Good morning J. PVRs invade settop boxes..................
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Cable Gets Personal
by ANDREA FIGLER
Cable World, Jan 1, 2001
The Battle To Keep the PVR Genie In The Set Top Box The hype is out there. Some say it is the most dramatic development in consumer electronics since the VCR. Fred Dressler, SVP-programming at Time Warner Cable, calls his personal video recorder "the next best thing since the invention of television ... it is revolutionary."
While the gadgets are catching on fast with consumers, cable operators are working overtime to make sure their subscribers don't place stand-alone PVRs next to their TVs.
Instead, they are looking for ways to take the best of ReplayTV, TiVo or their fast-coming competitors and incorporate them into their own set-top boxes, because big money from these new services is at stake. And they're likely to play hardball with the companies that pioneered and popularized the technology.
"Cable operators aren't going to let anyone encroach on their revenue streams," says Steve Shannon, ReplayTV's VP-product management. "We have to give them more control over their revenue streams, or they're not going to partner with us."
Does the trend toward co-opting PVRs within set-top boxes spell doomsday for stand-alone units? Without a doubt, say analysts such as Gartner Dataquest's Jay Srivatsa.
"The personal video recorder market [for] the stand-alone recorder itself has a very limited existence," says Srivatsa, adding that digital set-top box makers and their biggest clients, cable operators, are already co-opting these personalization services. "The challenge for [PVR] guys is to figure out how to take the personalization software and provide it to digital set-top guys."
ReplayTV has seen the writing on the wall. Realizing that it must let go of its retail and targeted-advertising revenue streams in order to win cable industry business, the PVR startup recently decided to license its technology to cable operators. Living on license fees alone may not make ReplayTV rich, but Shannon says this new business model could reduce its cash-burn to one-fifth the current rate.
"ReplayTV is smart," says Andy Addis, Com-cast's VP-marketing, who gives ReplayTV credit for giving cable operators what they want most - a new revenue stream.
The new question is how low are the PVR companies willing to go.
A recent entry in the PVR market, Keen Personal Media, says it will undercut the bargaining power of TiVo and ReplayTV, which are bleeding money as it is.
Rather than dealing with cable operators, PVR startups have the option of turning to cable's main rival, DBS, which has already embraced PVRs as satellite's answer to cable's video-on-demand services.
Cable operators have been experimenting with VOD by supplying these services from a centrally administered server, such as Concurrent or SeaChange International, rather than via a set-top or a stand-alone box. With plenty of bandwidth and a central server, an MSO can offer hundreds of movies without overloading a hard drive.
"In a cable environment, central servers make more sense and offer a potentially wider range of content," says Peter Ausnit, an analyst with Deutsche Banc Alex. Brown. The client set-top box is the best VOD solution for users attached to DBS services, Ausnit adds, noting satellite's relatively limited bandwidth and lack of a back channel.
Lessons Learned TiVo and ReplayTV paid dearly to market their radical new way of watching TV - and for educating consumers on behalf of their competitors to follow.
TiVo's net loss will total about $66.6 million for the fourth quarter of 2000 according to a Deutsche Banc Alex. Brown report. ReplayTV, being privately held, will not disclose its net losses for the last year but has certainly had its own cash-flow problems.
Laying off 120 employees in November, ReplayTV announced it was "refocusing its corporate strategy'' away from the consumer retail market, where it trailed TiVo. Instead, it would license "its proprietary and turnkey technologies, allowing set-top box manufacturers and network operators to offer digital video recording, video on demand, targeted advertising, program guide services, and electronic commerce."
The company plans to announce new partnerships with manufacturers this week.
"We see set-top box manufacturers as being critical because they are the ones that deliver time-to-market to the MSOs," ReplayTV's Shannon explains, adding that the company plans to license the technology to third-party box makers and then market the applications directly to cable operators.
In fact, both TiVo and ReplayTV have been cozying up to the nation's cable operators, participating in several market tests with the major MSOs as a way to break into cable's 69.4 million homes. MSOs, meanwhile, are playing coy.
In ongoing trials begun by Comcast last fall, customers are charged $11.95 a month to lease a ReplayTV box and personalized services or $16 a month for TiVo services, a Comcast spokeswoman says.
AT&T Broadband, in the midst of trials with ReplayTV, is not ruling out other options, according to a spokeswoman.
"AT&T Broadband is focused on offering customers compelling services delivered in the simplest manner possible," she says. "We are working toward offering an integrated PVR solution in an advanced set-top box."
