Click here to see original article in the NIEMEYER REVIEW
Many things about the picture for DVRs (digital video recorders - or are they PVRs? - see below) are not clear. They have the potential to radically change the $55 billion a year television advertising business. But when? Some think (or wish) it won't happen soon or at all.
A few things are clear. It's clear current users love them and they're spreading evangelistic word of mouth. TiVo reports that "96% of our subscribers would recommend TiVo to a friend." As a DVR owner myself, I don't doubt it.
It's clear current users love using DVR's to avoid watching commercials (this just in - people generally would rather not watch TV ads). NextResearch surveyed DVR users and 69% reported they "always or often fast-forward through commercials." My DVR is my "time machine," allowing me to watch an hour of TV in 40 minutes by fast forwarding ads, credits, promos and other non-show content.
It's also clear is that not many people have DVRs right now. Overall estimates vary but are consistently fewer than one million current units. TiVo currently has 280,000 subscribers with less for Echostar, Microsoft's UltimateTV and SONICBlue's ReplayTV.
But that could change very quickly. A variety of factors should support extremely rapid deployment of DVRs. And even moderate levels of DVRs owned by the right demographic groups could materially impact network, station and ad agency revenues from the $55 billion a year in television advertising.
There are models for US households moving very quickly to adopt a new TV technology if they're motivated. We're in the middle of one of those adoption waves right now.
The Consumer Electronics Association reports that DVD players are now in 25% of US households, just five years since DVD players' introduction in 1997. That's the fastest deployment of any consumer electronics product in history.
Television sets themselves had a rapid deployment. In 1950, less than 10% of American households had a TV. Only five years later, it had increased to 65%.
Cost is an issue with DVRs at $300 and above, still above the "magic price point" seen for DVD players of $200. But TV saw its rapid deployment when television sets were not inexpensive. In 1952, an Admiral 21" black and white TV set sold for $199.95. In today's dollars that's over $1,300. And the normal rapid decline in the cost of digital technology will drive DVR prices down very quickly. Especially fortunate for DVRs, the prices for hard drives (their single most expensive component) are falling at an astonishing rate and have been for many years.
When "Friends" premiered on NBC in September 1994, today's typical DVR would probably have cost more than a loaded BMW 3 series sedan. 40 GB (gigabytes) is a typical size for a current DVR hard drive. Buying one at retail today costs about $100, or a quarter cent a megabyte.
In 1994, 40 GB of hard drive capacity would have cost about $1 a megabyte or $40,000. Moore's Law is the best friend of the new TV technologies (see sidebar below).
Increasing competition among DVR providers should further drive down prices (while potentially confusing consumers - see the VHS/Beta and DVD/Divx battles).
TiVo, UltimateTV and ReplayTV are the most visible DVR developers but others include hard drive manufacturer Western Digital's Keen Personal Media, Gotuit and VC funded start-up Moxi Digital. All are looking to gain deployments by focusing on licensing to consumer electronics and set-top box manufacturers.
In the consumer electronics channel, consumers can buy stand- alone DVRs from Sony, Philips and Panasonic as well as TiVo and ReplayTV branded boxes. Direct satellite providers DirectTV and Echostar both offer receivers using DVR technology from a variety of sources.
MSOs are likely to soon be offering DVR services. ATT Broadband is co-marketing stand-alone boxes with TiVo. The two dominant players in the US MSO set-top box market, Scientific-Atlanta and Motorola, are offering cable set-tops with built-in DVR functionality. VOD technology providers such as nCube are promoting headend based DVR solutions to cable operators.
So what are the networks and advertising industry players to do? So far the most visible response has been the networks' lawsuit against ReplayTV over copyright issues regarding their "Send Show" (sending copies of shows over the Internet) and "AutoSkip" commercial skipping functions. But the commercial skipping complaint faces serious "fair use" hurdles, legal issues can often take years to resolve and there seems to be little that networks can do legally about any DVR's fast forward button.
Product placement has been mentioned as an alternative, as well as in-program ads. But both have limitations, the chief ones being they may overwhelm viewers with marketing clutter and distract from the shows, the reason people watch TV in the first place.
Incenting viewers to watch ads and applying online techniques such as targeting have been proposed as well. But most of these still require real-world tech trials as well as user behavior research and business model development to refine them. It could be more than several years before networks feel comfortable they are "ready for primetime."
The networks are well advised to get moving quickly. While research companies differ on metrics (by year end 2005, Forrester predicts 53 million DVRs (7/00), Yankee Group predicts 20 million (4/01)), unit counts of only 15 million DVRs could have a big effect on the perceived value of TV advertising.
The 18-49 age group is the key demographic for networks. It's their ratings that set ad rates for most primetime shows. Unfortunately for the networks, the "early adopters" most likely to buy DVRs are typically in the 18-49 age group.
What happens to ad rates when 15% of households with 18-49s get DVRs and "always or often" use them to avoid watching commercials? Consider how much the estimated 5-10% decline in 2001 broadcast ad revenues (vs. 2000) has impacted the business practices of TV networks.
The movie studios have learned to love their former worst enemy (television), turning home video into an enormous revenue source. The TV networks need to make friends with DVRs and learn how to make money cooperatively. Otherwise, advertisers, with $55 billion burning a hole in their pockets, will find other ways to make sure their 30 second gems get seen.
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So is it a DVR or PVR?
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That which we call a DVR by any other name would still smell like a commercial killer? So are these things DVRs (digital video recorders) or PVRs (personal video recorders)?
PVR seems to be the term in most popular use, especially in the press. But TiVo, ReplayTV and UltimateTV want to call them DVRs. So I'll go with DVR (for now). After all a VCR is a PVR but not a DVR. IMHO, OK?Click here to see original article in the NIEMEYER REVIEW
Last updated 30 April 2004
