Thursday, February 7, 2002
The NIEMEYER REVIEW is a free weekly newsletter on interactive TV and enhanced TV. Each week's newsletter features an article focusing on a specific subject, emphasizing analysis and including insights from key industry participants. To subscribe, unsubscribe or modify your subscription, click here. Digital Video Recorders - Please Adjust Your Picture? by Bill Niemeyer Many things about the picture for DVRs (digital video recorders - or are they PVRs? - see sidebar) are not clear. They have the potential to radically change the $55 billion a year television advertising business. But when? Some think (or wish) it won't happen soon or at all. A few things are clear. It's clear current users love them and they're spreading evangelistic word of mouth. TiVo reports that "96% of our subscribers would recommend TiVo to a friend." As a DVR owner myself, I don't doubt it. It's clear current users love using DVR's to avoid watching commercials (this just in - people generally would rather not watch TV ads). NextResearch surveyed DVR users and 69% reported they "always or often fast-forward through commercials." My DVR is my "time machine," allowing me to watch an hour of TV in 40 minutes by fast forwarding ads, credits, promos and other non-show content. It's also clear is that not many people have DVRs right now. Overall estimates vary but are consistently fewer than one million current units. TiVo currently has 280,000 subscribers with less for Echostar, Microsoft's UltimateTV and SONICBlue's ReplayTV. But that could change very quickly. A variety of factors should support extremely rapid deployment of DVRs. And even moderate levels of DVRs owned by the right demographic groups could materially impact network, station and ad agency revenues from the $55 billion a year in television advertising. There are models for US households moving very quickly to adopt a new TV technology if they're motivated. We're in the middle of one of those adoption waves right now. The Consumer Electronics Association reports that DVD players are now in 25% of US households, just five years since DVD players' introduction in 1997. That's the fastest deployment of any consumer electronics product in history. Television sets themselves had a rapid deployment. In 1950, less than 10% of American households had a TV. Only five years later, it had increased to 65%. Cost is an issue with DVRs at $300 and above, still above the "magic price point" seen for DVD players of $200. But TV saw its rapid deployment when television sets were not inexpensive. In 1952, an Admiral 21" black and white TV set sold for $199.95. In today's dollars that's over $1,300. And the normal rapid decline in the cost of digital technology will drive DVR prices down very quickly. Especially fortunate for DVRs, the prices for hard drives (their single most expensive component) are falling at an astonishing rate and have been for many years. When "Friends" premiered on NBC in September 1994, today's typical DVR would probably have cost more than a loaded BMW 3 series sedan. 40 GB (gigabytes) is a typical size for a current DVR hard drive. Buying one at retail today costs about $100, or a quarter cent a megabyte. In 1994, 40 GB of hard drive capacity would have cost about $1 a megabyte or $40,000. Moore's Law is the best friend of the new TV technologies (see sidebar). Increasing competition among DVR providers should further drive down prices (while potentially confusing consumers - see the VHS/Beta and DVD/Divx battles). TiVo, UltimateTV and ReplayTV are the most visible DVR developers but others include hard drive manufacturer Western Digital's Keen Personal Media, Gotuit and VC funded start-up Moxi Digital. All are looking to gain deployments by focusing on licensing to consumer electronics and set-top box manufacturers. In the consumer electronics channel, consumers can buy stand-alone DVRs from Sony, Philips and Panasonic as well as TiVo and ReplayTV branded boxes. Direct satellite providers DirectTV and Echostar both offer receivers using DVR technology from a variety of sources. MSOs are likely to soon be offering DVR services. ATT Broadband is co-marketing stand-alone boxes with TiVo. The two dominant players in the US MSO set-top box market, Scientific-Atlanta and Motorola, are offering cable set-tops with built-in DVR functionality. VOD technology providers such as nCube are promoting headend based DVR solutions to cable operators. So what are the networks and advertising industry players to do? So far the most visible response has been the networks' lawsuit against ReplayTV over copyright issues regarding their "Send Show" (sending copies of shows over the Internet) and "AutoSkip" commercial skipping functions. But the commercial skipping complaint faces serious "fair