ReplayTV Downsizing Signals a PVR Shift

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LOS ANGELES -Digital video recording company ReplayTV last week announced a corporate restructuring that shifts the company's focus away from consumer marketing and toward licensing its technology and operations infrastructure to cable and satellite companies.

As part of the move, ReplayTV CEO Kim LeMasters resigned and was replaced by founder Anthony Wood. Nearly half the company's work force, about 100 employees, also lost their jobs last week.

ReplayTV's New York office was shut down. The company does not plan to sell advertising on its platform, but will leave the recurring revenue stream to its affiliates.

"In the past, we got to keep the bulk of service revenues," ReplayTV vice president of marketing Steve Shannon said. But increasingly, cable operators and other potential partners in the satellite and consumer electronics industries "are starting to view personal television as so core to their business that they don't want to give up those revenues," he added.

ReplayTV attracted crowds of cable operators at its booth at the Western Show here. Others in the DVR category, including TiVo Inc. and newcomer Keen Personal Media, also sought to build relationships with cable operators looking to put hard drives and personal video services onto their digital set-top boxes.

"With TiVo, retail is just one part of our strategy," director of business development Edward Lichty said. "We've also been focused on business-to-business."

Keen vice president of marketing Greg Kalsow said that although he was surprised by ReplayTV's restructuring, "it validates our business model" of partnering with MSOs in developing personal television products and allowing cable affiliates to co-brand the products.

The company had not yet announced its first MSO deals, although Scientific-Atlanta Inc. will include the technology in its future digital boxes.

Time Warner Cable, Comcast Corp. and AT&T Broadband are conducting consumer trials with ReplayTV. Comcast is also running similar market tests with TiVo.

Charter Communications Corp. and Motorola Corp. recently said they plan to include Replay TV technology in Motorola Broadband Communcations Sector "DCT-5000" digital set-top boxes.

Personal video recording services have "quite a bit of sizzle," AT&T Broadband vice president of market intelligence Pete Gatseos said during a marketing panel at the Western Cable Show last Wednesday.

The technology is becoming more important to cable operators from a competitive standpoint, he added, because direct-broadcast satellite providers are selling receivers with PVR functionality at retail.

Several weeks ago, the first combination DirecTV Inc. DBS and TiVo boxes shipped to retailers on the West Coast, and have since been made available nationwide.

"From what I'm hearing, they can't keep them on the shelves," DirecTV spokesman Bob Marsocci said.

DirecTV also plans to introduce DVR technology from Microsoft Corp.'s "UltimateTV" service late this year or early next year.

TiVo expects sales of its DirecTV combination boxes to be a big part of the company's holiday sales, Lichty said.

"One of the consequences of ReplayTV's leaving [the consumer market] is that it's really our market for the holiday season this year," Lichty added.

EchoStar Communications Corp. includes DVR technology provided by Microsoft Corp.'s WebTV Networks on its "DishPlayer" receiver. Although the product has not been agressively advertised, EchoStar spokesman Marc Lumpkin said more than 150,000 DishPlayer receivers have been sold since its launch about a year ago.

Next month, EchoStar plans to introduce new receivers with DVR technology "through a system of our own" rather than through WebTV, Lumpkin said. The company is reluctant to continue to share recurring revenues for its DVR services, chairman Charlie Ergen said in a recent earnings call.

In addition to pressures from ReplayTV's provider partners, changes in technology companies' access to the capital market also influenced the company's decision to adjust its business model. In its old model, ReplayTV helped to subsidize every set-top box it shipped and also marketed its brand directly to consumers.

Under the new model, Shannon said, ReplayTV's partners pay the company a licensing fee and do their own consumer marketing.

"That cuts our cash requirements down by a factor of five," Shannon said, "and accelerates our path to profitability. That is what investors are looking for today."

Shannon denied speculation that ReplayTV is setting itself up to be sold. "We are definitely building the business to be an ongoing, sustainable company," he said.

In the long term, the company will likely go public, Shannon said, noting that ReplayTV had filed papers for an initial public offering early this year, but pulled back those plans in April due to changes in the market.

EchoStar Communications Corp. spokesman Marc Lumpkin would not comment on rumors that EchoStar plans to make a bid for ReplayTV. He confirmed that EchoStar made a small investment in ReplayTV earlier this year.

ReplayTV will continue to operate the service for the estimated 30,000 customers that bought stand-alone set-top boxes. In addition, Shannon said, set-top box vendor Panasonic Consumer Electronics will continue to manufacture and sell its ReplayTV boxes through retail.

At the end of the third quarter, TiVo had about 73,000 subscribers.

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