BW Online | April 2, 2003 | A Cable Lifeline for DVR Technology

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APRIL 2, 2003

NEWS ANALYSIS

A Cable Lifeline for DVR Technology
The future was looking dicey for these video recorders, which replace tape with hard-drive storage. Now, cable outfits are signing on

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Melissa Gerstein is anything but your typical early adopter of technology. For one thing, she's female. And at 26, as a research assistant at the National Academy of Sciences in Washington, D.C., she earns far less than the geeky male techies who swarm to the latest gizmos. Nevertheless, in February, Gerstein became one of the first cable customers in Fairfax, Va., to sign up with cable operator Cox (COX ) for its new digital video-recorder (DVR) service -- a product that has long held promise of kicking off a TV revolution.

DVRs -- at first glance, souped-up VCRs that record to a hard drive -- make it easier for viewers to catch their favorite shows. You can record an entire season of your favorite program with the click of a single button -- or record two programs airing simultaneously on different channels while watching a third program live. "I'd heard of [DVRs], but I thought they were pretty expensive," says Gerstein. "Getting the service through Cox was easy, so I thought, 'Why not give it a try?'"

After years of false starts and hyped projections, DVRs may at long last be moving into the mainstream. Locked in a battle for high-end customers, cable operators, who control nearly 70% of the pay-TV market, are bundling DVR capability into digital set-top boxes. That makes it easier and less expensive for customers to test the service -- and less appealing for them to switch to satellite, which has been offering these capabilities for a while. Satellite giants DirecTV (in partnership with DVR pioneer TiVO (TIVO )) and EchoStar (DISH ) already have 1 million subscribers to their respective integrated DVR services.

SOMETHING TO WATCH. Now, the more established and well-known cable companies are getting in on the action. As of Apr. 1, Cox offers DVR service in Gainesville, Fla., and Fairfax, Va. Time Warner Cable, which began rolling out the service in August, offers it in 15 of its 34 cable systems. Research firm International Data Corp. (IDC) projects the number of DVR homes will double in 2003 from 1.5 million to 3 million. By 2006, 20 million American homes will use DVRs to help tame the 200-channel universe.

What a welcome development for DVR evangelists, especially considering the spate of bad news in recent months for DVR companies: On Mar. 6, TiVO announced that in the fourth quarter it had added just 114,000 new subscribers -- 10% short of what investors expected. Three weeks later, SonicBlue (SBLU ), parent company of No. 2 DVR manufacturer ReplayTV, filed for Chapter 11 bankruptcy, leaving its 100,000-plus customers in the lurch. Some DVR users started wondering if the greatest TV technology since the VCR would simply disappear.

Not if the cable guys have anything to do with it. Putting DVR functionality into standard set-top cable boxes eliminates the customer's upfront hardware costs -- between $250 and $500 for a TiVO or Replay. It also lowers the monthly subscription fees. TiVO asks subscribers to pay $12.95 per month for access to the digital program guide, or $299 for a lifetime subscription. Though prices vary by area, cable operators charge as little as $4.95 per month as part of a larger bundle of services and lease the hardware for free.

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