TiVo's Fate? Stay Tuned
DVRs Inspire Fervent Loyalty Among Users, But Will Sagging Sales and Pending Lawsuits Send Them the Way of Betamax?
[Note: an edited version of this story appeared in the Oct. 15, 2002 edition of The New York Sun]
It isn't easy being a technology pioneer, especially when it carries a $2,000 price tag, but when Andrew Flicker took a friend's tip and purchased his first ReplayTV digital video recorder, it was love at first download.
"It's one of those things where you say you don't need it, until you buy it," says Flicker, a 30 year-old Brooklyn resident. "When you finally do get it, you never know how you lived without it."
Two years later, the enthusiasm still shows. Flicker says he records up to four shows a day and watches them in quick succession when he gets home around 10 pm. Visiting at the Union Square Circuit City, he spots a customer checking out the latest ReplayTV model, a 40 gigabyte VCR-shaped box that stores up to 40 hours of video and retails for $399 ($349, if you factor in the manufacturer's rebate), and offers an unsolicited tip.
"Forty hours: You'll go through that in a week," he warns. "Mine has 320 gigabytes, and I'm already at full capacity."
Such is the state of digital video recorders and the people who love them. While not exactly racking up the sales, DVRs have built a loyal following. From TiVo owners trading customization tips like 1960s-era hotrodders to ReplayTV owners filing class-action lawsuits to defend individual features, it's the kind of loyalty that inspires angst in corporate boardrooms and exhiliration in the hearts of consumer advocates. It's also the kind of loyalty consumers will need if they hope to withstand the blows of an uncertain marketplace
"It's an unusual product category," says Adi Kishore, analyst with the Yankee Group, a Boston-based technology research company. "General interest remains low, but when you contrast that with the people who have them, the difference is huge."
Introduced in 1999, DVRs have been slow to build a foothold. Kishore estimates that 1.8 million American homes will have a DVR-type device by the end of the year. Compare that with the 15-20 million DVD players expected to be sold in 2002 alone, and you get an idea why Kishore rates the market as an "unclear value proposition."
Part of the problem is the sophistication of the platform. In addition to buying a machine, DVR also buy a monthly service plan ($12.95 a month for TiVo, $9.95 a month for ReplayTV) similar to a cable or Internet service agreement. Unlike VCRs, which store their menus internally, DVRs access an online network which tells the machine what to record and when. The network connection also guarantees access to the machine from the service provider's side, giving companies the ability to update or software features and keep tabs on consumer viewing habits.
So far, TiVo, a San Jose-based company with 420,000 subscribers, has been the most aggressive in taking advantage of this two-way relationship. Backed by AOLTime Warner, a major investor, TiVo tracks viewer behavior and sells the data to marketers. It also publishes a weekly list of most popular shows. "Push, Nevada," the new ABC reality series considered a flop by some, did surprisingly well among TiVo users, ranking fourth among new shows in an Oct. 4 survey. In August the company rolled out a service that lets users watch movie trailers and provide instant feedback which studio marketers can then study.
Sometimes the company has been a little too aggressive. In May TiVo came under fire when it downloaded an episode of a BBC sitcom onto British subscribers' machines whether they requested it or not. According to the company, the download was part of a marketing deal with the BBC and took advantage of hard drive space TiVo reserves for its own promotional use on every machine. The resulting outcry, however, prompted the company to revise its opt-out policy for future marketing efforts.
Tivo representatives didn't offer a comment for this story, but a look at the company's financial situation explains the aggressive approach. Once valued at $75 a share, the company now bounces around the $3.50 range and has been forced to go to investors for a $25 million cash infusion. Thanks to recent marketing deals, however, the company expects to post its first ever profit next January.
SonicBlue, maker of ReplayTV and the Rio portable Mp3 player, has no major corporate backers and a smaller subscriber base. To be competitive, the company has taken a more consumer-friendly approach. The latest line of ReplayTV machines offers software-driven features such as Commercial Advance, a tool that identifies and deletes commercial breaks while recording.
"It's a great time-saver," says Jill Ocean, a Manhattan subscriber. "You can watch four shows in the time it would normally take to watch two."
Not surprisingly, broadcasters are less than enthusiastic about ReplayTV's automated commercial-skipping. Last October, the five major networks and their studio affiliates filed suit against SonicBlue in federal court. They contend that digital copying "differs radically" from analog VHS home copying and that features such as Commercial Advance represent an attack on the "fundamental economic underpinnings" of free television broadcast.
