DBS PVR Moves Need Op Response

The retail future of the personal video recorder is still to be determined. And PVR makers face a tough challenge: selling consumers on a costly VCR substitute that also commands a monthly subscription fee.

But the retail efforts of TiVo Inc. and Replay TV Inc. have inspired cable operators and set-top vendors to prepare for something that many observers thought should have been done from the start: building video-recording capability directly into the set-top box.

"We believe the integration into the cable box was the ultimate answer," said Keen Personal Media CEO Russ Kraph. "There is not a top MSO that doesn't want integrated PVR."

Cable-equipment titan Scientific-Atlanta Inc. reports heavy MSO interest in PVRs.

"You look at the [Microsoft Corp.] Ultimate TV promotion, and cable needs a response," said S-A vice president of product strategy Bob Van Orden.

Cable's belated push to add PVR capability is motivated by the recognition that consumers love recording functions, but don't want to pay a lot for them.

And there's likely an even more important driver: Direct-broadcast satellite providers DirecTV Inc. and EchoStar Communications Corp. are already shipping boxes enhanced by TiVo Inc. or Ultimate TV PVR functionality.

The ever-cautious cable operators' drive to add PVR capabilities has been tempered by a concern that the technology could compete with the nascent video-on-demand business. That has prompted some operators to hold off on widespread PVR introduction until more VOD results are in.

Some operators aren't waiting. Charter Communications Inc. plans to test a Motorola box with built-in ReplayTV capability later this year. That deal paved the way for a wider deal announced last week between ReplayTV (now owned by SonicBlue) and Motorola that would integrate ReplayTV PVR technology across Motorola's product line.

Time Warner Cable will launch a beta test of S-A's Explorer 8000 set-tops with PVR functionality later this year. And Comcast Corp. is working with Pace Micro Technology plc on a PVR set-top.

The S-A 8000 with PVR functions will boast two tuners and a 40-gigabyte hard drive. The tuners allow a viewer to watch one show while recording another, which Van Orden described as "a killer feature."

S-A has signed a deal with Time Warner for a minimum of 100,000 PVR-enabled set-tops, plus the majority of any PVR related boxes the MSO buys over the next two years, Van Orden said.

Keen Personal Media will supply driver-level software for the Explorer 8000 with PVR, while Metabyte Networks offers up its Intelligent Storage Management and Preference Engine and S-A writes the graphical-user interface Time Warner will employ.

Cable's PVR set-tops will be designed to go beyond straight video recording, Van Orden said. Since advanced set-tops also will have Data Over Cable Service Interface Specification (DOCSIS) modems, subscribers will be able to store audio or other video files from the Internet.

Some content companies, such as the Hollywood movie studios, have talked about delivering content directly to a home-storage device. Such outfits could use the recording and storage capabilities afforded by PVRs.

Keen, with its hard-drive storage background through parent company Western Digital Media, jumped into the PVR space last year, when it signed a deal with S-A.

The S-A 8000 relies on Keen's silicon architecture, which can handle multiple video streams and Internet-protocol data from a cable modem, said Kraph. Both are functions that don't appear in TiVo or Replay retail boxes, he said.

Keen's current box has a 40-gigabyte hard drive, but that will increase to 60 gigabytes (or 40 hours of video storage) by summer. An IEEE-1394 plug would allow a consumer to add even more storage if they desire, he said.

Metabyte makes the software that directs the hard drive to automatically record, erase, pause or store content on the disk, said director of product marketing and management Vallal Jothilingam.

Metabyte also has an intelligent preference engine that divines the genres of programming a specific user prefers — Cary Grant movies, for instance — then finds and records similar programming.

Jothilingam said Metabyte's technology also could work in the 2000 series of boxes.

"The technology uses a very small footprint on the client," he said. "We can work in a diskless box."

Comcast and Pace last year signed a deal involving the Pace 710 set-top box with a 40-gigabyte hard drive. The box is a DCT-5000-class set-top, said Neil Gaydon, president of Pace Micro Technology, and includes a DOCSIS cable modem, four tuners and a 300 MIPS processor.

Gaydon said Pace would supply the low-level disk drivers. A software provider has not been named.

