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Live-Plus-Three Ratings Hold Surprises, Quirks

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NEW YORK When Fox aired a new episode of So You Think You Can Dance last month, 994,000 viewers watched the show on their DVRs up to three days after its May 24 broadcast. While those viewers may have been dazzled by the fancy footwork on the show, the ads didn't prove as appealing—two-thirds of the viewers fast-forwarded through the commercials.

That statistic, which comes from an analysis of just-released data from Nielsen Media Research's new commercial rating system, is particularly significant because the industry is basing ad buys for the first time this year on commercial ratings. Both buyers and sellers have suggested that "live plus three" will be the currency upon which many ad buys will be transacted. Indeed, the first major deal in this year's upfront market—struck last week between WPP's GroupM agencies (MindShare, Mediaedge:cia and MediaCom) and NBC Universal and valued at close to $1 billion—is based on the new live-plus-three metric.

And while it's becoming clear that the majority of people do skip ads as they watch shows they've recorded, Alan Wurtzel, president of research and media development at NBC Universal Television, said the new Nielsen data refutes what he called the "urban myth that everybody skips the ads." The relatively small percentage of people who don't are proving to be a major difference for a handful of programs.

Fox's dance show illustrates the point. The 324,000 DVR viewers who did watch the ads, according to Nielsen (like Adweek, a unit of The Nielsen Co.) helped raise the program's total commercial audience to more than 8.9 million viewers. That figure is about 4 percent more than the 8.6 million who watched the commercials live. And it's even slightly higher than the live program audience, which was just short of 8.9 million. Since program ratings do not incorporate DVR viewing, but the commercial ratings do, the ads end up garnering a higher overall rating than the show.

In fact, the first four weeks' worth of data from Nielsen's new commercial ratings system shows that all five of the major broadcast networks have some shows whose commercial audiences are larger than the live program ratings, based on the new live-plus-three metric. Almost two dozen shows across the networks had live-plus-three commercial audiences that exceeded the ratings for the programs.

Among those shows are The Office (NBC), Jericho (CBS), Desperate Housewives (ABC), Smallville (CW) and Bones (Fox).

In May, The Office averaged about 6 million live viewers, about 5.7 million of whom were credited as having seen the ads. DVR viewing added another 1.5 million total viewers. Almost half of them stuck around for the ads, giving the show a 6.5 million live-plus-three-day commercial audience. Thus, thanks to the DVR, the program added 12 percent more commercial viewers.

For most shows, however, the commercial ratings in May, even with the live-plus-three data, were smaller than the audiences for the shows themselves. But surprisingly, not by much. Across the five networks, the overall gap was just a little more than 1 percent, according to the Nielsen data. Essentially, the audiences that tuned into ads in playback made up for most of those surfing and skipping ads during live viewing, when the audience shortfall is typically about 5 percent.

But the question is how long this pattern will remain, said Ed Gentner, svp and group director of video investment and activation at Publicis Groupe's MediaVest USA. "In prime time, it's essentially making up the difference for right now," said Gentner. "That won't always necessarily be the case, as viewing habits change over time."

Viewing behavior in DVR homes is being closely monitored by buyers and sellers alike. Currently, said Wurtzel, research shows that 40-50 percent of network prime-time viewing in DVR homes is time shifted. DVRs are in just 17 percent of U.S. homes currently, per Nielsen.

One question is whether the percentage of time-shifting activity will increase, decrease or remain about the same as DVRs spread to a larger audience.

"I define mainstream as around 40 percent," said Wurtzel. "So the DVR is still an emerging technology by that standard. The early adopters tend to be more extreme in their behavior. So on the one hand, as DVR penetration increases, so will usage and its impact on ratings. On the other hand, we're likely to see more moderate usage as new people come to it who don't see it as the most incredible invention since penicillin."

Gentner agrees that usage patterns will evolve. "Early adopters tend to use it more," he said. "The habits are probably different at 30 or 40 percent penetration. We'll be keeping a close eye on behavior as it proliferates."

No one knows for sure when the DVR will reach critical mass, although Forrester Research estimates that DVR penetration may reach 50 percent of homes by 2010.

Agencies and networks estimate that over the next year, the number of U.S. households with DVRs will climb to the low- or mid-20-percent range. It's a key projection, because it affects the share estimates that buyers and sellers put on shows in order to calculate program mixes before entering upfront negotiations.

"We're going to see that number grow over the next couple of years to be a pretty big number, which is why it's important to establish average commercial ratings now before the gap gets unmanageable," said Gentner.