DJ TALES OF THE TAPE: TiVo Gears Up For Cable Competition
07 Apr 07:30
By Ellen Sheng
DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Since its appearance in 1999, TiVo Inc. (TIVO) has garnered the almost fanatic enthusiasm of many of its users, including Federal Communications Chairman Michael Powell, who dubbed it "God's machine."
The units, which let users record shows, skip commercials, rewind and pause live TV, have been the favored toy of technology eggheads and TV enthusiasts.
The product now has a chance to break into the mainstream as awareness perks up. As Brodie Keast, senior vice president and general manager of TiVo service, puts it, it's "not geeks per se, it's beyond the early adopter."
But though TiVo pioneered the nascent industry of personal video recorders -its name has become synonymous with the technology, like Xerox - the company's position could be threatened as more competitors enter the market, most notably
cable companies.
"The future of the technology looks extremely bright ... but that doesn't mean TiVo will win," said Josh Bernoff, an analyst at Forrester Research.
TiVo's most direct competitor, Sonicblue Inc.'s (SBLUQ) ReplayTV, filed for bankruptcy over a week ago, but plenty of other companies are ready to move in.
Cable set-top box maker Scientific-Atlanta Inc. (SFA) makes a set-top box, the Explorer 8000, that includes PVR functions and is being distributed by Cox Communications Inc. (COX) and AOL Time Warner (AOL) to their cable subscribers.
Thomson (TMS) makes a combination DVD/DVR unit, the RCA Scenium, whose recording capabilities don't require a monthly subscription or connection to a telephone line, unlike TiVo. On the PC side, Hewlett-Packard Co. (HPQ) has introduced a new line of computers that can record and make copies of TV shows.
Gateway Inc. (GTW) has a PC-TV that uses Microsoft Corp.'s (MSFT) XP Media Center and media behemoth AOL Time Warner recently revealed plans to unveil "MystroTV," which would give users TiVo-like functions at the touch of a button.
There is surely more competition to come. "Creating software and sticking hardware into a box is pretty easy, so there's not much barrier to entry," said Jim Penhune, director of global broadband practice at Strategy Analytics. "TiVo did some things the others didn't," he continued, but "fundamentally, it's not proprietary."
TiVo is looking at the increased competition as "both good and bad," said TiVo's Keast.
On the bright side, the growing number of players could actually help build the market, he said. With more companies getting into the technology, awareness of the product is bound to increase.
One of the issues limiting personal video recorders has been a "lack of commotion, lack of retail presence," said Jim Barry, a spokesman for the Consumer Electronics Association.
Indeed, though TiVo has been around for several years, sales of the units have not yet reached 1 million. Overall, there are about 700,000 standalone personal video recorders in the U.S. and about 1.2 million combination PVR and satellite receiver devices.
The company posted revenue of only $19.3 million for the year ended Jan. 31,but expects sales to jump to $96 million for fiscal 2004. Net loss is expected to narrow to 67 cents a share, down from $1.08 a share in fiscal 2003.
Part of the difficulty in selling the product is that the service is hard to describe. Many initially think that it does the same thing as a VCR. And with prices ranging from $199 to $399 per unit, TiVo isn't an impulse purchase.
Plus, it requires a monthly subscription fee of $12.95.
The service is much better described through demonstration. But electronics stores haven't been dedicating space to personal video recorders because there were only two products - TiVo or Replay. DVD players, bycontrast, caught on quickly because there were so many manufacturers making competing products, they created their own section in stores. It also hasn't helped that both TiVo and ReplayTV are small companies without huge advertising budgets, said Barry.
With cable companies now spreading awareness of personal video recorder, or PVR technology, TiVo could benefit from the growing interest. On the other hand, cable companies could also turn TiVo into a niche product for picky users
who prefer TiVo's feature-rich platform to the ones offered by cable operators.
TiVo, with a market cap of about $300 million, is up against huge cable companies such as Comcast Corp. (CMCSA), Cox Communications (COX) or Cablevision Systems Corp. (CVC), with far larger advertising budgets and existing customer bases. Shares of TiVo recently traded at $5.34, off its
52-week high of $8.10 set in November but up from its 52-week low of $2.25 set last July.
Faced with increased competition, TiVo has explored partnering with cable companies and electronics manufacturers while simultaneously developing new services and capabilities.
For cable companies, PVR services are an easier sell since they won't have to ask customers to buy an additional box. Existing cable subscribers may need to upgrade for an extra $10 or more a month for a more advanced set-top box and
pay extra for PVR services, but they won't have to add yet another box to their home entertainment centers.
TiVo has had relationships with AT&T Broadband, Cox and Comcast in the past,but thus far, though, nothing has come to fruition.
TiVo has been "very open" to talking with cable companies but "we're not going to bet our life on it," said Keast.
Indeed, partnering with a cable partner could be an uphill battle. Cable companies are "not really letting TiVos and ReplayTVs get involved. .. they have to get payback for the technology they launch and keep revenue for themselves. They were never very good at sharing revenue," said Robert Clauser, lead partner in Accenture's Media and Entertainment practice.
TiVo is also approaching electronics makers to include its service in other products. The company is hopeful the "plug and play" proposal endorsed by cable companies earlier this year could jump-start a trend favoring integrated devices - combination TV/digital cable/PVR and the like. Through its
relationships with electronics makers, TiVo intends to be ready to serve that market. The proposal defines standards for cable-ready TVs and other equipment.
Already, TiVo's partnership with satellite broadcaster Hughes Electronics DirecTV (GMH) has created a combination PVR/receiver box. The company will also launch a combination DVD/PVR unit later this year through a partnership with
Toshiba Corp. (J.TOS). In addition, the company has a partnership with Sony Corp. (SNE) and has also sold licenses to Samsung (Q.SSE) and Philips (PHG).
In the meanwhile, the company is working to offer more cutting-edge services. TiVo is gearing up to introduce the "Home Media option" next week. Subscribers with a Series2 DVR box can get some impressive new functions to their TiVos.
They'll be able to screen digital photos on their TVs, listen to music stored on their computer hard drives on their home entertainment units, schedule to tape a show "remotely" through the Internet, and watch a recorded show in different rooms on different TVs. Some of the functions will require two or more computers connected either by WiFi or ethernet.
This way, Keast said, "by the time the cable guys start to offer basic TV recording capability, we're moved on to the next thing."
One edge TiVo has over cable competitors, TiVo says, is a superior product,with a more user-friendly interface. Cable companies are "not exactly bastions of customer satisfaction," Keast noted, while 96% of TiVo customers say they would recommend theproduct to a friend. We're working to deliver the best home entertainment experience, he said.
Problem is, while its thoughtful design has been appreciated by many users,new customers don't necessarily care about that. Forrester's Bernoff draws an analogy to early auto sales. Companies are "just starting to sell autos, and 'do you want a Rolls or a Model T is the question.'
In the beginning, people don't know enough, they're more interested in something that's cheaper."
(END) Dow Jones Newswires
04-07-03 0730ET |
