Here's a little bit on TIVO, Mike (got it from Lexis-Nexis):
Copyright 2001 The Financial Times Limited
Financial Times (London)
July 7, 2001, Saturday London Edition 1
SECTION: COMMENT & ANALYSIS; Pg. 11
LENGTH: 967 words
HEADLINE: Television's revolution postponed: Digital video recorders were supposed to replace analogue machines. But they remain a cult, says Paul Abrahams:
BYLINE: By PAUL ABRAHAMS
BODY:
His name is George Ehinger and he is an addict - to his digital video recorder. The 40-year-old San Francisco-based media executive says he can no longer live without the machine, which automatically records up to 30 hours of his favourite television programmes.
"It's phenomenal. Tivo has changed my life," he gushes. "I'm active, but sometimes I like to veg out. Invariably when I do, there are 100 channels and nothing to watch. With Tivo, in 15 minutes I can set up a week's worth of great viewing. It's transformed my life."
Such evangelism among users of digital video recorders is common. But unfortunately for Tivo, and other makers of such devices, they are a cult rather than a mass movement. In spite of the fear and excitement that swept through the television and advertising industries last year about their potential, consumers have proved indifferent.
The appeal of DVRs should be considerable. They allow users to pause, rewind and instantly replay live television shows by recording them on a hard drive. Consumers can also record programmes digitally for later viewing. Gartner Dataquest predicts that the market for standalone DVRs will be worth $12.6bn (Pounds 9bn) by the end of 2005. At the same date, there should be 30m households using the machines, according to Forrester Research.
But potential buyers have hit the pause button, refusing to pay up to $599 per box, plus a monthly subscription. By April, Tivo, the market leader, had just 200,000 subscribers in the US, serving a tiny fraction of America's 270m televisions. During the quarter it added a disappointing 35,000 new subscriptions. And in spite of slashing marketing and sales expenses and 80 jobs, it lost $50m on sales of just $3.2m. Microsoft will not give sales figures for its Ultimate TV. Replay TV, another competitor, has pulled out of the retail market.
If the market is to be believed, Tivo's prospects are grim. Its investors can only hope that its share price, currently at less than $6, can regains its peak of over $70. Quite simply, DVRs have failed to become mass-market products. They appealed to a few early adopters but so far they have been unable to move to the next level. "I just don't understand it. It really baffles me," says Mr Ehinger.
One problem has been poor marketing, says Peter Ausnit, equity analyst at Deutsche Bank Alex Brown. He says that Tivo, which was first to market, failed to get across adequately to consumers the ways in which the machines were superior to traditional video cassette recorders. "They were marketing their brand, without explaining what the machines did. They skipped forward to the end-game when they were actually in the warm-up period," he says.
Secondly, Tivo marketed features that were marginal or did not work properly. Part of Tivo's campaign was personalised TV. The machine could look at what the user had asked it to record and guess at other shows that he or she might like. The problem was that the software was not sophisticated enough to realise that those who want to watch The Simpsons might not want to watch other cartoons, says Mr Ausnit. Worse, in multi-person households Tivo can get confused trying to cope with Teletubbies and Barney as well as The Sopranos and Sex and the City.
"As a concept personalised TV sounds terrific but there remain some challenges that need to be worked out," says Mark Mullen, director of strategic planning for Ultimate TV at Microsoft. Microsoft is spending $50m on marketing the DVR category, concentrating on explaining what the machines do. "When you show people what personal video recorders really are, then the light-bulb goes on," he insists.
Two final impediments are pricing and the revenue models. In the US, Tivo standard DVRs cost $199 for a machine with 20 hours' capacity and up to $599 for a machine capable of 60 hours. "The price needs to be trivial," says Mr Ausnit. Moreover, analysts doubt that many users will pay the up-front cost and pay the $9.95 monthly subscriptions for Ultimate TV or Tivo.
However, Mr Mullen at Microsoft is still a believer. "The adoption rate is very similar to video recorders and colour televisions," he says. "Initially the line is quite flat and then it reaches the tipping point. There is so much behind this in terms of technology, marketing, smart resources; it has to be a success. The concept is sound. We just need to get the mechanics of the execution right."
Whether Tivo, as industry pioneer and current market leader, reaps the benefits is doubtful. Competition is set to intensify as Motorola, Scientific-Atlanta and Pace Micro of the UK plan rival machines and services. Tivo in its current form may struggle to compete. The group may have strong technology but it also has a weak capital structure. At the end of last quarter, it had just $122m of cash and equivalents on the balance sheet. It was losing cash at a rate of $43m a quarter and will need a capital injection by the middle of next year.
The group may need support from some of its industry partners and investors, such as AOL Time Warner, which has a 13 per cent stake with an option to increase. Other media companies that own stakes include include Disney and Direct TV, part of Hughes Electronics. One possible strategy for Tivo would be to pull out of the retail market, generating revenues from licensing its technology. In April it gained extensive patents for its "multimedia time-warping technology".
As for Mr Ehinger, he needs no convincing of the technology's long-term future. He has confirmed his addiction by buying another Tivo, this time for his bedroom. The DVR industry can only hope that the rest of the nation catches the habit.
LOAD-DATE: July 6, 2001
-CLs |
