(cont.)
Replay Networks, now called ReplayTV, at first took the position that the networks' interests were irrelevant. What the American consumer wanted, the American consumer eventually got, and so you might as well give it to him right away. Replay's remote control has a button marked "QuickSkip," which lets the viewer leap ahead in increments of 30 seconds, the length of a typical TV commercial. The owner of the Replay box is thus the open adversary of the television establishment. "I spent a lot of the first year getting thrown out of meetings at networks," Anthony Wood admits. Then came a change of the Replay heart, when Wood was replaced as C.E.O. by Kim LeMasters, the former president of CBS Entertainment, who saw the point of network support. LeMasters struck a much more conciliatory note. Though he wasn't able to scrap QuickSkip, he let it be known that he would not promote the feature. "The Replay device doesn't do any good if it doesn't have anything to broadcast," he says.
And so now the two companies are in roughly the same position of arguing to the networks that a device that steals their power and hands it to consumers is actually good for them. They offer two points to support the case. The first is that the television viewer is too inert for the television to change. Several times since the first commercial broadcast in 1939, a new accessory has appeared that promised a revolution -- the VCR, the remote control, cable TV -- only to be assimilated without greatly disrupting the existing social order.
The VCR proved too unwieldy to be used for anything but rented videos. The remote control enabled people to surf but not so much that they spooked Procter & Gamble and General Motors and the rest. Cable TV fractured the mass audience into slightly smaller pieces, but again, without a huge effect on the economics of the business. True, the big three networks had 91 percent of the viewing audience in 1978 and only 45 percent in 1999. But it is also true that of the $45 billion of television advertising in 1999, $14 billion went to CBS, ABC and NBC, which is $10 billion more than they collected in 1978. (Advertisers have, until now, been willing to pay the networks more for less. It's as if what matters to them is not the absolute size of an audience but the relative one, and the three major networks still offer them the biggest.)
The other point is that by making television more appealing, the black box encourages people to watch even more of it. This prospect may cast doubts on the future of intelligent life, but it should, in theory, be good for TV networks. Replay now has actual data to prove that its new customers watch, on average, three hours more television each week than they did before they got the box. "Yes, we're messing with your business," they argue to the networks. "But in the end, you'll love us for it because three more hours a week means billions for you in additional advertising revenues." Marc Andreessen, for one, believes this argument is persuasive to networks. "They want to believe it because they are seeing data for the first time that shows young people are watching less and less TV and spending that time on the Internet."
That's the official story. It's the story that enables TiVo and Replay employees to interact pleasantly with network and advertising executives. But as I say, no one could possibly believe it, and it becomes less plausible every day thanks to the information piling up inside TiVo and Replay about how ordinary people use their new black boxes. They use them to undermine, with ruthless precision, the interests of TV networks and mass-market advertisers. The owners of the 100,000 or so black boxes that have already been installed have two distinctly unsettling new habits. The first is that they don't watch scheduled TV anymore. According to Josh Bernoff, a television industry analyst with Forrester Research in Cambridge, Mass., who closely follows both the black-box companies, viewers "get into the habit of not paying attention to when the programs are on and just watch what they've recorded."
Well. If it doesn't matter when programs run, then the whole concept of prime time vanishes, and with it the network's ability to attract an audience for a new show simply by broadcasting it when people have the tube switched on. With it, also, goes the special market value of prime time -- though the market value of other broadcast space rises. Ditto the idea of pitting one show against another by virtue of its time slot. In the age of black boxes, every show ever broadcast competes against every other show for the viewer's attention; for this reason, whatever advantage a network has in the development of new TV shows disappears.
But that isn't the worst news that TiVo and Replay have for the television networks. The worst news is that no one watches commercials anymore. Eighty-eight percent -- 88 percent! -- of the advertisements in the programs seen by viewers on their black boxes went unwatched. If no one watches commercials, then there is no commercial television.
And yet -- and here is the punch line -- the major broadcast networks have done nothing but encourage the new technology. In August 1999, Time Warner, Disney and NBC, among others, sank $57 million into Replay. About the same time, NBC and CBS, among others, handed $45 million to TiVo. By the end of 1999, all three major television networks, along with most of the major Hollywood studios, the two biggest Hollywood talent agencies (I.C.M. and C.A.A.) and all the major cable and satellite TV companies, had either made investments or formed partnerships with both Replay and TiVo.
