The Digital Video Recorder: Unbundling Advertising and Content

Abstract

Next time you turn on your television, actually watch the commercials and you will quickly see how poorly the economic model of TV is working. They put on a commercial for dog food, but you don't have a dog. Many of the commercials are for product categories that you do not purchase, and others are for products, such as cars or computers, that you use constantly but purchase only sporadically. The digital video recorder (DVR) may change this dramatically. The DVR will allow us to unbundle content and advertising. Content that comes from broadcasters bundled in one form - the TV show itself, the station identifications, the ads selling Budweiser and the promos for a very special Dawson's Creek - can be reshaped and separated before the viewer sees it. The ability to delete commercials puts at risk the basic financing model for free broadcast TV. At least as important, unbundling of ads and content allows personalization of commercials and that in turn may change content itself. Personalization will change the core role that content plays in intermediating between advertisers and audiences. Traditionally, content plays a dual role: it attracts a particular type of reader, and that in turn determines the type of advertising that can be sold. Creators shape content to best fit the intersection of advertisers and audience. A DVR with ad personalization has the capacity to alter completely this critical matching process played by content creators. How the DVR technology is organized will almost certainly help to determine whether viewers can commit to not deleting the ads. Decentralized, free-standing DVRs - the current model - will make commitment difficult. Centralizing the DVR technology in the pipes bringing the content into your home - putting the DVR technology in the cable box - may make the ad commitments more credible. The range of possible, supportable economic models turns directly on how the DVR technology is organized and those models matter directly for the kind of content that will be made available. How the technology is organized also turns out to be quite important for law. Standard legal instruments such as copyright or contract work only so well with widespread, decentralized use of a technology. Centralized technology is easier to control, either through contract; through common law doctrines such as contributory copyright infringement, the tack tried in Sony; or through direct regulation, as we have done with cable. The regulatory path for the DVR probably turns on whether it emerges as a decentralized technology ala the VCR or as part of the cable/DBS system. And, if the DVR technology is centralized, we may see a substantial asymmetry between broadcast and cable. The dispute over must carry will morph into a fight over must store or must be smart as over-the-air broadcasters will seek access to the storage and intelligence that will come to reside in the set-top box.