PVR In satellite's sightsâ€¦Is it in cable's?(2)
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 sectorâ€“ 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 adoptionâ€“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 technologyâ€“TiVo and SonicBlue's ReplayTVâ€“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. For rival technology SonicBlue/ ReplayTV, inconsistency in the formative years has put the company in the position of chasing TiVo. At first, ReplayTV recorders required no service fee, but much of that cost was included in box prices that reached as high as $1,000. Now, following TiVo's lead, ReplayTV will charge subscription fees. More details should be available later this summer when the ReplayTV 4500 recorders hit the market, but owners of the earlier ReplayTV 4000 model won't need to pay a monthly service fee. 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. EchoStarâ€™s 721 system.Despite some early PVR miscues, DirecTV is moving ahead with a lower cost box based on TiVo's Series2 platform, which could give DirecTV some PVR traction among its customers. Consumer electronics makers Philips, Sony and DirecTV-parent Hughes Network Systems will continue to make the new Series2-based receivers. And even with lower-than-expected take rates in the DirecTV deal, TiVo has gotten new life through promotional DBS deals like this. 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 wellâ€¦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 clearâ€“DBS providers have realized that PVR is perhaps the most potent weapon in their arsenals. For now, it's DBS' only answer to cable's version of "true" VOD. DirecTV, for instance, plans to test a subscription-VOD service this summer with Starz Encore Group by downloading content during off-hours and caching it on satellite receiver hard drives. Even across the pond, satellite PVR is gaining some footing. In the U.K., the BSkyB satellite service has offered a PVR-enabled Sky Plus service since September of last year. Box maker Pace Micro Technology plc has provided the Sky Plus set-top receiver for the service, as part of a developmental collaboration between Pace, NDS, OpenTV, NEC and Sky. Sky satellite customers can buy a Sky Plus box at retail for around 300Â£, and pay 10Â£ a month for the service. PVR functionality is added to the traditional Sky Guide EPG, and offers about 20 hours of all-digital recording. The box is dual tuner, allowing users to watch-and-record two separate sources, and pause live TV as well. How quickly cable operators will respond to the PVR competition, and in what form, is still up in the air, but they have different options. THE RISE, AND SUBSEQUENT FALL, OF THE SIDECAR So far, cable's taken an interim approach to PVR, but hasn't yet created any sustainable growth or momentum for the technology. With millions of thin client set-tops in the field, some cable operators have explored the use of "sidecar" PVRs that are designed to sync up with legacy set-tops. But recent failings of some sidecar PVR providers are calling the entire model into question. Keen Personal Media was one proponent of the sidecar solution, and had signed up two MSOs to trial boxes with 50 to 100 hours of storage. Unfortunately for Keen, one of those trials was with troubled MSO Adelphia, but Keen has also encountered difficulty in garnering support for the sidecar from other operators as well. Falling victim to operators' intransigence, Keen parent Western Digital Corp. has essentially pulled the plug on Keen's sidecar efforts, forcing the layoff of most of the division's workforce. Western Digital, meanwhile, is supplying the hard drives for TiVo's new Series2 PVRs. Keen CEO Russ Krapf says MSOs need to get into the PVR game as rival satellite providers find some success with the service, but wonders how long it will take for the cable industry to define a specific PVR strategy. "(Operators) aren't willing, or able, to be clear in their own minds about what their deployment plans are going to be for PVR," Krapf explains. "We could not continue to spend the money we were spending waiting for them to reach that clarity." Going forward, a slimmer Keen will focus on set-top box integration of its TV4me PVR software platform, and retire from the sidecar game, at least for now. Scientific-Atlanta Inc. integrates parts of the Keen PVR platform, along with storage management software from Metabyte Networks, in its new Explorer 8000 set-top. Krapf hopes Keen will also play a part in Motorola Broadband's inevitable application development for the DCT2600 and DCT5200, which will house on-board PVR functionality (see below to read more about in-box integration). The demise of another sidecar provider, CacheVision, also begs the question of whether the sidecar model can be a profitable one. Thomson Multimedia, which along with hard drive maker Seagate Technology Inc., backed the failed CacheVision effort, is now looking to other consumer electronics devices to incorporate PVR. For example, Thomson plans to release a high-end progressive scan DVD player with built-in PVR capabilities later this year under the RCA Scenium brand, says Thomson spokesman Dave Arland. Another sidecar approach that looks like it will stay the course, at least in the short term, is being tested by AT&T Broadband, which instead of renting or leasing sidecars specifically built for cable set-tops, sells the 40-hour version of TiVo's Series2 stand-alone box to customers in select markets, including Denver, and parts of San Francisco and New England. The box sells for under $300 and includes a monthly service fee. Though AT&T Broadband launched the trial last November, company officials would not provide subscriber or box sales figures, but said the program would continue through this year. What's clear is