Primetime and scheduled TV are losing their impact as consumers create their own entertainment lineups. Digital video recorders (DVRs) and video-on-demand (VOD) allow viewers to watch content on their own schedule and avoid traditional TV advertising.

At the same time, the slowing economy drives advertisers to demand the greatest return on their advertising investments. With interactive digital platforms allowing more measurability, the business case for traditional TV advertising is becoming increasingly weak.

VOD would seem well-positioned to capture a rising share of ad spending, but the way consumers use it may limit its potential as an ad medium.

Most cable TV operators offer free VOD content in combination with pay-per-view options, but time-shifting with DVRs is proving more popular.

According to Comcast—the leading cable operator in the US with 14.7 million subscribers—the most popular free VOD content is karaoke, music videos and programs for children.

VOD’s ad potential is somewhat limited by use. An August 2007 study by IBM indicated that only 48% of US adult Internet users had used VOD.

eMarketer estimates that VOD is available in one-third of TV households today, and will reach over 60% of households by 2012.

Content is the big driver of VOD usage. ChoiceStream data from December 2007 shows there would be greater viewership of VOD if there were “more content of interest.” Notably, however, 57% of respondents said they would not watch more VOD even if the content were better. Clearly price, awareness and usability are also factors in VOD usage.

Increasing the VOD audience (and ad revenue potential) may depend in part on advertisers and marketers: Better content, supported by ads, combined with VOD awareness and education campaigns, could be part of the solution.