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PVRs Seen Assisting VOD Growth

3 Oct, 2002 By: Bruce Apar

“The future of all TV is on demand.” That provocative prospect, voiced by Home Box Office's Robert Zitter, SVP, technology operations, was the premise of a conference last week in New York sponsored by Forrester Research.

“Television's On-Demand Transformation” was attended by 175 entertainment, media and ad executives eager to know how changing technology would change viewing habits and their businesses.

Supplemented by the digital, or personal, video recorder (PVR) to store programs for later viewing -- and feed audience activity back to the PVR provider -- several presenters examined how on demand TV (ODTV) presents serious challenges not only to packaged media such as home video, but also to broadcast networks and advertisers.

Josh Bernoff, principal analyst for Forrester, said by 2007 half of all viewers will have cable or satellite service that includes video-on-demand, digital video recording or both. The heated competition between cable and satellite providers for subscribers, offering value-added VOD tiers and set-top boxes integrating PVR, will be a main driver of that penetration. As a result, Bernoff concluded, “power will shift from networks to producers and operators.”

Of the country's 20 million homes with digital cable, 8 million have video-on-demand capability, while 1 million satellite homes are equipped with PVR, the technology used by DirecTV and EchoStar to provide subscribers with on-demand TV. There are a total of 1.3 million homes with PVR, dominated by TiVo.

Forrester forecasts that by 2007, nearly 40 million homes will have PVR capability -- either standalone or in cable and satellite set-top -- and video-on-demand will be in 37 million cable homes.

In a Forrester survey asking consumers “What enhanced TV features do you want,” the strongest response, almost 60 percent, was for “skip commercials easily,” while half that percentage (30 percent) answered “movies on demand.” When the base of respondents was limited to consumers who pay a monthly TV bill of $40 or more, the response was the same for skipping commercials, while the movies on demand response jumped to 40 percent.

John Sie, CEO of pay-cable movie service Starz Encore Group, said cable operators offering video-on-demand as a standalone transaction is “a mistake.” He termed Starz's preference “transformational,” where subscribers are charged an incremental monthly fee of $4 to $10, for which they can order anything they like at any time, known as subscription video-on-demand (SVOD).

Sie said Time Warner Cable is rolling out subscription video-on-demand to its customers this year. “They get it,” Sie said, adding that, due to on-demand TV,“Home video rental will be seriously impacted, which is why you see Blockbuster moving more to sellthrough.”

In a market test HBO is conducting in Columbia, S.C., almost 60 percent of HBO digital cable subscribers bought HBO On Demand for an additional monthly charge, said senior VP Bob Zitter. When offered to new digital cable subscribers in the test market, 65 percent took HBO On Demand. The service offers 150 titles a month, rotating one-fourth of the inventory each week. HBO On Demand is in 17 markets now, rolling out to 52 by year-end. Zitter said 17 percent of the On Demand programs are movies, and 14 percent of viewers choose to order movies. He said viewers average 12 titles a month, watching for an average 33 minutes.

Commenting on HBO's interest in high-definition TV, Zitter called DVDs “the new quality yardstick by which every technology is now measured.”

TiVo CEO Michael Ramsay listed precise audience measurement, instant viewer feedback and interactive marketing opportunities as chief reasons why Best Buy, HBO, New Line Cinema, and Universal Studios work closely with the PVR company on special viewer promotions. He said 66 percent of TiVo viewers spent an average of almost seven minutes watching an Austin Powers showcase to promote Goldmember. Ramsay claimed PVR is “on the same growth path as DVD, shifted by four years.”

During a luncheon where attendees chose “topic tables” to sit at, two attendees at one table each volunteered how owning a TiVo digital video recorder had prompted them to cancel their monthly subscriptions to online DVD rental service Netflix. They explained the PVR lifestyle left too little time to order enough DVDs to justify Netflix's monthly flat fee.

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