that cable will need to address PVR sooner, rather than later, and the sidecar approach likely won't cut it. Operators now (perhaps spurred on by satellite's gains) are looking at set-top box integration, as well as network-based versions.IN-BOX INTEGRATION Integration into set-top boxes is already underway by the major set-top makers, as part of a budding movement to integrate richer capabilities into thicker, more powerful boxes. Scientific-Atlanta holds claim to "the only (cable) set-topâ€“the Explorer 8000â€“ that has PVR capability today," according to Bob Van Orden, S-A's vice president of product strategies for the company's subscriber sector. S-A's Explorer 8000, which already is shipping, combines two video tuners, two digital MPEG encoders, and an 80 gigabyte hard drive with PVR functionality. The box houses a PVR version of the PowerTV operating system, and application development through the SARA Navigation Suite and IPG. So far, Time Warner Cable and Cox Communications are the only two MSOs to publicly disclose orders for the Explorer 8000. How they plan to offer customers PVR is still in question, and will be worked out in Beta testing, which is where the 8000 finds itself today. But for Van Orden, PVR is the Trojan Horse that will get the thicker 8000s into more homes, leading to more interactive developments down the line. "When you've got a product like the 8000, that has a broadband pipe coming into it and has such massive storage, there is so much more that can and will be done with this product," he says. He specifies "pushing" targeted video and advertising to the box, digital audio, and digital photography among the future applications for the 8000. Motorola is not as far along in terms of PVR integration into its set-top boxes. The company has talked about including storage into beefier models in new DCT2000-class boxes, but those won't be available until the first quarter of next year. Motorola has licensed ReplayTV's PVR software, but the application development is in its infancy and will be driven by MSO interest and leadership in developing PVR platforms, according to Motorola Director of Strategic Marketing Bernadette Vernon. Motorola also will be incorporating hard drive storage for the DCT5200 series of boxes, in various configurations and storage sizes. PVR capability will also play a big part in the development of Motorola's new class of Broadband Media Center (BMC) boxes. The stand-alone BMC9000, and the BMC8000 (a companion PVR box for the DCT2000), are powered by the Digeo-Moxi software platform, and will house integrated PVR capability when those boxes roll off the assembly line. To date, Charter Communications Inc. is the lone MSO to commit to the new hardware and software combination. Today, cable operators appear to be at a PVR crossroads. Their first baby steps were made with the introduction of set-top sidecars, but from a profitability standpoint, that's a model that probably doesn't have legs. But with satellite providers making hay with an integrated approach, it's still uncertain how long cable operators will wait before they even the playing field. Â Network-based PVR: Part of an inevitable solution As set-top box makers look to incorporate PVR directly into future versions of their boxes, some operators are also exploring the virtues of a version that runs off their broadband networks. "The age old debate is, do you put the storage in the box or...in the network?," asks Scientific-Atlanta's Bob Van Orden. "The answer is 'Yes'." Despite some recent leanings toward set-tops with integrated PVRs, down the road, a network-enabled PVR service is likely to include some form of storage or management at the network level. Simply put, the huge scale of offering PVR on a market-wide basis will likely require it. Looking ahead, a hybrid approach to PVR is likely to evolveâ€“one where personal television control and storage is split between the local set-top and headend technologies. And today, headend upgrades to support video-on-demand can provide a migration path to get there. Video servers from companies like nCUBE Corp. claim scaling capabilities that push beyond 200,000 hours of storage. By way of reference, an operator could record 200 networks for an entire month, and still not use all of that capacity. So, operators can invest in video servers today, with the intention of creating more user control of that recorded content in the future. That step should be relatively painless, at least according to VOD vendors. "The next generation would be to actually allow somebody, through their guide, to navigate into the past for content on the server, and to navigate into the future using the 'record' button on their remote," explains Jay Schiller, senior vice president of broadband strategy and product management for nCUBE. nCube promotes a migration platform dubbed nPVR, or Network PVR. nCUBE rivals such as Concurrent Computer Corp. and SeaChange International also have created products designed to fit that need. Concurrent, for one, is branding its version as the Personal Video Channel, or pVC. So far, only AOL Time Warner has publicly discussed plans for the network-based PVR concept, but the company has been reticent to let others in on how far along it really is. Most operators appear to be focusing on more basic VOD deployments before making the leap to the network PVR. Despite some of the copyright and digital rights management questions involved in the network approach, it's the network that will help cable fend off its most aggressive competitors. "The cable network has a huge advantageâ€¦because of its bandwidth. It can do things with network storage that satellite can't," explains S-A's Van Orden. "Like in the PC world, the debate of either/or (storage) is a non-debate. It explodes at both ends."