Anyone who has passed by a consumer electronics store lately has undoubtedly noticed the latest video equipment on the market: personal video recorders (PVRs), the new digital replacement for the old analog VCR.
With retail prices for PVRs now well within reach of most consumers, there's even more concern about the new video recorders' ability to give viewers increased control over television content and, thus, adversely affect TV ad revenue.
So far, two personal video recorder manufacturers are ahead of the pack: San Jose, Calif.-based TiVo Inc. has Philips and Sony as its hardware partners, and ReplayTV Inc., in Mountain View, Calif., started selling its Panasonic-built ShowStopper units within the past two months. Sharp Electronics agreed to produce ReplayTV hard- drive-equipped units, but none are currently available.
More than 100,000 satellite TV dish owners-customers of Colorado-based EchoStar's DISH Network-have purchased hybrid satellite-receiver PVRs, called DISHPlayers, that were jointly created by EchoStar and Microsoft Corp.'s WebTV. EchoStar also holds a small stake in ReplayTV.
Sony reports that sales of its new SVR-2000 Digital Network Recorder with TiVo technology, which went on the market in May, have far exceeded expectations. A 30-GB, dual-tuner TiVo/DirecTV Digital Network Recorder will be introduced by Sony later this year.
"We are drawing lots of satellite subscribers in particular," says Michael Fidler, Sony senior vice president of home video/digital media marketing. "We see this product as the first of many gateway products that integrate with all sources. Later on, I anticipate that this hard-disk technology and recording capability will be added to TV sets and cable set-top boxes."
Charley Humbard, senior vice president and general manager for digital networks and advanced TV at Maryland-based Discovery Networks Inc., which has a $7.5 million stake in TiVo, also owns a TiVo-powered PVR and "loves it." Humbard says that learning how to set up and operate his personal video recorder has been much simpler and easier than any VCR.
"Everyone understands that PVR technology allows the viewer more access to content and spurs more TV watching," says Humbard. "The user interface is great. With PVRs, viewers will spend the majority of their time in their own walled gardens."
"Studies have shown that people watch more TV with PVRs. And in their minds, the quality of the TV they are watching is vastly improved. PVRs offer a fairly elegant out-of-the-box experience," says Jonathan Boltax, director of the enhanced broadcast group at NBC, which has equity stakes in both TiVo and ReplayTV. "This technology will continue to evolve, as will our involvement in it."
Like NBC, The Walt Disney Co. acquired equity stakes in both ReplayTV and TiVo last year.
"The early adopters in particular will be heavy users, and already we detect that people with PVRs love the control," says Mark Greenberg, executive vice president, corporate strategy and communications for New York City-based Showtime Networks Inc., which has a stake in both TiVo and ReplayTV.
TiVo offers network showcases where TV-content partners can highlight upcoming shows or special events. TiVo's Ipreview, currently being used by Showtime Networks, lets TiVo users select a program by using their remote controls to click on an icon that appears on their TV screens during promos. The TiVo unit will automatically record this pre-selected show at the time it airs.
ReplayTV has adopted a slightly different approach with its ReplayZones, which organizes TV content into specific categories.
"These devices are very powerful from our standpoint as well as in terms of the way that they enable us to position our original and theatrical content in particular," says Greenberg. Showtime has been very aggressive in this space, using Tivo's Ipreview and ReplayZones to alert its subscribers to its programming, he adds. "This adds value to the subscription, while it gives us the ability to break through the clutter."
"Until PVRs and TiVo's Network Showcase came along, we were not able to showcase our product in this fashion," says NBC's Boltax.
As part of its relationship with TiVo, Dallas-based Blockbuster Inc. is considering promoting the PVR, along with DirecTV's DBS service, in its 4,000 stores. Starting in early 2001, the two companies plan to separately offer a Blockbuster-TiVo-branded movie channel in a manner similar to the existing Tivo Network showcases but accessed directly and apart from the showcases themselves on the TiVo electronic programming guide (EPG).
