REPLAYTV FOLDS RETAIL, WILL LICENSE TECHNOLOGY
12/11/2000
Audio Week
(c) Copyright 2000 Warren Communications News, Inc. All Rights Reserved.
As ReplayTV folds direct sales business to focus on licensing its personal video recorder (PVR) technology, its future viability is being questioned.
While ReplayTV and licensee Matsushita have sold 30,000 units since debut last spring, other alliances with EchoStar, Motorola, Scientific-Atlanta and Sharp have yet to bear fruit. Matsushita is developing integrated products and, while it hasn't set introduction date, it remains committed to PVRs, Panasonic Consumer Video Gen. Mgr. Andrew Nelkin said. EchoStar, meanwhile, has marketed DishPlayer that combines WebTV with satellite receiver, but also is planning PVR/IRD based on OpenTV platform that doesn't include ReplayTV technology. Neither EchoStar nor Sharp, which have financial stakes in ReplayTV, has committed to introducing products, although Sharp is said to be developing DVD player/PVR.
TiVo and ReplayTV have sold combined 98,000 units so far this year and are likely fall far short of year-end projection of 300,000, industry sources said. There also were signs that ReplayTV was struggling financially. Venture capital firm Kleiner, Perkins, Caulfield & Byers, which has 19.5% stake in ReplayTV, was said to have tightened funding. And ReplayTV strategy, which relied on free basic service, required heavy subsidy. Some industry sources said strategy resulted in $499 PVR carrying "several-hundred-dollar" subsidy. Indeed, in first quarter ended March 31 -- most recent available since ReplayTV dropped IPO in Aug. -- company's loss grew to $22.3 million from $3.49 million as total costs soared to $23.5 million from $3.46 million at time when only 3,500 PVRs had been shipped. In closing direct sales arm, ReplayTV is expected to cut 100 jobs.
TiVo hardware was priced at $399 and service carried $9.95 monthly fee. TiVo also offers lifetime subscription with $199 up-front payment. Lifetime subscription is amortized as revenue over 4 years, which TiVo has pegged as "service life" of PVR. But TiVo faces its own fiscal challenges. While publicly traded TiVo, fresh off $200 million investment agreement with America Online, had $148.6 million in cash and cash equivalents as of Sept. 30, it also had accumulated deficit of $194 million, it said in SEC filings. Its 9-month net loss grew to $117.1 million from $31.6 million year earlier.
"Both TiVo and ReplayTV wanted to be licensors and were hardware companies more out of necessity then anything else," industry source said. "But the necessity was starting to stretch out longer than both were comfortable with, especially ReplayTV. ReplayTV's getting out of hardware wasn't a big surprise, but backing out of the content agreements wasn't part of their plans." Indeed, ReplayTV's strategy from beginning was to find partner to market, brand and manufacture PVR while it concentrated on delivering services.
To raise revenues, ReplayTV had signed agreements with Universal, Ford and Coca-Cola, with last to run banner ads at start and then expand to interactive spots. ReplayTV Mktg. Vp Steve Shannon wasn't available for comment, but told Reuters that potential cable and satellite partners wanted to integrate PVR technology into their systems and keep revenues rather then share them.
"You certainly can't go to an advertiser today with the numbers that TiVo and ReplayTV have and command much attention other than 'let's experiment together,'" said Bentley Nelson, strategic and technical mktg. dir. at Quantum, which supplies hard drives to TiVo and ReplayTV. "There should not be a rush to judgment on this business model, but you can fault these businesses on anticipating that they would get ancillary revenue quicker."
But ReplayTV lagged behind rival TiVo. While Philips brand TiVo PVR started category in Sept. 1999, Matsushita delayed introduction of competitive ReplayTV piece until last spring. TiVo also floated successful IPO in 1999 that raised $71.5 million, while ReplayTV scrubbed proposed public offering in Aug. TiVo had agreements and product from DirecTV, Philips and Sony, while ReplayTV had pact with Matsushita, but little support from Sharp and EchoStar. Meanwhile, on services front, Starz Encore, which formed alliance with ReplayTV earlier this year for subscription video-on-demand (SVoD) and pay-per-view VoD, switched allegiances in Sept. to TiVo, saying earlier pact wasn't exclusive. ReplayTV also had been quick with potential sponsorship deals with Disney, Fox and Showtime, but TiVo reeled in some of potential supporters with new direct marketing tool that allowed advertisers to deliver specialized ads to targeted groups of viewers. Among those expected to provide content for TiVo program were Showtime and Starz in addition to Professional Golfers Assn. (PGA) and iFilm. Both companies had trials with cable companies -- ReplayTV with Time Warner and Comcast and TiVo with Cox Communications and Comcast.
"They [ReplayTV] always seemed to be 6 to 9 months behind TiVo all the time from a relationship and product point of view," industry source said.
Even after shedding direct sales business, ReplayTV will face tough odds as licensor, industry sources said. "Falling back on technology licensing is easier and cheaper to support, but it's also not as defensible either because other companies can attack that position," source said.
But ReplayTV's PVR technology expertise could prove strong bargaining chip, Nelson said. "They have got the hardware nailed from end to end, they know how to make the service component that's needed to run this work and they've proven that it can work," he said. "You have to say there is some value there to the industry as a whole."
As ReplayTV readied strategy shift, Quantum signed alliance with C-Cube Microsystems to develop Krontos digital video recorder (DVR) reference platform. Krontos allows OEM suppliers to "rapidly develop" hard disc-based products either as standalone device or integrated in TV, Quantum said. Platform incorporates C-Cube's DVxcel codec and Ziva-HGi, which combines 32-bit RISC processor with advanced multiplane graphics engine.
Nelson declined comment on nature of Quantum and C-Cube "working relationship," but sources indicated it could be first leg of new program that Quantum is expected to unveil at CES in Jan. "It [new program] will involve multiple companies working to promote development [of PVRs in a more accelerated way," source said.
However, new alliance throws C-Cube's previous alliance with Western Digital for PVR platform into question. Plan at time had been to combine C-Cube's DVxplore single chip decoder with WD's 9.1-27.2 Gb Performer hard drives. C-Cube's Christopher Day, senior mktg. dir. for broadband network products, wasn't available for comment, but said in news release that Krontos provided "low-cost, flexible" platform for DVR products. |
