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APRIL 2, 2003

NEWS ANALYSIS

A Cable Lifeline for DVR Technology
[Page 2 of 2]


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KEEPING CUSTOMERS HAPPY.  Satellite operator EchoStar requires subscribers to buy a more expensive satellite receiver for $149.95 but charges no monthly fee for the program guide. "I always buy the newest thing out there, but I had a problem with TiVO and Replay," says Joseph Russell, a systems administrator at the University of Florida in Gainesville and a self-professed technology geek. "You had to pay a ton of money upfront for a hard drive that was rapidly becoming outdated," considering how quickly storage becomes bigger and cheaper.


Russell now subscribes to the $9.95 per month Cox DVR service. He pays nothing for the 80-gigabyte hard drive in his set-top box. And Cox promises to swap out the box if newer, improved hard drives become available.

From Cox and other cable operators' perspective, keeping customers like Russell happy is a top priority. His cable bill is nearly $100 a month -- and he has been a satellite customer, nemesis of the cable companies, in the past. After a rocky 2002, when the top cable operators saw their stocks drop by as much as 30% due to slowing subscriber growth and investor fears about accounting irregularities, offering services that will keep customers loyal is essential. "Cable operators need to find new ways to compete for high-end consumers who subscribe to premium programming," says Greg Ireland, an analyst with IDC.

COMPLETE WITH ADS.  Even this early in the game, DVR appears to be a winner. After just six months on the market, Time Warner Cable has signed up 12% of its customers in Rochester, N.Y., says spokesman Mark Harrod. That's good news for DVR technology, which has spread largely via word of mouth -- and for Time Warner. After years of expensive investment upgrading to digital transmission lines, cable operators are eager for services that will quickly generate profits. In general, cable companies amortize set-top boxes after five to seven years. Selling DVR service for $9.95 a month can cut that time in half, says Lydia Loizides, an analyst at Jupiter Research.

And unlike DVR pioneers, cable operators won't find themselves locked in a battle with media companies who fear the technology could undermine traditional advertising business models. Neither Time Warner nor Cox offers the controversial "commercial-skip" feature that landed SonicBlue in legal hot water by allowing viewers, with the click of a button, to eliminate all ads in recorded programs. (Before it filed for bankruptcy on Mar. 24, SonicBlue said it was coughing up $3 million a month for legal fees.) "As a service provider, we don't want to make it too easy for customers to avoid advertising," says Lynne Elander, vice-president for video product development at Cox.

The compromise doesn't bother DVR fans. With digital fast forward, DVR users can blaze through a typical 1 1/2-minute ad segment in about 30 seconds. But the real power of DVRs, customers say, is the ability to make better use of the hundreds of channels they already receive. "I don't watch TV anymore," says Joseph Russell. "I watch recorded TV."

As for Gerstein, she records the entire season of popular TV series such as Six Feet Under and The West Wing, and she watches episodes at her convenience. She's also discovering programming she might never have seen otherwise, such as late-night HBO comedy Da Ali G Show. It's one more example of how DVR technology finally may be ready for prime time.

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By Jane Black in New York
 Edited by Beth Belton
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