Read This, and Every Time You See the Word “DVR,” Insert “The Internet” Instead.

The New York Times has an interesting article today about the DVR and its impact on TV viewing. The article notes that TV execs once feared the DVR. Now, they love it.

What happened? It’s a cycle that happens with any revolutionary technology:

1. The technology is created and released to the public.

2. The technology gains widespread adoption.

3. Everything else works to catch up to the technology.

We created cars, and paved roads came later. We created sliced bread, and toasters came later. We created the slap shot, and — 50 years ago today — goalies started wearing masks. Ever heard the phrase “safety first”? In hockey, quite literally, safety came second.

But TV is just starting to adapt to the DVR, even though the TiVo was introduced more than a decade ago.

The original problem with the DVR was pretty simple: TV stations need money. They sell advertising to make money. But the DVR gave the consumers the power to skip past those ads.

The secondary problem was with TVs complicated ratings system. The ratings are measured in — and I’ll put this politely — an esoteric way. TV people don’t like the Nielsen ratings system. But it’s the only measure that counts when it comes to deciding whether or not a television program is successful.

When the DVR was introduced, it allowed viewers to record a show and watch it later. But Nielsen didn’t account for these viewers. If you weren’t watching the show live, it didn’t count in the ratings.

So it took a few years for the ratings system to catch up. Explains The Times:

Two years ago, in a seismic change from past practice, Nielsen started measuring television consumption by the so-called commercial-plus-three ratings, which measure viewing for the commercials in shows that are watched either live or played back on digital video recorders within three days. This replaced the use of program ratings.

With the new system, ratings are up — way up. Thanks to the plus-three system, Fox has added about 600,00 viewers per show. Even NBC, which has seen the smallest gains with plus-three, has added an average of 140,00 viewers per show.

Here’s the crucial thought: for eight years of the DVR’s existence, television stations were improperly valuing their own assets. Thousands of people were watching TV shows, but those viewers weren’t being counted.

The same is happening with internet advertising. Ads are sold using a CPM valuation that doesn’t work. Today, the clickthrough is the key to increasing your CPM and raising your advertising rates. But it’s not particularly effective.

Why? For one, humans aren’t nearly as impulsive on the Internet as you’d expect. The clickthrough method works well for products that can be delivered on demand, which is why iTunes’ store is so effective, why porn sells on the web and why watching movies with the touch of a mouse is the next big thing. But say you see an ad on Yahoo!’s homepage for Chick-Fil-A. Even if you click through to the company’s website to read or see more, is that really any indicator that you’re heading out for a chicken sandwich at lunch?

The real money will be made when internet advertising measures — much like the Nielsen plus-three method — user engagement. DVR viewers are actively choosing to record and watch their favorite shows. For internet ads to be successful, those ads will have to demand a similar level of interaction with users.

Whatever the new version of CPM is, it has to measure that consumer’s desire for a particular product. A clickthrough simply doesn’t measure up.