MESSAGE
| DATE | 2003-10-20 |
| FROM | Ruben Safir Secretary NYLXS
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| SUBJECT | Re: [hangout] More other events this week
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October 20, 2003 Can Cable Fast-Forward Past TiVo? By SETH SCHIESEL
TiVo, the best-known maker of digital video recorders, may need to worry
about people like Peter S. Palermo. But Mr. Palermo may also represent
just what the cable television industry has been looking for.
A few weeks before the P.G.A. Championship golf tournament in Rochester
in August, Mr. Palermo, a real estate broker, was trying to figure out
how he would record the broadcast.
Mr. Palermo thought about buying a TiVo, the digital video recorder, or
DVR. Using a computer hard drive and advanced software, a DVR lets the
user pause, rewind and fast-forward even with live television programs. It
also provides a much easier way to automatically record programs than
is possible with videocassette recorders.
In the end, Mr. Palermo was turned off from TiVo by the prospect of
having to connect all kinds of wires and adding a new box to his home
entertainment system. So, instead, he ordered a relatively new product
that his cable company, Time Warner Cable, a unit of Time Warner,
has been pitching: a set-top box made by Scientific-Atlanta with a DVR
already built in.
"The fact that we could do this without the difficulty and complexity
of a stand-alone thing made this a perfect fit," Mr. Palermo said in a
telephone interview on Friday.
Mr. Palermo is not alone, and Wall Street and the television industry
are taking note. TiVo pioneered the DVR and the TiVo brand - like
Frisbee, Kleenex and Xerox - has become synonymous with an entire product
category. Nonetheless, TiVo's original business of selling stand-alone DVR
boxes, along with a monthly support service, appears in danger of being
eclipsed by products that are much less expensive for consumers and are
integrated with devices that many consumers are already comfortable with,
like television set-top boxes.
The new DVR-ready set-top boxes offered by cable companies generally cost
consumers nothing upfront and add about $10 to a monthly cable bill. That
compares with having to pay at least $200 upfront to buy a stand-alone
TiVo recorder and, in most cases, taking on a $12.95 monthly subscription.
And stand-alone digital recorders - not only from TiVo but also from
smaller companies like ReplayTV, which is owned by Digital Networks
North America. - often require cumbersome connections to existing set-top
boxes and televisions.
"This really is the last stand for the stand-alone boxes; this is a dying
product," Aditya Kishore, an analyst for the Yankee Group, a technology
consulting research firm in Boston, said in a telephone interview. "This
is the last Christmas for the stand-alone TiVo box, or any stand-alone
DVR box. By next year, the DVR functionality will be widely available
in a wide range of other devices, including the set-top boxes."
It is an issue with enormous implications for advertisers, broadcasters,
cable-television carriers and satellite-television providers. The Yankee
Group estimates that, so far, 2.5 million to 2.8 million of the nation's
roughly 110 million homes have digital video recorders. But DVR's inspire
fierce loyalty from those who have them, terrify advertisers (because
they can be used to skip commercials) and are seen by many media experts
as the future of television.
The Yankee Group estimates that in four years, almost 25 million homes
will have digital video recorders and that about two-thirds of those
will be DVR's that have been integrated into satellite or cable set-top
decoders. Even now, while TiVo is the best-known DVR brand, only about
17 percent of the nation's DVR's are stand-alone TiVo-brand units,
according to Yankee Group estimates. By far, the leading DVR provider is
the EchoStar Communications Corporation, the No. 2 satellite-television
provider after DirecTV. EchoStar does business as the Dish Network
and has developed a digital recording system, which it combines with a
satellite television receiver. Last month, EchoStar announced that it
had sold its one-millionth DVR unit.
"We believe that over time, DVR technology is going to be the standard,"
said Mark W. Jackson, an EchoStar senior vice president. "Everyone is
going to have it. It's just a question of when - and who they get it from,
of course."
Time Warner Cable, the No. 2 cable-television provider behind the Comcast
Corporation, now offers set-top boxes with built-in digital recording
in 28 of its 31 local markets. The company expects to soon announce that
it had around 250,000 DVR subscribers at the end of the third quarter.
Meanwhile, Comcast has been concentrating mostly on video-on-demand,
which allows customers to view programs stored on a centralized server
operated by the cable company. Still, Comcast is also offering the
Scientific-Atlanta digital recorder in a few markets and hopes to widely
roll out and market a new DVR-enabled set-top box from Motorola early
next year.
Those threats are a big reason why TiVo's shares have lost 40 percent
of their value in recent months, closing down 31 cents, or 3.5 percent,
at $8.67 on the Nasdaq on Friday. That is off their 52-week high from
July of $14.51.
That same danger is also why TiVo, which is based in Alviso, Calif.,
is scrambling to remake its business model. While sales are expected
to be robust this holiday shopping season, the long-term viability of
stand-alone DVR's appears dubious. In response, the company is reinventing
itself as a supplier of software to other companies that want to make
their own DVR's.
"People traditionally might think of us as a company that builds a
box and has a service with that box," Michael Ramsay, TiVo's chairman
and chief executive, said in a telephone interview last week. "We have
transitioned from that model much more to a pure software and services
model for our company. We will spend less and less time on the hardware
side of what we're doing, so that people who build the DVR hardware
become our customers, not our competitors."
Consumer electronics manufacturers including the Pioneer Corporation and
the Toshiba Corporation are already marketing new sorts of combination
products that include digital recorders with TiVo software. But Tivo's
goal of becoming a pure software vendor also carries risks of its own,
namely: Why should a company that has DVR technology of its own pay
TiVo instead?
According to senior cable-television executives, TiVo is trying to
persuade them to use TiVo software in "premium" versions of their DVR
products. Those executives say TiVo's pitch is that while Motorola's or
Scientific-Atlanta's recording systems might be fine for the low-price
end of the market, TiVo's more-advanced software appeals to consumer
with more money to spend.
Mr. Ramsay of TiVo would not discuss specifics of his negotiations with
cable companies, but, for now, executives at the biggest cable companies
appear to be taking a wait-and-see approach to TiVo's overtures.
In that vein, perhaps the biggest uncertainties facing TiVo are the
plans of Rupert Murdoch, whose News Corporation has agreed to acquire
control of DirecTV, a unit of the Hughes Corporation. The News Corporation
already controls a company called NDS, which is developing its own DVR
technology. The DirecTV acquisition is expected to be completed by early
next year, and the NDS relationship raises at least the threat that
DirecTV, until now TiVo's most important customer, could spurn TiVo for
another partner.
A News Corporation spokesman declined to comment. Back in Rochester,
meanwhile, Mr. Palermo is focused on the World Series. A former minor
league player in the Baltimore Orioles's organization, he said he liked
to use his DVR to pause, rewind and analyze the motions of hitters
and pitchers.
He has repeatedly reviewed the home run by Aaron Boone early last Friday
morning that propelled the New York Yankees into the series with the
Florida Marlins. "Let me put it this way," Mr. Palermo said of his DVR,
"I got to enjoy that home run a whole lot more than anyone else watching."
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