TiVoed: The Effects of Ad-Avoidance Technologies on Broadcaster Behaviour (PDF; 211 KB)
Source: Virginia Economics Working Papers
“The business model of commercial (free-to-air) television relies on advertisers to pay for programming. Viewers ‘inadvertently’ watch advertisements that are bundled with programming. If the viewers succeed in unbundling the advertisements from the entertainment content (advertising bypass), advertisers have no reason to pay to have their ads embedded. TiVo (Digital Video Recorder) machines, remote controls, and pop-up ad blockers all detract from the willingness to pay of advertisers for audience since less audience is actually exposed to the ads. However, viewer purchases of devices to avoid ads may cause a disproportionate share of the ad nuisance to fall on the remaining audience. This result arises in our model, in line with observed facts. The bypass option may cause welfare to fall. We demonstrate that higher penetration of such technologies may cause program content to be of lower quality as well as to appeal to a broader range of viewers (rather than niches). In addition, we cast doubt on the profitability of using subscriptions to counter the impact of ad- avoidance.”

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