use" hurdles, legal issues can often take years to resolve and there seems to be little that networks can do legally about any DVR's fast forward button. Product placement has been mentioned as an alternative, as well as in-program ads. But both have limitations, the chief ones being they may overwhelm viewers with marketing clutter and distract from the shows, the reason people watch TV in the first place. Incenting viewers to watch ads and applying online techniques such as targeting have been proposed as well. But most of these still require real-world tech trials as well as user behavior research and business model development to refine them. It could be more than several years before networks feel comfortable they are "ready for primetime." The networks are well advised to get moving quickly. While research companies differ on metrics (by year end 2005, Forrester predicts 53 million DVRs (7/00), Yankee Group predicts 20 million (4/01)), unit counts of only 15 million DVRs could have a big effect on the perceived value of TV advertising. The 18-49 age group is the key demographic for networks. It's their ratings that set ad rates for most primetime shows. Unfortunately for the networks, the "early adopters" most likely to buy DVRs are typically in the 18-49 age group. What happens to ad rates when 15% of households with 18-49s get DVRs and "always or often" use them to avoid watching commercials? Consider how much the estimated 5-10% decline in 2001 broadcast ad revenues (vs. 2000) has impacted the business practices of TV networks. The movie studios have learned to love their former worst enemy (television), turning home video into an enormous revenue source. The TV networks need to make friends with DVRs and learn how to make money cooperatively. Otherwise, advertisers, with $55 billion burning a hole in their pockets, will find other ways to make sure their 30 second gems get seen.	So is it a DVR or PVR? That which we call a DVR by any other name would still smell like a commercial killer? So are these things DVRs (digital video recorders) or PVRs (personal video recorders)? PVR seems to be the term in most popular use, especially in the press. But TiVo, ReplayTV and UltimateTV want to call them DVRs. So I'll go with DVR (for now). After all a VCR is a PVR but not a DVR. IMHO, OK? Moore's Law (Or The Supercomputer That Records Friends) In 1965, Intel co-founder Gordon Moore predicted that the number of transistors per integrated circuit would double every year for the next 10 years (see his original paper with the wonderful title of "Cramming more components onto integrated circuits"). He was right. Since then the rate has slowed to every 18 months but that is still a 10X improvement every five years, 100X every ten years. This, and related factors, drives the astonishing rate of change in the price/performance of digital technology. PVRs too expensive for rapid adoption? Just wait for a year or two of Moore's Law. For some longer term perspective, let's compare a 30 hour TiVo to the first commercially available supercomputer, the Cray 1 first sold in 1976. A 30-hour TiVo has an IBM PowerPC 80MHz processor (and various other chips), 128Mb RAM, a 30 GB hard drive and a Linux operating system. The Cray 1 had around the same raw computing horsepower (133 MFlops for the tech heads) and much less RAM (8 Mb). The Cray didn't include a hard drive, video circuitry or even a remote control. But it did have a swanky built-in leather bench and liquid Freon cooling to keep from melting. A 30-hour TiVo costs about $300. The Cray 1 supercomputer cost $27 million in 2001 dollars ($8.8 million in 1976).
Upcoming ITV/ETV Events Entertainment Technology Alliance Expo 2002 - 2/22-23 - Pasadena Bill Niemeyer is co-chair of the Web Technologies track at the Entertainment Technology Alliance Expo 2002. Bill will also be speaking on Friday, Feb. 22 (11AM-12PM) on the panel Online Media Strategies - A look at how online media strategies are changing in the wake of the dot.com failures and current recessive economy. Also on the panel are: - Brian Hurst, CEO, MediaXi - Sean Carton, Chief Experience Officer, Managing Partner, Carton Donofrio Partners / Author "Dot Bomb" - Jason Kuperman, Director of Interactive Marketing, TBWA\CHIAT\DAY - Kirsten Jansen, VP Research and Development, Cylo Kagan Interactive TV Summit - 2/26-28 - New York CTAM Digital Conference - 3/5-8 - Los Angeles Game Developer's Conference - 3/19-23 - San Jose NAB - 4/6-11 - Las Vegas NCTA Cable 2002 - 5/5-8 - New Orleans	TO UNSUBSCRIBE OR MODIFY YOUR SUBSCRIPTION - SEE BELOW TO SUBSCRIBE FOR FREE CONTACT US CENTRIMEDIA WEB SITE Legal and Privacy Information Centrimedia respects your privacy and does not share or sell our subscriber list to third parties. Copyright © 2002 Centrimedia - All Rights Reserved.