"There will be a general user interface that will be Blockbuster-branded, and it will let consumers know that they are watching movies brought to them by Blockbuster," says Randy Hargrove, a Blockbuster representative.
The PVR user interface or EPG is unusual in the sense that viewers have probably not encountered a device that acts on their behalf, sweeping over program listings to lock onto specific categories or types of programming that might interest them.
"The PVRs with their artificial-intelligence-driven programming-search mechanisms, which are based on viewing patterns, will seem cool to many people, while others may find them a bit intrusive," says Showtime's Greenberg.
But Discovery's Humbard looks forward to the next generation of PVRs, which will be equipped with more than one tuner. The stand-alone PVR platforms today are somewhat limited by a single tuner that prevents users from watching one channel while recording another channel. Dual-tuner-equipped TiVo-DirecTV combination set-top boxes from Philips and Sony, for example, are scheduled to be out later this year and will feature this option.
"For now, they want to keep the costs down and gain household penetration. As hard-drive costs continue to drop, PVR manufacturers will be able to hold their prices steady, while adding another tuner," says Humbard, who indicates that Discovery has a branded area in the TiVo Network showcases, although he would not disclose the terms of the arrangement.
Fast-forward the ads
Personal video recorders have made the TV industry a bit uncertain about what lies ahead as the TV viewer is handed the means not only to create a single-channel viewing experience, but also to skip along at 30-second intervals, in the case of ReplayTV.
A recent KPMG Consulting survey, "Personal Video Recorder Outlook," pinpoints some industry concerns about PVR technology. The survey of media executives, which was conducted at this year's NAB convention, revealed that fully 64% of those surveyed believe that one in four viewers will own PVRs in the next three years. Asked when PVRs will have automatic commercial-suppression capability, 35% believe that will happen within a year, and 47% think it will happen in three years. According to the survey, most industry executives believe advertisers will have to improve the entertainment value of commercials. A significant number (29%) felt that advertisers will have to make deals with PVR manufacturers to keep commercials in the playback process. And 25% think that advertisers will have to appeal directly to consumers by offering incentives to view commercials.
So what sort of signals are advertisers sending to the content providers and TV networks? Thus far, there appears to be no consistent response from advertisers.
"I am detecting no signs of resistance to PVRs in general, and no sense that advertisers are unhappy with this technology," Boltax says.
"With the most robust upfronts in TV history, we are detecting no negative signals from advertisers whatsoever regarding PVRs at this point," says Dana McClintock, a representative of CBS, which has an equity stake in TiVo. "We are moving forward, and PVRs are not altering our plans one bit."
Says Humbard, "The majority of advertisers have concerns about how advertising fits into this delivery technology."
Another issue confronting the PVR sector-and the entire consumer electronics industry in general-is digital copy protection. For example, consider the footnote filed on June 8 in response to a recent FCC Notice of Proposed Rule Making by the Digital Transmission Licensing Administrator (DTLA), which oversees the implementation of Digital Transmission Copy Protection (DTCP)-also referred to as the "5C" solution because of the five companies that created it.
This footnote underscores the enormous uncertainty surrounding the implementation of digital copy protection in PVRs and other digital consumer electronics products, which are increasingly interconnected or networked together.
"MPAA members have suggested that broadcast TV could be encrypted and encoded in a manner that indicates that copy control is not asserted, but that no retransmission of the content is permitted outside the home. Instituting such a change (i.e. encrypting all content but encoding broadcast TV content in a fashion that does not prevent copying) would require a significant revision to the DTCP technical specifications.
"This change, if implemented, would render digital recorders currently on the market and in consumers' homes (e.g. DVHS recorders) unable to recognize the new copy-control state and, thus, unable to make legitimate copies of broadcast TV (e.g. for time shifting). Similarly, DTV receivers would not recognize that incoming content was encrypted and so would be incapable of displaying broadcast television via an IEEE 1394 interface. Silicon chips currently being manufactured and sold by companies that are implementing DTCP would also be rendered useless."
Without some resolution of the digital copy protection issue, personal video recorder technology remains vulnerable.
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