TiVo Takes Aim at On-Demand TV

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With grand hopes that it has a lock on the next killer app,
TiVo Inc. came out of development last week to describe a new on-demand TV model destined
for retail shelves as early as next March.

TiVo's idea: time-shifted TV programming, stored on a
hard drive at a person's home, letting people develop their own customized and
personalized roster of what's best for them on TV.

The Sunnyvale, Calif.-based start-up, founded last year by
two former Silicon Graphics Inc. executives, aims to sell a $400 to $500 box at retail
next year that will sit between the TV and the distribution mechanism, whether it's
cable or satellite.

A beta-test of the service, to 100 cable households and 100
direct-broadcast satellite households in the San Francisco Bay area, starts next year.

The box includes a search engine of sorts, a TV-content
database, a disk drive that initially stores 20 hours of requested material and the smarts
necessary to intuitively learn and predict what people like to watch, the company said.

"This is about real-time streaming of video and audio,
with perfect sync and multiple streams, on- and off-disk," said Edward MacBeth, vice
president of marketing and business development for TiVo, during a briefing last week.
"This is designed to be a TV technology, not a computer."

A remote control that comes with the "TiVo
Center" lets viewers give a "thumbs up" or "thumbs down" to TV
programs while they're watching, and that information is used by the box's
software to create a viewing profile for that household. Or users can create customized
profiles for themselves, via the remote.

TiVo also plans to sell a monthly subscription package, for
$10, executives said.

"The experience for TV viewers should be that anytime
they come home and flop down on the couch, they should have their own, personal line of TV
cached up, ready to go and instantly available," MacBeth said, likening the service
to waking up every morning to a freshly stocked refrigerator with all of one's
favorite foods.

"Our mantra is that life is too short for bad
TV," quipped Stacy Jolna, vice president of programming and network relations for
TiVo.

TiVo has already conducted consumer-acceptance testing, in
coordination with Thomson Consumer Electronics and DBS service DirecTv Inc.

Executives said they found that people are more likely to
buy sports, pay-per-view or other packaged content if they can control when they view the
material, MacBeth said, adding that TiVo's approach means that viewers can pause
movies and offer some other VCR-like features, even if the material is live.

Plus, the company claimed advertiser interest. General
Motors Corp. is already kicking the tires, Jolna said, theorizing that it could pinpoint
car types to demographic profiles -- by, say, replacing a Geo spot with a Corvette spot in
the same ad slot in areas with rich demographics.

Ultimately, TiVo hopes to include its "extensible
time-shifted architecture" and "viewergraphic profiling" techniques into
commonly available consumer-electronics hardware, like TVs, future set-tops and DVD
players.

For cable, there are virtually no implications in terms of
equipment needed at the headend or elsewhere, MacBeth said. That's because the TiVO
center is "distribution-agnostic," and because consumers who want the service
buy it and the box at retail stores.

No formal arrangements with retailers, consumer-electronics
firms or programmers have been forged yet, Jolna said.

One likely candidate, however, is Home Box Office. Kevin
Dowell, vice president of interactive ventures for HBO, confirmed the premium
channel's interest in TiVo last week, saying, "We're interested in anything
that adds value for our customers" -- in particular, TiVo's "pause"
feature.

When asked how such a deal may be struck, Dowell said
it's unclear at this point.

Initially, the TiVo center only handles one viewing
profile, which could present a problem with families with vastly different TV-viewing
habits, one analyst familiar with TiVo's plans said.

Other analysts seemed more concerned with the price of the
service and the box.

"A $400-to-$500 price tag is pretty steep for yet
another box in the house," noted Gary Arlen, an analyst with Arlen Communications,
adding that he "likes the premise" of on-demand television.

"I think that they've put together a very
methodical, sensible system. Yet I still wonder about selling a $400 box that doesn't
have a big brand name," Arlen said.

Cynthia Brumsfield, an analyst with Kagan & Associates
Inc., said she wasn't as concerned about the prices, particularly on the subscription
side.

"Consider that people spend $4 per title at the
movie-rental store -- this is just over double that [for one month], for as much as you
can watch," she said.

"I find the whole concept fascinating,"
Brumsfield said, adding, "Obviously, a service that lets consumers save and retrieve
TV programming on-demand is a killer app."

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