But integration issues and unresolved business models means "you won't see a PVR from Pace until Q3 of next year," Gaydon said.

Pace's business model is also being directed by some cable operators' push into VOD. "Cable has a huge amount of invested interest in video-on-demand," Gaydon said.

If consumers use a PVR for VOD functionality — essentially recording or time-shifting shows for later viewing — that could hurt the VOD business. That's why DBS providers are rolling out PVR technology, in Gaydon's view — because it gives consumers VOD functionality.

"It's critical to satellite," he said. "That's what satellite is counting on."

PVRs also can be limiting in that consumers won't be able to port content to other devices and because the recording capacity is finite, Gaydon said.

That said, Gaydon still believes it's only a matter of time before PVRs in set-tops are widespread. "There's no question PVRs will be in the majority of set-top boxes" in the future, he said.

ReplayTV began its shift to a PVR-licensing model several months ago, when it inked the Charter-Motorola deal.

"We've pulled back on the retail mode," said Replay TV senior vice president of corporate strategy Tom Carhart. The company has generated funding from Comcast Corp., Adelphia Communications Corp., Shaw Communications, Rogers, Time Warner Inc., Vulcan Ventures, Excite@Home Corp. and EchoStar Communications Corp.

Replay will supply Motorola with disk drives and system software for its 5000 series of boxes, according to its vice president of marketing, Steve Shannon.

Shannon expects Motorola to have a PVR-enabled DCT-5000 in the market by year's end. Exact hard-drive specifications will be left up to cable operators, he said.

In several MSO tests, the PVR has helped improve pay-per-view buy-rates, Carhart said.

PVR search functions "make it easier for consumers to find out what's on," he added. Although MSOs like the attributes of PVRs, "there is also increasing realization that it's a complicated task and will take more time than first anticipated," Carhart said. "Taking a real-time video stream, writing it to a disk, and have it play back at a low cost is a challenging task.

"You want an extremely compelling end-user experience and it takes time to pull it all together," he added.

TiVo chief technology officer Jim Barton — a vendor veteran of Time Warner Cable's Orlando, Fla., Full Service Network experiment — knows all about integration issues.

"Doing PVR is much more difficult than it seems at first," Barton said. "When you put a disk drive in the set-top, it becomes the focal point of the set-top. It's noisy. It's hard to manage."

Although TiVo has been in active discussions with MSOs and set-top vendors about PVR functions, its main nonretail foray has been with DirecTV.

DirecTV began shipping receivers with built-in TiVo functions last September, Barton said. The boxes employ a dual tuner and 35 hours of hard-drive storage at monthly, yearly and lifetime subscription prices that follow TiVo's retail model.

TiVo has 156,000 subscribers, but the company doesn't release separate DirecTV subscriber figures.

TiVo, which widened its equity and marketing relationship with America Online earlier this year, is working to integrated PVR functions into new AOL TV set-tops, but no beta trial dates have been announced.

"We're in the middle of building it," Barton said.

Several cable MSOs, including Cox and Comcast, also have made equity investments in TiVo. Comcast is running a test in which the MSO installs and bills for the TiVo boxes in its territory, Barton said.

"An integrated box would be attractive from a ramping-up point of view, but it's not crucial to our business plan," Barton said. How quickly PVR functions appear in set-tops is up to the MSOs themselves, Barton said.

And if integration and VOD cannibalization issues aren't challenging enough, set-top vendors are working to solve an economic dilemma: How does one pay for the $70 to $200 in add-on costs for a hard-drive in a set-top?

Vendors believe a mix of subscription, targeted advertising and other fees will offset those outlays. But most would love to see the price eventually drop to zero, through bundling.

EchoStar is already offering "free" PVR functionality as part of a new bundled package, set-top vendors say.

A number of MSOs tested PVR services at $9.95 to $11.95 per month, but Keen's Kraph believes those fees are too high to drive penetration. He expects the next round of MSO tests to fall between $4.95 and $6.95 a month.

Metabyte's Jothilingam believes operators can generate non-subscription PVR revenue through such means as targeted advertising, increased PPV and VOD buy-rates and coupons.

"We tell them to stop treating this as a device," he said. "This device is a resource that can generate new revenue streams."