered long-form video as a branding tool. Other advertisers included Porsche, with a five-minute piece on their Cayenne SUV.

The videos are currently displayed on the main menu page, and are placed alongside a headline. When users click on it, they enter into a showcase space. The campaigns, which run for at least a week, generate anywhere between high single-digit percentages and 25 percent audience viewing.

Sterling insisted, "TiVo advertising is leading to the acknowledgment that before too long, and already in TiVo homes, the viewer is going to have a lot more control of their television viewing experience, which means that [advertisers] are going to have to give them what really interests them." Formerly an advertising agency executive, Sterling insisted: "The ad industry has been guilty of taking the fact that the television viewer is more or less held hostage for granted and hasn't acknowledged the need to really engage the viewer."

Because increased interactivity is another benefit of TiVo, Sterling expects product placement to become a platform from which more contests and promotions can be born.

TiVo also remains an effective ratings tool. An anonymous poll of 20,000 subscribers is sent to the headquarters. Results can be "very granular," said Sterling. "From how many of them enter a showcase on a daily basis, to which clips they clicked on, to how much time did they spend viewing a clip." So far broadcasters and advertisers have bought licensing to use TiVo's tagging technology (the embedded coding in promo spots) and are buying viewer behavior data to find out which commercials are being watched.

Nielsen will include DVR behavior data in their raw national ratings next year, and broadcasters hope to monetize their products with those ratings.

What about being user-friendly? Are the days of 143-page manuals behind us? Bob Marsocci of DirecTV assured that, "It is a simple service to use with a simple menu. You can be afraid of technology and still use it easily." But Newell disagreed "Setting up TiVo is not for the light of heart," he said. "For those people out there with blinking '12 o'clocks' on their VCRs, it's going to take a while."