There are a lot of explanations for why the networks have rushed to embrace their own creative destruction, most of them premised on the idiocy of network executives. Only one of these explanations is plausible: they feel they have no choice. "If the networks could roll back the clock and prevent digital technology from ever happening, they'd do it," says LeMasters of Replay. "But how do you stop progress? We're offering them the chance to adapt." Tom Rogers, the former president of NBC's cable division who made the first network investment in TiVo and Replay, puts it this way: "We thought that the technology was going to come, and it was better to have some voice in shaping it than none." It was the promise of NBC's imprimatur, in fact, that caused TiVo to design its remote control without what Rogers calls "the ad zapper." By the time Replay decided that it might be useful to have the endorsement and money of the networks, the company was too far along to eliminate QuickSkip, its ad zapper. NBC gave Replay money anyway. "We couldn't be in a position of being seen to promote a technology that was intended to undermine the economic support of the industry," says Rogers, explaining the quiet promise not to market the feature to consumers. That was in late 1998. Since then, Rogers has left NBC to become chairman of Primemedia, a holding company for lots of little niche media. Today, Replay markets its ad zapper. And one of TiVo's new advertisements features a network executive being hurled out a window by a pair of goons.
Their indiscriminate hurling of money at both TiVo and Replay suggests that the networks understand that the companies trying to commercialize the technology are, in a way, irrelevant. (Why not just back the one who promises to be less hostile?) It's the technology that matters; and it's the technology that is sure to win. "A lot of these guys had their bell rung four years ago by the Internet," says Steve Shannon of Replay, "and they don't want to be humiliated a second time." The Internet gave birth to a new corporate religion to replace the one it killed. The religion says: change is inevitable. The question now being posed by the television establishment -- and it emerges from the belly of the beast as a weak burp rather than a loud blast -- is no longer, "Is this new gadget going to affect us?" or even "Will this gadget eventually change how Americans watch TV?" but "When this gadget changes how Americans watch television, what else will it change?"
A lot.
he black box obviously does not mean the end of commercial television, only of commercial television as we know it. It poses two questions that demand a response from the television industry. The first is: How do you get people to watch ads when, with the press of a button, they can eliminate them? The sad truth about most popular TV programs is that they are poor vehicles for delivering advertising messages. And the sad truth about ads -- even the ones that cost $3 million to make and win the Golden Lion at Cannes -- is that the people who watch them really didn't ask to see them; people are just too lazy to avoid them. The black box puts an end to that racket. Either the ads will need to become as entertaining as the programs or the programs will need to contain the ads, so that they cannot be stripped out. If Jennifer Aniston wants to remain a Friend, she may need to don a T-shirt that says "Diet Coke."
The basic formula for making and selling TV programs hasn't changed since the beginning of commercial television. The network that develops a new program assumes it can ensure its success by placing it in a desirable time slot, when a lot of people happen to be watching TV. It further assumes that it can pay for it by selling commercial time during that program. The commercials then get flung at whoever happens to be watching at the time. The entire history of commercial television suddenly appears to have been a Stalinist plot erected, as it has been, on force from above rather than choice from below. The networks have coerced, or attempted to coerce, consumers to watch programs and commercials in which they have no native interest. The advertisers who pay for the commercials have agreed to believe, without good evidence, that some meaningful percentage of viewers actually behave in this manner. They have further agreed to believe, again without good evidence, that the sort of people who watch a particular program have a more than ordinary interest in the products advertised on that program. People who enjoy pro basketball are more likely than people who watch soap operas to drink beer; therefore beer companies buy ad time in the middle of pro basketball games.
Against the backdrop of the Internet boom this strikes the newer sparks of the ad and marketing business as terribly retro. "The television advertising business," says Tim Hanlon, a media director at Starcom Worldwide, a large advertising and marketing conglomerate, "is a science based on specious data." That data, generated by Nielsen Media Research, uses a sample of 5,000 homes to determine how many households tune into a given program, not how many watch the ads. "The measurement we use today is very crude," says Daryl Simm, the former head of worldwide media and programming for Procter & Gamble and the current head of media at Omnicom, yet another large advertising and marketing conglomerate. "It's an average measurement of the number of viewers watching an individual program that does not even measure the commercial break. When you think about improvements in measuring viewer habits, you think not about incremental changes but great leaps."
