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Programmers Plan For Personalized TV Future
It's less than six months away, but consumers can expect more digital toys to hit the marketplace in time for the holiday season. Get ready to toss out your VCR and replace it with a "personal video recorder" (PVR). Developed by two Silicon Valley startups, TiVo Inc and Replay Networks are ramping up to sell their "personalized TV" set-top boxes that will offer advanced VCR-like features to TV viewers. Network programming executives see the new technology as a way to promote their networks, as well as attract new subscribers and sponsors. Could the PVR technology be just another step down the road to the convergence of PC and TV services?
By Alan Breznick
Get ready to throw out that old VCR. Doug Sylvester sees something better coming along really soon.
Sylvester, VP-new business development for E! Entertainment Television Networks, is eagerly awaiting the widespread deployment of "personal video recorders" (PVR) by two Silicon Valley startups, TiVo Inc. and Replay Networks Inc. Both companies are gearing up to sell their "personalized TV" set-top boxes in retail stores by the fall, in time for the busy holiday shopping season.
The new digital set-top devices, ranging in price from $499 to $1,499, promise to deliver advanced VCR-like features to TV viewers. Among other things, they'll allow viewers record, store, pause, rewind and fast-forward TV shows, without the hassle of fumbling with videocassette tapes, simply by pressing buttons on their remote control pads.
But what really intrigues Sylvester is the capability that the TiVo and Replay boxes will have to create special preview, highlights and program listings channels for E! and such spinoff networks as Style. These virtual channels will allow the networks to promote their shows around the clock, effectively giving them their own barker channels linked to, but separate from, their main services.
What's more, viewers will be able to use these preview channels to record shows automatically for playback at a later time. So network audiences will presumably increase in two ways-from more people watching the shows while they run and more recording the programs for later viewing.
In addition, the TiVo and Replay services will permit viewers to search through shows and networks by different categories and set up their own virtual channels of favorite programming. This, in turn, could encourage the development of even more theme networks by programmers as they seek to meet increased consumer demand for niche services.
"We're pretty excited about it," said Sylvester, whose network has signed content licensing deals with both TiVo and Replay. "We think the E! viewer is going to be there early. We want to be there too."
E! officials are so excited, in fact, that they intend to craft a second virtual channel that would act as a TV "recommendation engine" for TiVo and Replay subscribers. Although branded as an E! service, this guide channel would cover the entire TV landscape and offer viewing tips.
"We think this is a natural extension of what we already do on E!," Sylvester said. "We think E!, as a brand, has enormous opportunity here to act as a way to sort through much greater options for viewers."
E! executives are not alone. Several other programmers share Sylvester's enthusiasm for the new breed of personalized TV devices.
Besides E!, Home Box Office, Showtime Networks Inc., the Weather Channel, ZDTV and DirecTV Inc. have all already agreed to license their content to TiVo, while E! and Showtime have inked similar licensing deals with Replay.
Showtime and DirecTV have also invested at least $1 million apiece in TiVo, purchasing minority stakes in the firm.
"We're talking to every major media company," said Stacy Jolna, VP- programming and network relations for TiVo. He predicts that "dozens of cable channels and other TV networks" will enlist with TiVo by the fall.
Jim Plant, director of marketing for Replay, insists that he's seeing equally robust demand from the networks.
"Everybody that we talked to is interested," he said. "For us, it's a matter of bandwidth and priority."
These programmers are flocking to TiVo and Replay because they see a strong market developing for personalized TV devices. With consumers demanding more choice over their viewing options, they say, PVRs could prove to be as big a deal as VCRs themselves.
"I think it (the market) is fairly big," said Sylvester, who expects "a crowded field" of companies to offer PVRs.
Industry analysts agree with this assessment. The usually skeptical Forrester Research Inc. projects that consumers will snap up 14 million PVRs or PVR-enabled TV sets over the next five years as box prices drop from the current range of $499 to $1,499. Paul Kagan Associates forecasts 7 million to 9 million PVRs by 2002, while the Carmel Group predicts 3.4 million units by 2002.
Like Sylvester at E!, the small but growing group of programming executives also view the showcase channels and several other PVR features as new ways to promote their networks to existing viewers. Plus, they see strong potential for attracting new viewers, drawing more advertisers and boosting subscriptions to premium services and pay-per-view events, among other things.
