Video Disk Drives Come of Age

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It's taken a while for the concept to catch on, but over
the past year, at least three industries -- cable, consumer electronics and personal
computer -- have begun to embrace hard-disk drives as a means of digitally recording video
programming.

All of the advantages HDDs bring to data storage -- fast
access, substantial capacity, digital storage and the ability to simultaneously read and
write data -- are proving to be equally attractive for personalized video recording.

Set-top boxes with HDDs, MPEG-2 codecs and advanced
electronic program guides have created an entirely new consumer-electronics product
category, quickly dubbed "personal video recorders."

But cable set-top-box makers, and even PC manufacturers,
will begin to roll out their own versions of the concept next year in a bid to capture a
consumer market that's only just beginning to realize the benefits of digital-video
recording.

The marriage of HDDs and more intelligent EPGs brings two
immediate benefits, whether the end-user is connected to a cable system, satellite TV or
just a terrestrial antenna and phone line.

First, PVRs allow viewers to buffer live programming --
typically 30 minutes' worth -- so that they can effectively "pause" the program,
then return to watch seamlessly from that point. Second, the EPGs developed by TiVo Inc.
and Replay Networks Inc. -- the initial proponents of the concept -- are designed to
search for and record programming based on viewer tastes.

Perhaps most important from a cable-industry standpoint,
PVRs offer the promise of virtual video-on-demand without the servers and other
infrastructure associated with VOD deployments. Subscribers could, for example, download a
pay-per-view movie to an HDD-equipped set-top and watch it with all of the VCR-like
controls associated with true VOD.

Some of the business models kicking around cable MSOs and
satellite-TV service providers envision the electronic equivalent of a weekend home-video
rental, where consumers download a digitally encrypted movie for 24 or 48 hours, watching
it when and as often as they like before the conditional-access "key" expires.

"If you let your imagination run wild, the hard drive
[in a digital set-top] could be used for a lot of things," AT&T Broadband &
Internet Services senior vice president for advanced technology Laurie Priddy said
recently in response to questions about the company's interest in HDD-based recording
capabilities. "We've got some interesting ideas."

None of the General Instrument Corp. "DCT-5000"
boxes being shipped to AT&T Broadband have hard drives, so the company is likely to
look at some add-on possibilities, using HDD peripherals for customers who sign on for
service packages that make use of hard drives.

Neither Priddy nor others close to AT&T Broadband will
say much about the company's plans, but enhancements to PPV probably top the list of
likely packages. However, they don't stop there.

Both TiVo and Replay have talked with different cable MSOs
about potential alliances, similar to TiVo's deal with DirecTV Inc. Subscribers to the
direct-broadcast satellite service will pay a monthly premium to have the TiVo EPG
aggregate programming based on their viewing tastes.

The first TiVo-enabled DirecTV receivers, with built-in
hard drives, are set to ship in the second quarter. Both companies also have agreements
with different media companies -- TiVo is working with NBC and Showtime Networks Inc., for
example -- under which users will be guided to programming offerings from specific content
providers.

The biggest difference between the two services is the
initial revenue model, with TiVo charging $10 per month or $199 lifetime for consumers who
buy TiVo-enabled set-tops. Replay instead is pursing a revenue model based on interactive
and otherwise enhanced advertising, as well as transaction revenues -- options also
targeted by TiVo.

An intriguing wild card in cable-industry discussions about
hard-drive-based recording and PPV enhancements is "Divx," Digital Video Express
LP's failed pay-per-play DVD venture.

Circuit City Stores Inc. -- the majority investor in the
venture and an active player in plans for the retail sale of OpenCable set-top boxes
starting next year -- has been talking with several cable-industry equipment vendors
recently about licensing the underlying Divx encryption and conditional-access technology
for digital set-tops.

Potential uses would be adding a Divx-like component to
movie-downloading services tied to either PC-based or set-top-box-based hard drives,
protecting optical-disk-based video games and adding Divx-like disk authentication as an
anti-piracy measure for DVD-based software.

Divx has had "a lot of calls ... about the
technology," one industry executive who has discussed potential uses of the Divx
patents said recently. "There are a lot of people coming out of the woodwork."

Of all the possible uses, the hard-disk-drive application
appears to be the most intriguing. The Divx security/conditional-access component would
keep the movie encrypted and provide for a set viewing window that would start with the
initial viewing.

Billing would be handled in a manner similar to that
employed by Divx. All of the digital set-top boxes with HDDs -- compatible with either
Replay's or TiVo's personal-TV services -- include modems for telephone connections. At
least some potential service providers -- including traditional cable-TV-system operators
-- would presumably offer the service through real-time interactive systems.

"There are some people who like certain aspects of
what was done there," Bentley Nelson, manager for strategic and technical marketing
at Quantum Corp. -- the HDD manufacturer supplying drives for Panasonic Consumer
Electronics' Replay set-top box, among others -- said recently of Divx's technology.
"They just didn't like the whole package."

