About Us | Publications | Mailing List | Initiatives | Donations

Tim Watts

"The Prime Time Killer on TV"

BRW

February 9, 2001

Just as television industry executives understand and come to grips with the threat of the internet, another new technology is emerging that may be even more disruptive: the personal video recorder, or PVR. Imagine a television set with a computer hard disk and an online search engine. A black box on top of the set filters every program that comes in through the antenna or pay-TV cable, digitally storing everything it is programmed to record.

Once a day it automatically makes connection through a phone line with a database of up-to-the-minute programming information so viewers always know what is on and when. A couch potato with a remote control can then pause a live show, go back to a replay of a great point in the tennis, record hour after hour of whatever takes his or her fancy, automatically record Seinfeld or Cary Grant movies whenever they are shown, day or night, and - most shockingly for television industry executives - instantly skip all the commercials. All this without needing a tape.

Some analysts say the PVR will mean the end of television as a mass-market advertising medium. If they are right, the revolution has already started, because about 150,000 PVRs are now in homes in the United States and Britain.

The implications of the PVR for the TV broadcasting business model are immense. Not only can viewers easily ignore advertising, which generates almost all of a station's revenue, but the hugely profitable prime-time concept may well be dead. A viewer would not need to watch, say, Sex in the City when Nine Network schedules it, because a PVR can automatically record it every week and take out the ads. Shows can be rescheduled for the viewer's preference. With a PVR, programs broadcast at 3am are just as accessible as those screened at 7.30pm. As the commercials for one American PVR company, ReplayTV, say: 'Everyone is a television programmer now.'

Even more worrying for TV executives is a feature of PVRs known as 'information backhaul'. Until now, the TV industry has had to rely on somewhat haphazard household surveys to determine how many viewers are watching each program. PVR companies avoid this problem because they track every remote-control button their customers press; they know what is being watched every second of every day. This collection of consumer data has already raised the ire of privacy advocates in the US and Britain, but advertisers and marketers are rubbing their hands in glee.

Not surprisingly, there are some very big fish investing in the PVR business. TiVo, which describes itself as the creator of the personal television service, is the clear industry leader with two-thirds of the market in the US and 100% in Britain. It is backed by partnerships with AOL Time Warner and the American free-to-air broadcasters NBC and CBS. Its main rival, ReplayTV, also has investment backing from AOL Time Warner (from before the two companies merged) and Walt Disney Company, which owns the ABC network in the US.

New entrants are on the way, with Microsoft and a News Corporation affiliate, BSkyB, partnering hardware companies to develop PVRs for release this year.

Australian viewers probably will have to wait until next year for PVRs. TiVo and ReplayTV both say their focus this year will be on the US and Europe.

With excitement about the internet still widespread and with the high price of first-generation PVRs (about $1000 for a set-top box and a $15 monthly subscription to TiVo or ReplayTV), consumers have been slow to adopt the technology. The first PVRs went on the market in the US in January 1999 and fewer than 1% of households now own one.

This slowness has led to some jitters among investors. ReplayTV has radically altered its strategy in recent months, abandoning manufacturing operations, sacking half its workforce of 260, and concentrating on licensing its technology to cable-TV companies. It hopes they will incorporate PVR capability into their customers' set-top boxes. TiVo has bigger cash reserves than ReplayTV and says its sales are increasing at a steady, if not spectacular, rate.

However, the fact that two of the three big US commercial networks and BSkyB of Britain have directly invested in a technology that undermines their primary revenue stream means that either the TV executives are crazy or that PVRs could be about to revolutionise the industry very quickly.

David Miller, entertainment and media analyst at the broking and investment house Sutro & Company in Los Angeles, says slow initial sales of PVRs is not a sign that the technology may eventually fail. 'Industries do not mature overnight,' he says. 'You can't expect to put a new consumer product on the market and have everyone throw out their current technology straight away. Entertainment industry products normally take five years to reach critical mass. The VCR was introduced in 1978 and by 1983 it was ubiquitous. The compact disc entered the market in 1984 and by the end of the decade it dominated sales in music stores.

'PVRs require this same kind of behavioral shift and we are convinced it will happen,' Miller says. 'We are forecasting that one million households in the US will own a TiVo PVR by some time in 2003.'

TiVo, which is based near San Jose in California, has formed alliances with some of the biggest cable, entertainment, consumer electronics and media companies in the US, including Sony, Disney, Comcast, Philips and Home Box Office. There is a possibility that the PVR could become a winner-take-all market, with TiVo becoming the Microsoft of the industry, although Miller doubts such an outcome is likely.

'Microsoft, with its Ultimate TV, and BSkyB in Britain are moving in and I also think ReplayTV's new focus on getting its technology incorporated into cable set-top boxes will be the ultimate iteration of the product,' he says. 'TiVo will not have the market all to themselves.'

Some analysts are dubious about the long-term significance of the PVR. 'This could well be just an intermediate technology,' says George Michaelides, managing partner of the London media consultancy Michaelides & Bednash. 'I don't think people have a serious need for the product, and depending on how fast other technologies develop, it could be superseded by broadband content over the internet.'

Michaelides says consumers in Britain have already been bombarded with marketing about different kinds of black boxes for their TV sets, and a huge number of people already have digital and satellite services. 'With Sky Digital, for example, you have films being broadcast every 15 minutes. That is effectively video-on-demand already. Why do you need a PVR?'

In the end, the information-gathering capabilities of PVRs may mean that advertisers rather than consumers will be the driving force behind the spread of the technology. Each household with a PVR gives marketers an unprecedented, detailed picture of the way TV viewers behave, so many companies may have an incentive to subsidise the retail price of PVRs as a means of getting closer to their customers.

Advertisers' jobs will not get any easier if viewers can zap through commercials at the touch of a button. But the opportunities for fine-tuning commercials aimed at specific groups would grow substantially. The mass-market campaign may disappear but the efficiency of all campaigns could improve substantially