Brighter Future for Hard-Disc Video?

Hard-disc–based digital video recorder (DVR) products (aka PVRs or personal digital recorders) such as those sold by TiVo and ReplayTV have been getting a lot of press lately, but only a modest share of consumer dollars. In the few short months since DVRs hit the shelves, ReplayTV has already bailed out of the manufacturing business, and the ultimate fate of TiVo is still unkown. In spite of its shaky start, the DVR category is slated to take off in the next five years, according to a new report from the Yankee Group.

The Report, "Digital Video Recorders: The Revolution Remains on Pause," predicts that the integration of hard drives and digital video recorder (DVR) software into electronic devices, particularly satellite receivers and cable set-top boxes, will result in 880,000 DVRs being installed in US homes by the end of 2001. This figure is projected to grow to over 20 million by the end of 2005.

The Yankee Group notes that stand-alone units have not been able to gain the widespread adoption that was hoped for by the industry, with less than 350,000 units sold over the last one and a half years. In contrast, direct broadcast satellite (DBS) sold approximately 1.75 million units in its first year and a half of existence.

Now that hard-disc recorders are being integrated into cable boxes and satellite receivers, and consumer electronics companies such as Sony and Philips are beginning to roll out integrated DVR products, the Yankee Group believes that DVRs will see consumer adoption pick up significantly.

The Yankee Group's Adi Kishore asks "Is it an electronic device that you buy at retail, or a service that is paid for every month? What exactly does it do, and how does it work? Add to that the high price point for the device, and you have the issues that are confusing consumers and limiting the penetration of DVRs. With the integration of the technology into consumer electronics and set-top devices, the DVR becomes an incremental feature or service. That greatly increases the value proposition for the consumer, and coupled with greater understanding of the service through word of mouth and advertising, it will help drive the adoption of DVRs over the next few years."

The report predicts that the DVR will develop into a feature as the market evolves, and notes that consumers are unlikely to pay significant charges for the basic time-shifting service. "Thus, it will be most successful as a bundled or integrated offering, along with an increasing number of interactive, television-based services." The Yankee Group feels that DVR vendors that go it alone will find a tepid market, very high burn rates, and competition from the operators who can provide subscribers an integrated offering that is more cost-effective.

The report also offers advice to DVR developers: "Since the cable and satellite operators will hold most of the cards here, incremental service revenues moving forward, from sponsored channels, interactive advertising, commerce opportunities, and so forth, will largely go to them. DVR vendors counting on gaining the lion's share of those fees should recognize their dependence on the operators and accordingly adapt their business model toward a licensing solution that would bring in lower revenues initially, but ally them with the operators."