I love my TiVo. And like a good economist, I’ve been trying to quantify this love. Here’s what I came up with.
I watch about six hours of television programming per week. The miracle of the “30-second skip” button means that I haven’t watched an advertisement in years. Consequently, six hours of programming only takes me four hours to watch, and TiVo saves me two hours per week.
Let’s say my hourly wage is $100, and so I value these marginal couple of hours at around $200. I’m home around 50 weeks per year, and so Tivo gives me a total of $10,000 worth of time per year. I will get to enjoy this benefit for the rest of my life, and so we should take a net present value of this benefit stream. Using a discount rate of 5 percent, this yields a total TiVo-related bonus of $200,000 worth of leisure.
Oh, and Betsey loves our TiVo too, suggesting that this humble machine has improved our household’s well-being by about $400,000, versus a cost of $200.
But that’s only part of the story. Because of TiVo, I no longer just watch whatever happens to be on TV when I’m in the TV-watching mood; instead, I get to watch my favorite shows from throughout the week. (I’ll admit that this includes Ugly Betty.) Perhaps this improvement is similar to what you get when you move from a choice of the major networks to also choosing from basic cable. Given that I’m willing to pay about $45 per month for basic cable, this quality bump must be worth at least $500 per year, yielding an NPV of at least $10,000. Thus, while the quality improvement is reasonably important, my real love of TiVo comes from the fact that it saves me so much time.
What about the gains to the average American?
Time use data tell us that he watches 2.6 hours per day, or 18.3 hours per week; with TiVo, he can watch this programming in around 12 hours, saving 6 hours.
Average hourly earnings are around $18, suggesting that TiVo saves time that could otherwise have been sold for around $108 per week. We should also add in the benefit of higher quality television — around $11 per week — and subtract the cost of the annoying service charge, which is around $3 per week, yielding net benefits of $116 per week, or $6,000 per year. The net present value of this flow is around $120,000 per person, or perhaps around a quarter of a million dollars per household. Wow.
I’ll admit that there are at least half a dozen questionable assumptions in my analysis, and so perhaps the benefits are only half or perhaps a quarter as big as my estimates. But still, the case for TiVo seems pretty solid.
And yet, given this amazing math, around 7 in 10 U.S. households don’t have a TiVo, or a DVR equivalent.
Which leads me to wonder: Why hasn’t TiVo been adopted more broadly?
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Here is your answer: average people don’t look at TiVo in the same way as an economist. It’s a luxury, the time savings simply aren’t part of the equation.
I have TiVo, and can honestly say I watch less TV than I did before. Some people end up watching more TV because of TiVo.
I’m one of those strange folks who can easily live without TV of any kind and would still perfer to (though my husband’s head would explode). Only with TiVo is TV worthwhile, otherwise it is a useless time suck.
Your analysis assumes that as the alternative to TIVO you would spend the two hours watching the advertisements. That is probably not true. I have a PVR with my digital cable. My experience is that with the PVR I watch about twice as many shows as I used to.
Many of them do not want to save the time. An adult that watches that much TV per week is probably just watching whatever is on the TV. It seems that DVR/TIVO really appeals to people with interest in specific shows or movies.
Possible Answers:
1. Can’t do the math to see the benefit (particularly when you get into NPV).
2. Cash flow problem. For some, time saved can’t be converted into the cash needed to even cover the $3 per week?
3. There is a value that you have not considered in being able to view a program live / as soon as possible (in particular, I think of sporting events) that trumps the desire to watch it in the most efficient manner possible.
4. Choosing to watch TV is not a rational choice. In my rational moments I think that there are other things that I would rather be doing with my time, but impulsively, I plop down on the couch and watch. The initial $200 purchase and the agreement to the service charge may cause my rational thoughts to kick in?
Great article – definitely some fun math. However, I think the trend you’re pointing to (desired content, on demand, all the time) is being widely adapted online. People who are interested in moving beyond the traditionally commercial -inundated TV programming started moving their media search online years ago.
This was the original impetus for illegal downloading: people just wanted what they wanted, right now. The most successful online media outlets are those which offer content, for free and instantly. Now, premium content and an efficient portal to the content is usually worth people’s money for a subscription.. but that’s the direction it’s all heading. Even sites like the NYT and the WSJ will eventually be content aggregaters as much as news outlets… but why did I watch the election on nytimes.com instead of anywhere else? Because the MANNER of the content delivery was great, even though the content was generally the same (I’m thinking of your totally awesome county-by-county electoral map).
TiVo is just the first step for users who want to move away from programmed and scheduled content. Maybe that is why it’s not more widely adopted? Or maybe the general public is still happy with their regularly scheduled programming.
Many people don’t concentrate on the TV when watching it. They do other things (watch the kids, fold laundry, whatever), only somewhat registering what’s going on on the television*.
With a tivo, to skip ads, you’d have to pay closer attention, making you less productive at whatever else you’re doing. And since you’re doing other things and using the TV as little more than background noise, saving time on one show just means you’re going to leave something else on in the background while you finish folding laundry or can put the kids to bed.
* – this is one of the reasons why Arrested Development, 30 Rock, and other shows that reward paying close attention don’t draw the kinds of big audiences that Two and a Half Men gets with generic sitcom tropes, one liners, and the good old’ laugh track.
Could you increase your working hours per week by 2 and actually make that extra $200 a week? Wouldn’t that be a reasonable requirement in order to justify that assumption?
I think there are three technical barriers that prevents more widespread adoption of Tivo:
1. You gotta connect it to either your land-line phone (if you still have one, and haven’t gone to a cell-phone-only lifestyle) or your home network (if you have one) to really make Tivo useful. As wireless home networks get ubiquitous this is becoming less of an issue…
2. Making Tivo work with your cable TV is a pain. I love my HD-Tivo, but it took a month to get an appointment with Comcast to get a technician to come to my house and make it work.
3. You’ve gotta find space for the box next to your TV. It means Yet Another Device next to the cable box, DVD player, audio equipment, Wii, …
One day maybe Tivos will be built-in to TV sets and the programming information will be sent as part of the digital TV signal…