HBO, for instance, plans to create its own electronic programming guide on TiVo, focusing just on its ever-expanding family of pay services. Viewers could check program listings for all the HBO networks and sample trailers and promos for individual movies and programs.
"It (the preview channel) becomes a marketing tool," said Kevin Dowdell, VP-interactive ventures for HBO. "It's like a free preview weekend the whole year."
Similarly, DirecTV intends to produce its own showcase channel on TiVo, focusing on its movies, specials and other standout programming. In its universe, the nation's leading DBS provider will also supply TiVo with extra bandwidth for souped-up showcases featuring more video and graphics than the largely text channels now in the works.
"We intend to fully exploit that (computer) hard drive with them," said Brad Beale, VP-advanced products for DirecTV. "We're looking forward to potentially higher (buy) rates on our movies and packages."
Beyond that, network programmers believe the development of PVRs will accelerate the evolution of true video-on-demand (VOD) services by whetting viewers' appetites for greater choice and control. With the ability to pause, record or rewind even live TV programs at the press of a button, they argue, consumers will actually start watching whatever they want whenever they want to.
Anticipating this shift in consumer behavior, HBO aims to begin testing a VOD service in the next year. Plans call for rolling it out on digital cable and satellite systems over the next two to five years.
"We feel that is an incredibly powerful extension of our product," Dowdell said. "It really will change the way people watch television."
Thomas Hayden, SVP-strategy and development at Showtime Networks Inc., argues that PVR technology is also another step down the road towards convergence of TV and PC services. That's why Showtime is tinkering with a number of different Internet TV, interactive TV, personalized TV and other cutting-edge firms.
"Showtime is about compelling entertainment content," he said. "A lot of this content will play well across a lot of different platforms."
But much depends upon how fast and effectively TiVo, Replay and their possible competitors can introduce their standalone set-top boxes and personalized TV software to consumer electronics manufacturers, retailers and consumers. Both companies are already behind their original rollout schedules, prompting industry analysts to predict that the two firms may lose their early market advantage to such potential competitors as Microsoft Corp.'s WebTV Networks.
"While you delay, you lose the momentum," said Jimmy Schaeffler, chairman of the Carmel Group and publisher of the DBS Investor and Convergence Investor newsletters. "The fortunes of TiVo and Replay are taking a hit because of the delays."
Schaeffler warns that other home electronic devices may get the upper hand, such as the dual-purpose TV set-top box that EchoStar Communications Corp. is now producing and marketing with WebTV Networks. Besides providing satellite TV and Internet TV service, the joint EchoStar-WebTV digital box, known as DishPlayer, already allows subscribers to pause running TV programs. And, in a few months, it will permit subs to record several hours of programming without video tapes.
The success of PVRs also depends greatly upon how quickly and enthusiastically cable operators and TV set manufacturers end up embracing the personalized TV concept. Although programmers hope cable operators will follow the leads of DirecTV and EchoStar, it's not yet clear whether they will.
"I guess in the long run, I wonder how cable operators will respond," Sylvester said. "They certainly have an opportunity to package those services in interesting ways."
Another big question centers on technical standards. Programmers are concerned that they'll have to develop different types of programming and content for each of the interactive TV, Internet TV and personalized TV devices, making them a potentially expensive and unwieldy proposition.
"One of the challenges we face is developing these new products in an efficient way so we don't have to reinvent the wheel (each time)," Dowdell said. "Otherwise, it's a daunting task."
Finally, programming executives find themselves hedging their bets on which economic model will prove triumphant for PVRs, TiVo's or Replay's. TiVo is counting on a lower box purchase price plus monthly subscription fees and advertising charges, while Replay is going with a higher sales price and no monthly service charge.
"It'll be interesting to see how that plays out," Sylvester said. "I think the answer depends ultimately on how this technology is deployed."
Because of this uncertainty, E!, along with Showtime, is taking a chance with both companies. But a number of other programmers are staying on the sidelines, presumably waiting until they see an installed base of viewers for one or the other.
"Nobody really knows how it's all going to shake out," Hayden said. "Nobody has a silver bullet just yet."
(June 7, 1999)
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