S-A Box Drop: No DVR Rewind

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Buried in Scientific-Atlanta Inc.'s latest quarterly earnings was what looked like a rust spot forming on the bright future of set-tops with digital video recorders boxes — a marked drop in shipments of the company's first DVR unit.

But far from raising alarm, the cable-gear vendor and others in the industry believe the falloff was just an early-market quirk, and no reason to hit rewind on MSO DVR rollout strategies.

Shipments of Scientific-Atlanta's new Explorer 8000 home-entertainment server — the cable industry's first DVR box — soared to 90,000 in its first full production quarter this fall.

But the numbers plunged in the following quarter, ended Dec. 31, as just 31,000 Explorer 8000s shipped, while some 200,000 units sat in backlog.

S-A isn't panicking, according to subscriber-networks division vice president of product strategy Robert Van Orden. The vendor considers the dip to be a "blip" in early deployment.

Launch vagaries

Much of the reason for that blip has to do with the dynamics of S-A's leading MSO customer, Time Warner Cable. The operator started deploying the Explorer 8000 in late 2002, and now has it in 14 of its 34 systems, Van Orden said.

"Basically, Time Warner is going through a launch in all of their sites, and a lot of times what happens in the launch is they order a whole bunch right up front, so that they are ready for a launch," he said. "They'd rather have more than they need for initial launch than less than they need. So you get a large initial order and then that has to balance out."

Time Warner is indeed going ahead with its rollouts and is not rethinking its DVR deployment strategy, according to spokesman Mark Harrad.

"Not at all — in fact, our early experience has been very positive with customers," he said. In some of the systems where DVR has been offered for upwards of five months, "they've seen as much as 10 percent of their digital base sign up for DVRs, and that's pretty healthy."

S-A has seen similar adoption rates for the Explorer 8000 overall, including a recent deployment with Canada's Le Groupe Vidéotron Ltée.

"The numbers are through the roof," Van Orden said. "We see the early-adoption rates happening faster than digital itself happened — you know, 1.5 percent a month kind of rates, whereas digital might get 1 percent — so it is very quick and fast rates."

Six-month backlog

As other cablers prepare to take the DVR plunge — most recently Cox Communications Inc.'s announcement it will deploy the Explorer 8000 for the first time in Gainesville, Fla. — S-A expects its 200,000-box backlog will disappear in four to six months, Van Orden said.

"What I predict is going to happen is now we have Time Warner, Cox and Vidéotron, and I think the rest of the industry is going to see the favorable results," he said.

While the cost of DVR boxes might still cause some pain — the Explorer 8000 costs roughly twice as much as the basic price for its $200 predecessor, the Explorer 2000 — cable operators stand to gain more from the technology than they'll lose, according to Kinetic Strategies Inc. president Michael Harris.

"One thing for sure is that PVR is not going to successfully penetrate the consumer market without aggressive service-provider participation," he said. "Otherwise, it is too complex and too expensive for the average household.

"The flip side of that is, when you get it into somebody's house, it is just hugely, hugely useful. I think there is nothing that a cable operator can do to unlock the value of their underlying television subscription than offer PVR functionality, whether it is in a box or it is in the network."

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