The TiVo and Replay boxes represent the greatest leap of all. They accumulate, in atomic detail, a record of who watched what and when they watched it. Put the box in all 102 million American homes, and you get a pointillist portrait of the entire American television audience. And that raises the second and more disturbing question to which the TV industry must respond: what do you do when you actually know who is watching and why? Already, TiVo and Replay know what each of their users does every second, though both companies make a point of saying that they don't actually dig into the data to find out who did what, that they only use it in the aggregate. Whatever. They know.
More to the point, they will know, in great detail, the viewer's interests, as recorded by the black box. Even now, advertisers pay a lot more for a well-targeted ad than they do for the sort of near-blind matchmaking that the networks, historically, have made their chief business. Put another way, an audience of 200,000 people you know intimately might be as valuable as an amorphous mass of 20 million. After all, a person with a deep interest in a subject is more likely to watch an ad about that subject. "You and I may not care to watch a commercial for Preparation H," Josh Bernoff says. "But for someone with hemorrhoids, it might be the thing he is most eager to hear about. And he's the one the makers of Preparation H want to talk to."
This is the market promise of the new black box. It can extract far more profit from every viewing minute of American television by creating endless clusters of new and very valuable groups of people with some common intense commercially exploitable interest. "This technology will encourage all sorts of niche brands," says Jim Barton of TiVo, "as well as whole new markets." His favorite example is the field-hockey channel. Everyone in the world with an interest in field hockey can punch "field hockey" into their box, and the box will go and find and record any program having to do with field hockey. At the moment, there isn't much field hockey out there on the tube; that will change. The maker of the new field-hockey related shows will rent cheap time -- at, say, 4 a.m. -- to broadcast. Field-hockey enthusiasts will simply record the shows. And -- voil -- a new business is born. "The business is two guys," Barton says. "One of the guys goes out and acquires field-hockey content. The other guy calls people who make field-hockey equipment."
The economics of targeted ads is so compelling that to make them possible is to make them certain. The formula for a field-hockey channel that sells only field-hockey equipment or a hemorrhoid channel that sells only hemorrhoid treatments is endlessly reproducible. But the same slice-'em-and-dice-'em logic applies even to such seemingly mass market events as the Super Bowl and the Academy Awards. The broadcaster that owns the rights to a mass-market event will be under tremendous pressure to carve the audience up into little pieces and to sell each piece to the highest bidder. Once the black box is ubiquitous, an advertiser need not buy the whole audience; he can buy a piece of the audience. Of course, General Motors may still buy time during the Super Bowl -- and pay a lot more for it. The company will probably use the time differently, though. In a world filled with black boxes, G.M. might use its 30 seconds to distribute 50 different commercials to 50 different clusters of consumers. New mothers will see ads for S.U.V.'s, middle-age people will see ads for sports cars and so on, and all the little groups will have been identified for G.M. by the new black box.
But even that is a retrograde example. The operative unit in TV ratings will no longer be the program but the moment. Advertisers and networks will know with weird accuracy who and what within each program best holds television viewers' attention. The black box can determine which joke in Letterman's monologue prompted certain viewers to switch to Leno or which medical emergency inspired viewers to exit "E.R." (If you thought the pressure on entertainers to be perpetually entertaining couldn't increase, think again.)
any things will change when television is able to whisper finely tuned messages to like-minded consumers rather than hollering crude messages through a bullhorn at millions. One thing that will change is the price of the messages. If they are to become more valuable, the targets must shrink, and as the targets shrink, the tools used to hit them must shrink as well. Not even General Motors can spend $3 million on an ad that will only be seen by 40,000 people. "We sort of see this as the changing of television as a medium," says Hanlon of Starcom. "I know the creative side of our business truly hasn't gotten this yet; they still see it as a fringe technology. But they are the ones who will get steamrolled first and most cleanly."
