Can DVRs Live in a VOD World?

Pitting instant gratification against delayed pleasure, digital style
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Pitting instant gratification against delayed pleasure, digital style

FALLS CHURCH, VA

Will VOD and DVR compete with one another and eventually kill off the other guy, or might both technologies become like family--second cousins who learn to live together, connected by the same basic digital DNA?

"The answer is we do not see DVR and VOD as competitive, but rather as complementary," said Mark Harrad, vice president for corporate communications at Time Warner Cable. "Many of our VOD customers also have DVRs. Our strategy is to offer the customers the latest and best in new features and services, and then let them pick which ones best serve their own particular needs."

NOT EITHER/OR

Bruce Leichtman, president of Leichtman Research Group of Durham, N.H., concurs: "I think too often people want to make it too simple, the 'either/or' mentality. But DVR and VOD provide a combination of features that DBS cannot provide, and it's this combination that cable will no doubt emphasize [in marketing] to their consumers."

Although the folks at standalone DVR maker TiVo might disagree, Leichtman does not see the DVR as a "product," per se, as much as a "feature." And as new digital cable STBs with built-in hard-drive DVRs become ubiquitous nationally, their popularity will naturally continue to grow, he said.

"As the DVR is increasingly bundled with new boxes, it's getting some legitimacy to it," he said.

Today, more than 40 percent of all cable subscribers pay to access digital tiers, according to the NCTA. And two-thirds of those digital subs enjoy VOD options. Leichtman, an industry analyst, said VOD access has more than doubled in recent years--growing from 7 million subs two years ago to more than 17 million in early 2005.

"By 2008, I have 32 million subscribers going with VOD, and 34 million with DVR. And 15 million [homes] will be getting both within three years. That's not everybody, but it's a very large niche," he said.

In fact, it seems to be a large enough niche to have caused some real headaches, at least for Comcast. In December, having announced its DVR-equipped STBs were available for quick installation in its 1.6 million homes in the San Francisco Bay area, the nation's largest MSO got hit with far higher initial consumer demand than expected, resulting in a waiting list of up to three weeks for some subs.

Unlike DVR technology, VOD is enjoying a second look by potential users. In an earlier, simpler analog life when "on-demand" was widely known as "PPV," and saddled with rigid start-times and no rewind-pause capabilities, the on-demand concept floundered. (Several beta tests were canceled early, thanks to consumer apathy.) But Leichtman and others now see the new and improved digital version of VOD becoming welcomed by an increasingly digital-savvy public.

Comcast spokesperson, Jenni Moyer, said slightly more than 80 percent of Comcast homes with both DVR and VOD capabilities report using both services on a regular basis. Comcast now provides STBs with both dual-tuner DVR and HD recording capabilities (primarily the Motorola 6412) in nearly all its markets, for less than $10 monthly. It currently offers VOD in about 80 percent of its markets.

Comcast offers more than 2,200 VOD viewing options a month, with more than two-thirds of those choices provided free. "We had more than 3 million views in the first month alone of our new NFL Network On-Demand content, which demonstrates to us that consumers are embracing VOD today," Moyer said. (Comcast also offers its NFL Network channel on its digital tier that can be DVR time-shifted.)

According to Time Warner's Harrad, the buy rate for movies on-demand right now is 50 percent greater than for PPV movies. While cable VOD libraries typically provide a lot of free content, typically it charges up to $4.95 a "view" for accessing a new-release movie for a 24-hour period, or about $1 more per-access than current fees at Blockbuster, which now allows customers to hold new "2-night" releases for up to nine nights without incurring added fees. (Also still a better deal than VOD financially, at least for heavy DVD movie customers, is NetFlix, which uses snail mail to allow nearly unlimited DVD rentals for $18 monthly without late fees.)

DBS, for its part, is doing its best to compete with cable, and itself, on the VOD front, using DVR options to full advantage. Last month at CES, EchoStar unveiled "Dish On Demand" using the DVR 625 system that can record up to 100 hours of content, with advanced reverse, fast-forward and pause options. The new service, using the DISH Network brand, launches in March and will go head-to-head with DirecTV's VOD scheme that had favored TiVo-equipped DVRs, at least until CES, when the DBS firm, owned by News Corp., revealed its first DVR would instead use technology from NDS, which is also owned by News Corp.

Yet analyst Leichtman, whose firm surveys the DVR-VOD markets annually, said movies, old and new, represent less than 10 percent of what most VOD subs are accessing.

"The real 'killer app' of VOD is POD [premium on-demand]," consisting primarily of regular weekly series on premium channels like HBO and Showtime, such as "The Sopranos."

EVERYTHING ON DEMAND

John Coulbourn, communications director at SeaChange International in Boston, thinks digital VOD now has the opportunity to support a platform where nearly everything will eventually be offered on-demand.

"Restrictive parameters clearly are widening. Ubiquitous on-demand services may eventually negate some of the need for the DVR, but you'll always have consumers who will want to record and keep programs for a variety of reasons," he said.

Coulbourn, whose company provides digital video systems for broadcasters and won an Emmy Award for its on-demand technology, said "VOD is better equipped to serve the existing business model." He also believes digital VOD will tap new revenue streams for advertisers by being able to target extremely specific audiences.

"VOD libraries will hold a lot of programs that will never be broadcast or rebroadcast, such as 'how-to shows,' and a lot of content-specific topics, lots of niche programs. If you willingly go out of your way to VOD a kayaking program, for example, you're exactly the guy the kayak advertiser wants to reach."

Buddy Snow, vice president of convergent systems marketing for Harmonic, Inc. agrees that VOD can expand on the niche format.

"VOD is evolving to provide a DVD-like experience, including deleted scenes, interviews, commentary and other extra content in addition to the feature program, while the PVR is used by the subscriber to record broadcast programs," he said.

"Systems that make it possible to dramatically reduce the bitrate while providing superior video quality means the operator can deliver more services [channels] within their available bandwidth and store more content on the available space on the PVR. Ultimately, assuming program usage and licensing issues are resolved, operators can eventually assimilate PVR functionality into their VOD network environment, further reducing the need and the cost of a set-top box."

On the other hand, DVR's eventual portability, although, may be another headache for content rights-holders, no doubt will be welcomed by consumers. Typically, program content captured by a consumer's DVR has mostly been confined to subsequent viewing at the same home entertainment center--and by the same consumer--where it was recorded. But TiVo, which stands to lose one of its key customers, DirecTV, and its technological edge as DVR becomes standard hardware/software inside millions of cable and DBS boxes, is thinking outside the TV box.

In January, the company unveiled its new mobile TiVoToGo, which allows users to download digital content directly to a laptop computer (and eventually, to BlueBerry-type devices and smart-phones) --thereby cutting the traditional umbilical cord between TV programs and TV monitors. (EchoStar also has announced a planned rollout of portable DVR-reliant devices for DBS subs.)

VOD also is going mobile. Disney's new DTV channel, "ABC News Now," soon will provide on-demand service to some smart-phones, according to an agreement unveiled at the CES. ABC's partner, SmartVideo, said it plans to deliver "state-of-the-art, high-quality live television at an average of 15 fps" to low-bandwidth cellular devices.