"This unlawful activity harms the potential market for and value of plaintiffs copyright works, because commercial advertising is a crucial (and often sole) means by which plaintiffs receive payment for such programming," the Oct., 2001 complaint states.
The courts have yet to rule on the copyright violation argument, but in April the presiding judge ordered SonicBlue to keep tabs on ReplayTV users' television-watching behavior. Replay TV users have since fired back with a countersuit, filed in June. The suit asks the federal court to declare digital video recording a form of fair use protected by the 1984 Supreme Court decision that opened the way for home VHS recording.
"The unmitigated conspiracy to spy, that's what really got me upset," says Craig Newmark, founder of the popular online meeting place Craigslist.org, owner of two ReplayTV boxes and a lead plaintiff in the countersuit. "There was no way to justify it."
A second federal judge is currently looking at whether to merge the two lawsuits into a single, precedent-setting case. Such paper shuffling,however, is merely the prelude to an even bigger legal battle. Like Napster before it, DVRs dramatize the slippery nature of copyright-protected content once it enters the digital realm. If ReplayTV subscribers can save shows as computer files, what's to keep them from trading them like digital images or MP3s?
For the moment, the only barrier is time. Although ReplayTV does offers a "send show" feature, the transfer process can take up to 24 hours, even over a high speed connection. Look for new compression technologies and continued enhancement of the Internet to reduce that time considerably within the next few years.
Anticipating a nightmare scenario in which "Friends" reruns--minus the commercials--move from television to television like the latest Internet chain-letter, Hollywood studios and broadcasters are already lobbying Congress. The latest copyright bill currently under debate in the Senate calls for the creation of "broadcast flags," software signals that, when attached to commercially broadcast programs, would deactivate digital home recording devices.
Activist consumers such as Newmark see last year's lawsuit as a yet another attempt to pressure renegade companies to curtail their machines or,failing that, their users.
"This is part of an overall attack on consumer rights orchestrated by Hollywood lawyers," he says. "They want to legally spy on and damage peoples' systems."
Observers such as The Yankee Group's Kishore, meanwhile, see the small size of the DVR user population as its own best asset. "From an advertiser's perspective, there is time before this becomes a crisis," he says.
SonicBlue, meanwhile, is hedging its bets. The same brochure for the new ReplayTV 4500 that celebrates the ad-skipping feature offers the following fine print disclaimer: "SONICBlue reserves the right to change, add or delete functionality from the ReplayTV 4500 at any time with or without notice."
For ordinary consumers such as Andrew Flicker, the future is already here. The same process that makes it impossible to go back to VHS is the same process that makes it impossible to go back to the days of regularly scheduled programming.
"To be honest, I don't even know which networks the shows are on anymore,"he says. "Take "Survivor." I couldn't tell you which network runs that show. All I know is that it's a good show and I record it every week.'
How it Works:
At its most basic level, a DVR works just like a VCR. A viewer records television shows directly off the air by entering the date, time and channel into a recording menu. In the case of a VCR, the menu is provided by the device itself. In the case of a DVR, the menu is provided by a remote server.
To connect to the remote server, a DVR must have a dedicated phone line or,better yet, a high speed Internet connection. Users must also subscribe to a service agreement similar to a monthly Internet service agreement to guarantee access.
Advantages: A DVR saves each show as a digital file on a PC-style hard-drive. This allows for more flexibility from a consumer perspective. Viewers don't have to cue tapes and they can set the recording specifications for an entire season in a few minutes. They can even watch the first half of a show while the second half is still being recorded.
Drawbacks:
1) Unlike VCRs, DVRs do not have the ability to play outside media. Some manufacturers are starting to circumvent this roadblock, releasing combination DVD/DVR devices, but don't hold your breath waiting for a device that records shows directly to DVD.
2) Advertisers claim one gigabyte of hard drive memory is roughly equivalent to one hour of stored programming. DVR users consulted for this story recommend dividing that number in half. Memory upgrades are possible,but consumers who do it on their own are in violation of most DVR warranties.
3) The future of the DVR platform is far from certain. If cable companies offer rival services and steal away users, DVR sellers could be orphaned like Betamax users were in the early 1980s