The people who use the bullhorn are also in trouble. Mike Ramsay recalls how in late 1997, just after TiVo opened its doors, he received a call out of the blue from Procter & Gamble's research division. Along with General Motors, P.&G. is the largest buyer of television time in the United States; between them, the two companies ponied up $3 billion of the $45 billion spent last year on television ads. "These two guys from P.&G. were in a car on a cell phone down the street," Ramsay says. "They were in the valley visiting and heard what we were doing and said they'd been playing with a similar idea in their labs because they knew that, sooner or later, something like this was going to happen. And they had the obvious question, 'How do we sell soap now?"'
In this new market, groups are narrower and defined by interests, and the ultimate interest is . . . Me! The main thing about Me! is that he always gets what he wants, or at any rate what he thinks he wants.
The P.&G. research division believed that the inevitable collision of the computer and the television made it far less likely a) that people would gather in groups of millions to watch TV shows and b) that people would watch ads that were thrust on them unbidden. But in P.&G.'s view, this was not necessarily a bad thing. "I'm really intrigued by this notion that the viewer now will be more dedicated," says Simm, who ran P.&G.'s media. "He'll have a higher degree of interest in what he's watching because he has an investment -- he's gone to the trouble to capture the program. That investment is going to connect him to the viewing experience in a way that is stronger than just grazing around. Viewer loyalty has got to translate into advertising opportunities."
It does -- but for whom? It's one thing for the Internet to poach a bit of the American attention span from the television. It's another to transform the television into an Internet-like renegade force for individualism. The television is the mass market. Without the television, there never would have been Tide or Rice Krispies or Alpo but a thousand versions of Tide and Rice Krispies and Alpo. This may not seem like a big deal to a user of Tide or Rice Krispies or Alpo, but to a manufacturer of Tide or Rice Krispies or Alpo it matters very much indeed. For the big brands, life without television is no life at all. Giant corporations whose sole purpose is to mass-market consumer goods exist in their current form because the television shaped the mass market. If television ceases to be a mass market, the mass market largely ceases to exist. The question isn't, "How does P.&G. sell soap?" but "How does P.&G. survive?" It must transform itself from a maker of mass-market goods into the world's largest boutique. After all, the consumer would obviously prefer not only the message precisely tailored to him but the products as well. In this new market, there will either be hundreds of versions of Tide or no Tide at all.
But why stop there? It isn't just the mass market that is crude and inefficient and therefore ripe for re-evaluation; it is Market Man himself. The new technology enables the market to redefine the consumer along significantly different lines. Instead of grouping him according to observable traits over which he has little or no control -- age, race, gender and so on -- the new market will know him by the decisions he has made about how to spend his time, each and every moment of which is recorded by his black box.
Nick Donatiello, the head of a San Francisco market-research company called Odyssey, says that the black box -- along with related technologies like the Internet -- makes it likely that ads will be tailored not to outward characteristics but to the more fundamental attitudes of the consumer. General Motors will run one commercial, perhaps, for people with a tragic view of life and another for people with a comic view of life. "Demographics used to be a good proxy for attitudes," Donatiello says. "In the 50's, you could tell a lot of things about a person if you knew where he lived. You can't do that anymore. We've become too fragmented and autonomous a society."
The process of getting inside a consumer's mind so that you can then get inside his wallet sounds invasive, and perhaps it is. But it's nothing personal. TiVo or Replay or some black-box service company will be able to present some mass-market company trying desperately to stay alive with 40,000 consumers classified as People Who Live for Onions. The individual consumer need never be mentioned by name or separated from his discrete group of onion obsessives -- at least not yet. Permitting himself to be classified with ever more intrusive precision is the price the onion obsessive pays for getting his onions. He may still not like the way the market classifies him, but this time he has no one to blame but himself. In that sense, it's rather heartening.