Cox Communications is also in trials with TiVo but is maintaining discussions with ReplayTV, a company source says.
Time Warner, meanwhile, is testing ReplayTV. However, TiVo may still win favor with the MSO once AOL and Time Warner's merger is complete. AOL bought a 13% stake in TiVo last year.
"There is incentive for AOL to bring in additional TiVo subscribers in order to gain additional shares of the company," says TiVo spokeswoman Rebecca Baer. "Whether or not Time Warner [Cable] plays into those additional subscriber numbers has not been determined. But there's definitely synergies."
The burning question for cable operators in choosing which PVR company to go with is if, or how, they will split subscription revenues.
Comcast, for instance, splits the $16 fee with TiVo in its trial run in exchange for joint marketing responsibilities. A Comcast spokeswoman says the MSO installs the stand-alone box for free and bills its clients for the service, while TiVo takes care of any service calls that relate to the PVR.
Comcast declined to say exactly what percentage of the revenues it keeps under the arrangement.
One MSO has already begun the process of eliminating bulky PVR boxes by integrating the technology into set-tops.
Charter Communications' Project DISCO - a joint venture with ReplayTV, Motorola and Paul Allen's Vulcan Venture - is developing integrated digital video recording capabilities into Motorola's DCT-5000 set-top box.
After launching its first PVR-enabled set-top product this year, they plan to license the platform to other MSOs and manufacturers.
Jim Henderson, Charter's VP-corporate development, says they went with ReplayTV because of its management team and its leadership in providing content on demand to consumers.
Building Awareness Both PVR systems are quite similar. The main difference is how they're selling their services.
TiVo charges consumers $9.95 monthly for its service, while its boxes range from $199 to $699. ReplayTV charges no monthly fee, but offers slightly pricier models ranging from $499 to $799.
While their prices differ slightly, both companies shared a willingness - at least for a while - to take losses upfront, heavily subsidizing their hardware to get them into consumers' hands and reach critical mass for advertisers.
Their personalization software keeps track of users' preferences in order to guide viewers to shows they might want to watch next. This feature also creates a potentially lucrative source of consumer data for advertisers and networks that would offset the PVR's biggest threat to the TV industry - the loss of revenue from commercials not watched by viewers who hit the skip button on the machines.
The campaign to sell PVRs still needs to gather significant steam. Only a few hundred thousand have been sold this year, but analysts are confident that once consumers have a taste, they'll be hooked. Forrester Research estimates PVRs will be in more than half of TV-owning households by 2005.
Although ReplayTV and TiVo are no longer competing for the end-user market, they've got another upstart nipping at their heels - Keen Personal Media, a wholly owned subsidiary of Western Digital.
Keen entered the PVR market last fall with a business-oriented model designed to give ReplayTV a run for its money in the cable market.
The company makes a sidecar box that can attach to a set-top box to personalize TV viewing. Keen has also teamed up with Scientific-Atlanta to integrate its PVR functionality into S-A's Explorer line of digital set-top boxes.
Keen wants to win over MSOs by undercutting ReplayTV on price, says Greg Kalsow, VP-marketing, who adds that the company can get by without a revenue split with cable operators.
"We would make our revenue off software licensing and upgrades," says Kalsow, who estimates that cable operators can charge their customers about $9 a month with Keen, compared with Comcast's trial rates of $11.95 for ReplayTV or $16 for TiVo.
The key motivation, Kalsow says, for MSOs to accept some of these PVR revenue-sharing deals is the threat of losing customers to digital broadcast satellite providers, which have cornered the market on PVRs to date.
"MSOs really like to deploy their own services," Kalsow says. "And we want to enhance the MSOs' services."
He adds that cable operators prefer "time-shifting" technology to personalization software.
"They are looking for basic DVR functionality with no personalization," Kalsow says. "We are evangelizing the PVR functionality, but it's a selling job of pretty sizeable proportions. I think the MSOs are unsure of how they can see a path to immediate revenue."
Personalization software could potentially undercut the cable operators' own program guides.
Keen, however, could be beat at its own game by one of its vendors.
The PVR newcomer licenses some technology from software company Metabyte Networks, which offers MbTV, an end-to-end personalization service with scheduling options similar to TiVo and ReplayTV.
Vallal Jothilingam, Metabyte Networks' director of product marketing, says he has not set a price for his service because cable operators haven't decided how much they are willing to pay. In the meantime, Metabyte plans to make money by licensing its software and charging a fee to erect and run a specialized personalized service for any operator.
