TiVo Economics

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?