But what happens to people when the market view of them is different from the one they have of themselves? Do they come to see themselves as the market sees them? Do they feel more "29-45" or "male" or "Hispanic" because the incoming commercial signals are aimed at these specific traits? Will they come to think of themselves not as white or young or female but as Positivists or Relativists or whatever other types get dreamed up in response to the data generated by the black boxes? Stuff like this happens in America. One paradox of Generation X is that it viewed itself as ironically detached from the marketplace, when in fact it was itself created by the market. It grew out of MTV, which came into being because advertisers found it handy to have young people stripped out from the rest of us so they might be more accurately targeted.
t's a little strange to think of the mass market as a collective, but that is what it is. People who watch commercials subsidize people who don't; people directly influenced by ads subsidize people who watch ads with ironic detachment. This little pocket of socialism came into being at least in part because the technology did not exist that could measure, and put a price on, the attention of individual consumers. The mass market put a price not on individual states of mind but on the average state of mind of commercially very different people. It did this because it made no economic sense to parse in microscopic detail what each and every one of us did with our attention and why we did it. And so the market just lumped us together and assumed we all paid more or less the same attention.
Now, suddenly, the technology has appeared that can unravel the collective. That it arrives at a moment when all forms of socialism are on the run is either a magnificent stroke of luck or a good example of a society getting the technology it deserves. The only question is how far its logic will be taken -- to what level of detail will the consumer's state of mind be measured and priced?
But that makes it sound as if it is all some sort of elaborate conspiracy, beyond anyone's control. There is a pitiless economic process at work, so gradual that it does not really ever demand to be noticed. It is a species of economic determinism, the reverse of the one Marx described. The means of consumption, not the means of production, are the engine of modern economic life. The consumer's neurons will be measured and priced only if the consumer wants his neurons to be measured and priced, because their precise measurement enables others to give him exactly what he wants. If this is a conspiracy, it's a whole new kind of conspiracy. The consumer must conspire against himself.
Maybe the best way to see what's about to happen to the mass market is to observe what has happened already. To some extent, for instance, ads have become more like entertainment, and TV programming has moved in the direction in which it is about to be shoved much, much further. The few events that really benefit from being watched live -- sports and awards and sensational unfolding news -- have a greater gravitational pull, and a greater market value, than ever. Synthetic events like "Who Wants to Be a Millionaire" and "Survivor" are prescient, for they involve the viewer as a quasi participant and require the actual participants to deploy many vendable goods, thereby offering sparkling opportunities for product placement. In a "real" world, real goods and services are more naturally introduced than in a purely fictional one.
The new black box is really just a fantastically powerful accelerator of the fragmentation of markets that has occurred in response to cable television and the Internet. The Internet has paved the commercial imagination; everyone understands that something like the new black box is bound to happen to television. Already there's some rumbling in the netherworld of advertising and marketing that suggests it is preparing itself for the coming earthquake. For instance, last fall Starcom began to classify television audiences not by demographics but by something it calls "passion groups," which are defined by shared interests. Odyssey shuns demographics and instead categorizes consumers along the lines of their fundamental attitudes, giving them funny names like New Enthusiasts and Old Liners. Procter & Gamble has created a Web site called Reflect.com that enables shoppers to create their own beauty products -- a harbinger of an age in which every consumer will feel free to demand products tailored to him and him alone.
The theme of all this -- and much of what is new in the market -- is that groups are narrower and defined by interests and that the ultimate interest is . . . Me! The main thing about Me! is that he always gets what he wants, or at any rate what he thinks he wants. The mass-market consumer was a character who subjected himself to some form of coercion. The unmassed consumer needs to want to be sold.
When a persuasive new technology appears, it is only natural to wonder what effect it might have on the world around it. But it is also worth putting the question the other way around: what effect does the world around it have on technology? That is, what kind of society gives birth to such a gadget? Nick Donatiello makes the point that the black box is ideally suited for American life as it is currently configured, when consumer choice has been exalted to a fetish. "If you had offered Americans this box 30 years ago," he says, "they wouldn't have had the same reaction. One of the reasons people used to watch TV in the 1950's and 60's was for the shared experience. The metaphor for the country was the melting pot: people wanted to be the same. People read Time and Newsweek mainly because other people read Time and Newsweek. Now the metaphor is the quilt."
This is another way of saying that a technology that was shaped by one kind of society is being forced to adapt to a new kind of society. Most of the changes the black box so grandly encourages are merely extensions of trends under way: decentralization, free agency, the rooting out of all kinds of antimarket behavior and so on. Even the birth of the black box itself -- brought about as it was by obscure entrepreneurs working with venture capital instead of big companies trying to impose change from the top down -- was, as the market analysts are fond of saying, on trend. The tail now wags the dog. |
