LOS ANGELES  - When Lexus adapted a TV ad campaign for users of TiVo, the digital video recorder, the automotive company and its advertising agency knew they were entering new territory. After all, TiVo is designed to let viewers skip commercials. Here was an attempt to turn expectations on their head.  Lexus says its one-month campaign on TiVo, which offered a chance to win a new car, drew a response from nearly one-quarter of all 280,000 TiVo subscribers.

By comparison, regular TV advertising is usually considered successful with response rates of less than one percent.  "We're extremely ecstatic," said Mike Wells, vice president of marketing for Lexus, the luxury division of Toyota Motor Corp. "A lot of companies see TiVo being a negative thing. We see it as an opportunity." TiVo Inc. of Alviso, along with rivals SONICblue Inc. of Santa Clara, and Microsoft Corp.'s Ultimate TV, threaten to redefine the ground rules for the $59 billion television industry.

[Clive Boustred]  1. InfoTelesys' model allows substantially more advanced and interactive advertising than what you can do on TiVO. TiVO is really only a digital VCR with a single "cassette" and no upgrade options. 2. The IT Set™ IT Server™ DTAC™ combination blows away the TiVO concept and system in the areas of ease of use, functionality, performance, scalability and cost.  We provide full next generation Internet capabilities with our system along with a huge amount of additional services and features.

"A lot of advertisers and broadcasters are in a great deal of denial," said Tim Hanlon, a vice president and director of Starcom MediaVest Group, a media agency in Chicago.

[Clive Boustred] Denial when introducing new concepts and systems is common.  We saw the same denial with the introduction of electricity, the telegraph, the automobile, the telephone, TV, VCR, CD, DVD etc. Incidentally the DVD market is one of the fastest growing markets ever, we complement this market. "Innovation rarely comes from incumbents".

Personal video recorders house hard drives that store hours of programming. They can be easily customized using built-in, constantly updated TV schedules, to record shows so the consumer - and not the networks - control viewing times.

Owners of one of the newest PVR models can even share programs over the Internet.  Not only does the technology allow viewers to decide exactly what they watch and when, it also allows them to pause live programming and skip commercials altogether.

By allowing users to digitally record copyrighted programming, it also raises the prospect of widespread theft of content - an issue that already has hamstrung the online music industry.

[Clive Boustred] From a legal industry perspective, as soon as you play content you are setting yourself up to be ripped off.  What the media industry should consider is creating content that builds morally responsible societies that do not steal.  Moral society is really the only way to protect content.  From InfoTelesys' perspective, we can provide the media industry with new capabilities of individually encrypting content for individual users.  InfoTelesys can offer the media industry with the most advanced copy protection ever available.

But personal digital video recorders also offer tremendous power to marketers if used properly. The technology can report intimate details of consumers' viewing habits, which broadcasters, content distributors and advertisers could use to direct tailored messages.

"What Lexus has done, I think, is indicative of what most marketers need to do," said Hanlon, who has advised some of his own clients, including the Miller Brewing Co., to adopt similar campaigns. The ad agency for Lexus, Team One Advertising, a division of Saatchi and Saatchi, worked with TiVo to create special software to run the ads.  Viewers called up the spots on their TiVo boxes from the menu of recorded programs, then submitted answers about the ads on a Lexus Web site for a chance to win a Lexus ES 300 sedan. More than 64,000 responses were received before the campaign ended on Dec. 14, Lexus said.  So far, Lexus is the only company to try to adapt the TiVo platform for
its own needs.

Eric Scheirer, senior analyst with Forrester Research Inc., calls the technology "inherently threatening" to broadcasters. "Once PVRs become mainstream, ad agencies will start to question whether TV ads are the most effective way to spend clients' money," he said.

The Cambridge, Mass.-based research firm forecasts that personal video recorders and other new technologies will cause an $8 billion falloff in TV ad dollars between 2006 and 2008.

