DVR Opens Revenue Streams

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Within the alphabet soup that comprises the "hot" technologies in the cable industry — VOD, SVOD, VoIP and many others — perhaps none carries more buzz, questions and fascination than DVR. Digital video recording gets more attention every day, and it has the potential for unleashing a large new revenue stream for cable operators.

It's been well documented that consumer adoption of DVR products has been slow to develop, despite some brands being on the market for years. This pattern raises the questions of whether DVR itself has limited appeal, or if adoption has been constrained due to current acquisition models.

Experience and research consistently show ecstatic consumer response to DVR. In fact, according to the Fall 2002 issue of PVR Monitor, 97% of consumers surveyed rate the value they get from DVR as "excellent or good" and 89% believe watching TV is "more fun" with a DVR device. Most importantly, 65% of DVR users are now "more satisfied" with their multi-channel service provider. These findings validate that the marketing and distribution methods to date have been the adoption inhibitors, specifically a retail distribution model with a high cost of initial purchase.

An additional inhibitor of acceptance has been a lack of consumer awareness and actual hands-on experience. According to Forrester Research, only about 5% of consumers have ever seen a DVR in action.

Cable is undoubtedly poised to overcome these past marketing challenges with its direct channel to the consumer, its inherent value proposition, the availability of fully integrated DVR boxes, and by leveraging existing service and support infrastructures. Indeed, cable is expected to be the most important driver for long-term DVR growth.

When comparing DVR to video-on-demand, research indicates that DVR has even more of consumer desired features than VOD. However, the two technologies are truly complementary, because VOD and subscription VOD enables distribution of the new-release content, such as movies or series, as well as allowing for a library of programming. When VOD and DVR are combined, they offer a total package that is irresistible for many subscribers, and one that satellite providers can't easily match.

DVR also taps into a broader base of consumers. PVR Monitor found that 50% of all DVR users are basic-only subscribers, so operators who offer DVR are able to increase their revenue from subscribers who otherwise would not spend more for TV entertainment. Interestingly, half of the subscribers surveyed were willing to spend $5-$15 per month for DVR.

Now, the question becomes: "What about the operator's expense of buying DVR, and how long will it take to recoup the investment?" There is actually a very strong business case for DVR. First, assume that an operator is receiving an average of nearly $18 more from digital subscribers than analog subscribers. If the operator charges an extra $10 for DVR service, this results in an increase of about 55% in digital revenue.

Better yet, the operator is able to significantly increase monthly EBITDA with DVR. Using the previous example, after programming and other expenses the operator would net over $7 per month from incremental digital video revenues. When the $10 DVR fee is added, EBITDA is increased by 140%.

Why? Because there are no programming expenses associated with the $10 in DVR revenue. The result is that digital set-tops with DVR create a better rate of return than non-DVR set-tops.

It's apparent that DVR represents a quick, cost-effective method for battling satellite and increasing revenue. The key to success is effective customer-awareness efforts. By communicating the benefits of DVR and using creative marketing to get the devices into homes, DVR can be cable's answer to keeping subscribers happy and generating greater profit margins.

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