Metabyte's investors, Thomson Multimedia and hard-disk drive manufacturer Seagate, have left no PVR disk unturned. The two backers have also invested in CacheVision, another PVR startup that plans to market its technology to original equipment manufacturers.
CacheVision has yet to ink any deals with equipment makers since launching last July. But Thomson's RCA and General Electric brands are "significant channels that CacheVision will take advantage of," says Richard Johnson, CacheVision's president and CEO.
Another PVR startup making waves overseas is the U.K.-based software and application provider NDS, which plans to launch its first PVR integrated set-top box through Rupert Murdoch's Sky Digital this spring. NDS has teamed up with middleware companies OpenTV and Liberate to create XTV, its personalized extended television service. The company is planning to enter the U.S. market, says David Richardson, an NDS spokesman.
PVRS: VOD for DBS? Of course, cable operators aren't the only targets for the hungry PVR industry. With a market now topping 14 million subscribers, DBS providers have been a prime target for PVR companies.
"It's a provocative new product," says Gina Magee, DirecTV's senior manager of public relations.
PVRs are a perfect fit for DBS providers because they give control to consumer unlike VOD, which keeps control over what's on TV in the hands of cable operators, she adds.
Even last month's agreement to acquire DSL broadband provider Telocity by parent Hughes Electronics isn't dimming DirecTV's enthusiasm for PVRs. DirecTV EVP Larry Chapman still sees PVR-enhanced set-top box as its "true" video-on-demand service.
Microsoft realized the PVR/DBS potential a few years ago. The software giant now works with DBS providers EchoStar and DirecTV to provide personalized television viewing.
EchoStar offers digital video recording functionality through its Microsoft-backed Dish Player. EchoStar spokesman Marc Lumpkin says while the dish player offers limited PVR functionality, the Microsoft connection provides a DBS subscriber the added bonus of Web access.
"Microsoft has brought more to the table," Lumpkin says. "It's three products in one: a digital video recorder, an Internet browser and a satellite receiver."
The EchoStar player retails for $399, with an additional monthly fee of $9.99 for digital recording and $24.95 for Internet service. EchoStar has sold more than 150,000 Dish Players with DVR features since introducing the enhanced product in December 1999.
"That's more than TiVo and ReplayTV combined," Lumpkin says.
EchoStar plans to debut its version of a PVR, called Something Different, at this week's Consumer Electronics Show. This system features personalization software and 20 hours of recording time via a set-top box, although it will not offer Web access.
Microsoft, meanwhile, is partnering with DirecTV to roll out UltimateTV, which will bundle DBS, PVR, picture-in-picture and WebTV.
The UltimateTV/DirecTV set-top box costs about $400 for up to 35 hours of digital recording without a wireless keyboard (or $450 with) plus $9.95 monthly for three hours of Web usage or $29.95 for unlimited Internet access.
DBS companies appear more willing to split revenues with the PVR firms.
Microsoft will share its revenues from sales of the UltimateTV box plus advertising and subscription fees with DirecTV under an undisclosed formula.
TiVo and DirecTV also have a revenue sharing arrangement. A TiVo/DirecTV combo box, which began selling in October, retails for about $400 with a $9.95 monthly subscription to TiVo.
Mike Paxton, a senior analyst of converging markets and technologies at Cahner's In-Stat Group, expects 2.9 million PVR units to ship this year, of which 2.1 million will be DBS set-top boxes with PVR systems incorporated into them.
"What we deem a PVR today may not exist in the same function in three to four years. The technology, however, will still be out there," he says.
"ReplayTV, TiVo, MbTV, Keen - they are all seen as leaders," Paxton says. "But this isn't pure rocket science. There are a lot of people out there who can produce this type of software."
Meanwhile, the cable industry is grappling with how best to give its subscribers PVR capability.
Viewers don't care which PVR system they use, so long as they can have their "schedule free" TV, says John Carey, a researcher for Statistical Research Institute. Consumers prefer PVR capability in one easy-to-use box. They want simple, seamless computer services on their TV - without knowing they have a computer on their TV, analysts say.
In the living room of the future, "I don't think people will say, `I'm going to download this to my PVR,' like they think of a VCR," Paxson says.
"It will become just another function that's expected," he says, adding that some way, some how, personalized viewing is going "to be one of the more popular interactive TV services - if not the most popular." |
