PVR In satellite's sights…Is it in cable's?
After a slow start, personal video recording is catching on with consumers,
in part because of a recent promotional push from DBS providers.
So, cable operators, what are you going to do about it?
It's the end of TV as we know it.
Or, at least, that's the gist of some of the scare propaganda being spun out there by broadcasters and media companies in response to the growing popularity of personal video recording technology. In reality, though, television is following the trend marking most of the general consumer sector– namely, the rise of more personal control over the media users consume.
It's been a slow road to the mainstream for PVR (or DVR, digital video recording, as it's sometimes referred to); leading stand-alone PVR companies such as the momentum-filled TiVo and the still-sluggish ReplayTV (now part of SonicBlue) have seen fairly slow growth since their introduction in the late 1990s.
At the time, both TiVo and ReplayTV confused consumers and market watchers alike with untested service models and high box prices. But today, PVR service, especially from market leader TiVo, is beginning to live up to early expectations, as providers streamline their service models, settle legal disputes stemming from disagreements with content and service providers, and create strategic alliances to spread awareness and adoption–basically getting their houses in order.
In what could serve as a PVR wake-up call to cable providers, much of the momentum for the technology has been the result of recent promotional deals touted by satellite providers EchoStar and DirecTV. EchoStar, for one, has shipped more than 500,000 PVR-enabled satellite receivers, so perhaps it's no coincidence that analysts are again warming up to consumer-side PVR, just as subscriber numbers are seeing a real boost from these satellite provider promotions.
The question now becomes, how will cable providers keep the PVR pace?
For the companies providing most of the underlying PVR technology–TiVo and SonicBlue's ReplayTV–the past few years have been about building consumer awareness, and creating the right business model.
TiVo today appears to be in the best position to thrive. For example, analysts recently have jumped back on the TiVo bandwagon as the company begins to meet once-lofty growth numbers. While the overall number of TiVo users remains relatively small compared to other consumer electronics products (TiVo boasts roughly 400,000 subscribers), the company added 42,000 new subs in the first quarter of 2002 and expects similar growth throughout the rest of the year. Moreover, TiVo predicts it will complete the turnaround by reaching cash-flow breakeven by next year.
How did TiVo get righted? First, it solidified its business model, which centers on consumers buying a TiVo box for $300 to $400, and then paying either a monthly or lifetime subscription fee. The lifetime fee is $249, and TiVo recently raised its monthly fee to $12.95 a month. Cash is flowing more freely, and promotional deals with satellite companies like DirecTV and consumer electronics makers are pushing TiVo technology into more consumer boxes at home. Plus, TiVo in April launched its slimmed-down, but more advanced Series2 model, which has contributed to a spike in sales. Earlier generation boxes are undergoing a software upgrade to match the feature set of the new Series2, and eventually all the TiVo boxes deployed will have a common technological platform to deliver PVR services.
In-house, Replay is getting its act together, but it will have some hurdles to overcome related to how it deals in the competitive marketplace. It is embroiled in one legal battle with rival TiVo over patent infringement, and still another with the entertainment industry over technology that allows users to bypass commercials altogether while recording. Despite these drags, ReplayTV is slowly pushing owner SonicBlue toward profitability.
But it's the recent momentum for PVR services that should get the cable industry's attention, and it should worry them that much of that momentum can be attributed to promotions by DBS providers.SELLING BOXES VIA SATELLITE
DirecTV has been selling a PVR-enabled receiver powered by TiVo since October 2000. So far, the number of DirecTV's 10.7 million subscribers to take the TiVo service has been less than expected. DirecTV's UltimateTV project with Microsoft Corp., meanwhile, came to a halt earlier this year when Microsoft pulled the plug on the division after selling about 100,000 units.
EchoStar’s 721 system.
TiVo chief exec Mike Ramsay said in an interview with investors, "nearly half of our business comes from DirecTV," but didn't provide specific figures. However, TiVo did disclose in its first quarter earnings statement that it generated about $1.6 million from "professional services" tied to its deal to make a next-gen box for DirecTV.
PVR represents a big part of new business at EchoStar as well…a very big part. So far, EchoStar, which is in the throes of a planned merger with DirecTV, has shipped more than 500,000 PVR-enabled satellite TV receivers, and prices for the introductory models of the box are descending to under $350. First-generation DishPVR 501 (and thicker 508-series) boxes are being upgraded with new software, and new dual-tuner 721 series boxes are slated for release to retail channels by the end of June. The 721 model adds DSL capability as well, but that functionality won't immediately be activated in the new boxes. EchoStar is also collaborating with the Digeo Inc./Moxi group on an even richer box, so future applications, and the fact that no monthly service fee is required, could continue to make EchoStar's PVR push a compelling one for consumers.
How compelling? A full 40 percent of new subscribers to EchoStar's DISH service are taking PVR, and at its current rate, EchoStar is adding about 1.25 million new subs per year. In a recent conference call, company CEO Charlie Ergen said his goal is to extend EchoStar's PVR take rate to 50 percent of all new sign-ups.
For cable operators, the tealeaves are abundantly clear–DBS providers have realized that PVR is perhaps the most potent weapon in their arsenals. For n