Although sales of PVRs total only about 400,000 units today, Josh Bernoff, Forrester's TV analyst, says the important rollout phase for any new device is between 1 million and 10 million units and predicts PVRs will easily enter that zone next year.

The major networks, which actually invested millions of dollars in the startups behind PVR technology three years ago, are now taking steps to protect their territory.  NBC, ABC, CBS and their parent companies filed suit in October against SONICblue, charging that its newest ReplayTV model, the 4000, violates copyright laws and deprives them of revenues.  While NBC and ABC declined to discuss the effect of PVRs on their businesses, CBS said any talk of fear is over exaggerated.

People view PVRs as expensive VCRs that won't play rented movies, said David Poltrack, executive vice president of research and planning for CBS. Furthermore, the technology ignores the reality of the couch potato.  "People don't watch TV as if they're in the cockpit of a plane. TV is something you do when you don't feel like doing anything," he said.

In addition, the rollout of PVRs, which first appeared on store shelves two years ago, has been significantly slower than the adoption of the VCR in the late 1970s and early 1980s.

CBS agrees, though, that the technology will eventually reduce the amount of "random viewing." In response, the networks must strengthen the branding of their programming to create more favorite shows, Poltrack said.

[Clive Boustred] What these TV execs are not recognizing is that a couch potato channel surfs.  The reason a couch potato channel surf's is because they can not find any decent content!  With the IT Set™ the couch potato always has something good to watch "In your time not their time™".  TV exec's maybe do not like the fact that InfoTelesys' world allows the consumer to construct their own content and program.  However, what these exec's are not realizing is that it is not what they care for, but what the consumer cares for.  Given the choice, the consumer will rapidly move toward a system with choice and control, particularly with the IT Set™, where this choice and control is easier than current systems. [Clive Boustred] Another consideration regarding the InfoTelesys IT Set™ is that it is complementary to playing rented DVD's, we even allow a customer to play their regular VCR content over our systems.

If PVRs manage to catch up to the adoption rate of VCRs, by 2010 they would be in 50 percent of U.S. households. The overall impact would be 12 percent fewer ads watched by viewers, spread across all programming, Poltrack said.

[Clive Boustred] InfoTelesys adds the further dimension that there is actually a world outside the U.S.  Our technology allows easy penetration of global markets.  We might even help reduce the incidence of terrorism by providing education and society enabling technology that actually helps people around the world, instead of simply bombing our enemies and anyone who is unfortunate enough to be in the way.

While there's no industry consensus on this number, there is agreement that the upside for networks could be detailed data about the viewing habits of PVRs users.

"There will be targeted advertising like you've never seen before," said  Kenneth Potashner, chairman and chief executive of SONICblue.  SONICblue is hoping to work closely with the networks on several fronts, in spite of the lawsuits they have filed against the company.  SONICblue's ReplayTV 4000 hooks up to an Internet broadband connection, which Potashner hopes will one day be used for ordering shows from broadcasters.  "The networks are scrambling. I don't think they want to kill the technology. They just want to control it," he said.

[Clive Boustred] Separation of channel and content is something the public and governments need to grapple with soon, otherwise we will all be marching to the tune of AOL/Time Warner.  Civil libertarians have gone overboard separating the Church from government, to the extent where in the U.S. we ban the free speech of prayer in schools, yet they are doing little to recognize the more significant element of a channel that simply will not allow you to hear about alternatives, since they only want to push their own content.  Separation of channel and content is something we all need to consider.  One must ask if AOL and Time Warner made a huge strategic error in merging a content company with a channel.  Their channel is immediately limited and prejudiced against anything they do not own.

While InfoTelesys' supports all the legacy media, much of the rich-media content that will be in demand in the new media world, has yet to be developed.  Most of this new media is likely to be developed by creative individuals on their IT Studios™ and other competing products.  While some content will come from the big studios, the cost of systems capable of producing rich-media is now in the reach of individuals. We are clearly moving towards a new media market, the customer is prepared and eager for our products, our systems can effectively change the way business is conducted, and InfoTelesys already does IT.