Patents controlling the underlying Divx technology were
assigned by Divx cofounder and Los Angeles entertainment-industry law firm Ziffren,
Brittenham, Branca and Fischer to DVE, the Divx parent company, which is controlled by
Circuit City. That gives Circuit City and DVE chairman Richard Sharp a controlling say
over the disposition of Divx assets.

Immediately after Divx's demise, Sharp was said by sources
close to the company to be reluctant to provide the technology to other companies. But he
is said to have softened that stance in recent weeks, to the point where Circuit City
executives have talked with more than one potential technology licensee.

PC-industry interest in the category, meanwhile, was clear
at Comdex, the industry's annual trade show in Las Vegas Nov. 15 through 19. Tens of
millions of PCs will ship next year with large-capacity hard drives and the processing
power to encode and decode MPEG-2 video in software.

Adding the ability to function as a digital-video recorder
could come at a substantially reduced retail premium from only a few months ago. With an
increasing number of TV-tuner cards going into PCs, they represent an intriguing potential
display and storage option for cable TV, as well as other forms of video programming.

Many PC original-equipment manufacturers scattered around
the main show floor at the Las Vegas Convention Center and in nearby hotel suites had some
form of PVR option on display, using either hardware- or software-based codecs.

They were joined by a handful of software- and
hardware-encoding specialists, all making the point that the PC -- after years of debate
over its functionality as a home-entertainment device -- is finally expanding its
horizons.

Several factors will support demand for video-recording
capabilities, starting with a quick adoption rate among college students looking for
multifunction devices. Many of the same component vendors working with, or at least
talking to, digital-cable set-top suppliers -- such as C-Cube Microsystems Inc., Quantum
and Western Digital Corp. -- were also at Comdex with solutions aimed at PC OEMs looking
for a value-added edge in an increasingly competitive market.

Among the relatively new players in the PC-based
video-codec business demonstrating product at Comdex was San Jose, Calif.-based Ravisent
Technologies Inc. Ravisent demonstrated what it said was D-1-quality video compression on
a Pentium III 500-megahertz central processing unit using only a portion of the PC's
processing power.

Ravisent chief technology officer Michael Harris declined
to name PC OEM partners, but he claimed that the company's software-based DVD-playback
solution is bundled with seven out of the top-10-selling PC brands.

There was a strong sense in Las Vegas that software-based
solutions will drive the mass market, while add-on boards and chip solutions will occupy
the higher-end market. Even there, developments at Comdex provided new indications of
rapidly declining price points.

One example: a sub-$1,000 DVR add-on PCI (peripheral
component interconnect) board with an MPEG-2 encoder from Sigma Designs Inc. The company's
"REALmagic Digital Video Recorder," expected to ship early next year, will be a
companion device for PCs equipped with HDDs, as well as DVD rewritable drives, company
executives said at Comdex.

Sigma was one of several companies at Comdex looking at
both PC and set-top opportunities for digital-video-recording solutions. In addition to
the PCI card, Sigma has "intentions of working on digital set-tops," director of
marketing Marshall Goldberg said. Sigma will supply a DSL-based (digital subscriber line)
solution for at least one U.S. telco planning to roll out a DSL-video service next year,
he added.

At least one exhibitor in Las Vegas was trumpeting a
potential solution to the PC's limitations as an archiving device for television and other
video programming. Pleasanton, Calif.-based Castlewood Systems Inc. said a removable
2.2-gigabyte magnetic-resistive (RS) media and companion "Orb" hard drive that
went on sale this past January is a precursor to a new drive and removable 5.7-GB media --
capable of storing at least two hours of MPEG-2 quality video -- going on sale in January.

Company executives said that by the second quarter, pricing
should be roughly comparable to the $199 hard drive and $20 media cost of the current
product. That could make it a mass-market component for digital set-tops, as well as PCs.

And at least one mainstream Japanese consumer-electronics
manufacturer is believed to have licensed the technology for use in a set-top
digital-video recorder. A prototype set-top recorder built by Korea's Daewoo Electronics
Co. Ltd. was used for demonstrations at the company's booth.

The consumer-electronics answer to the PC industry's forays
into digital-video recording -- set-top boxes equipped with HDDs -- has evolved slowly,
with several manufacturers falling behind scheduled introduction dates.

Regardless of the industry's rough first steps, though,
there's a widespread sense that the PVR represents the industry's best chance for a new
mass-market product -- one that can reach an annual sales rate in excess of 1 million
units within a year or two.

"We think the industry can do 1 million units [next
year]," Panasonic Consumer Video division GM Andy Nelkin said in Las Vegas, where
Panasonic was demonstrating its first set-top PVR based on a licensing agreement with
Replay. Panasonic will not be a factor this year, though, following a shipping delay that
will skip the 1999 holiday sales season.

Nelkin said a longer-than-expected development cycle has
pushed back the planned introduction date to sometime in the first quarter. Panasonic will
set final specifications -- including the size of the hard drive -- "about 30 days in
advance," to take into account fluctuations in component pricing.

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