TiVo, Replay Add Cash for Market Push

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New York - The rivalry between TiVo Inc. and Replay
Networks Inc. heated up last week, as each announced new investment partners to help the
personal-video-recorder companies back service launches this year with heavy consumer
marketing.

At a Kagan Seminars Inc. conference on digital television
here last week, TiVo and Replay also responded to grousing from their network partners
over copyright-related issues.

The PVRs' ability to search from among any television,
cable and satellite programming that comes into a home and to automatically store those
programs on a disk drive threatens broadcasters' ability to drive appointment viewing.

Broadcasters and cable networks can't stop the changes in
viewer behavior that could occur as a result of the new technology. So they're buying
stakes in the new companies as a way to "keep their enemies close to them,"
according to industry analysts.

Last Wednesday, Replay won $57 million in support from Time
Warner Inc., The Walt Disney Co., NBC, Liberty Media Group, Showtime Networks Inc., United
Television Inc., Canada-based CTV Inc. and Panasonic parent Matsushita-Kotobuki
Electronics Industries Ltd.

That came one day after TiVo announced that America Online
Inc. had made a minority equity investment in the company, and that the two firms would
partner to bring interactive TiVo and "AOL TV" services to market.

TiVo had previously signed a number of entertainment
companies as investment or marketing partners, including Comcast Corp., Cox Communications
Inc., CBS Corp., Discovery Communications Inc., Disney, Liberty Digital, NBC, DirecTV
Inc., Showtime Networks Inc. and Home Box Office.

Despite holding financial stakes in one or both PVR
companies, some entertainment giants have given notice that they intend to extract
copyright agreements for any content distributed through PVR devices.

CBS, Discovery, Disney, Time Warner and News Corp. formed
the Advanced Television Copyright Coalition earlier this month to pursue that aim.

Copyright holders want more control over how their content
is used in this new media than they have with analog VCRs.

"I think there could have been a more constructive way
of dealing with this," TiVo vice president of business development Morgan Guenther
told attendees at the Kagan conference last Wednesday. Because TiVo has an
"industry-inclusive" business model, he added, TiVo executives were surprised by
news of the copyright coalition.

"There's black and white and gray in the middle"
when it comes to copyright issues, Replay vice president of product marketing Tom Carhart
said, "because there's a plethora of new business models this opens up. We don't have
all of the answers, but we're working to get the answers."

In a statement issued Aug. 12, the ATCC said it was
prepared to support litigation if its members could not negotiate directly with individual
PVR companies.

NBC Interactive Inc. vice president of new media Peg Murphy
said she thought copyright matters were something that should be worked out among the
interested parties, and not by the courts.

Networks are worried about the effect of PVR technology on
advertising sales. Replay, for example, offers a 30-second "quick-skip" button
that allows subscribers to bypass commercials.

"A 30-second quick-skip feature is not something we,
as a programmer, think needs to be promoted," Murphy said.

Carhart said Replay is still working with its partners to
determine the best way to develop the quick-skip feature. "We can't put our heads in
the sand about emerging technology," he added.

Quantum Corp. manager of strategic business development
Bentley Nelson said PVR technology might actually get consumers to watch more advertising.
"The instant-replay button is the most-used button in my house," he added,
"and often, it's used to replay commercials."

Broadcasters and programmers aren't the only ones who need
to keep a close eye on the PVR industry. Kagan panelists warned that cable operators have
a shortened window of opportunity to launch video-on-demand before a large number of their
customers adopt the new PVR technologies instead.

"TiVo and Replay are a very serious threat to
video-on-demand because of all of the choices they offer," Warner Bros. president of
domestic pay TV, cable and network features Ed Bleier said.

Direct-broadcast satellite companies have already opted to
use PVR technology in next-generation receivers as a way to beat VOD to the punch. DirecTV
is partnering with TiVo, and EchoStar Communications Corp.'s new "DISHPlayer" -
which incorporates Microsoft Corp.'s WebTV Networks Internet-over-TV technology - will
deliver PVR features this fall for a monthly subscription fee.

Both TiVo and Replay are investigating methods of recording
pay-per-view movies in advance and allowing viewers to pay for only those they actually
choose to watch.

At present, television-ratings services count each recorded
program as a view, but there's little question that in the days of PVRs, there will be
much more programming recorded than viewed.

"The current metrics for monitoring viewership will
have to change," Carhart said. "There will be radical changes."

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