Yankee Handicaps VOD, DVR Businesses


A new study from The Yankee Group has shown that both video-on-demand and digital video recorders present an upside for operators, despite the perceived crossover of both technologies.

"PVRs and VOD are not fundamentally competitive," wrote Adi Kishore, a media and entertainment strategies analyst with the Yankee Group. "MSOs can benefit from both technologies."

Kishore examined five topic areas: increasing customer value, differentiation from DBS, digital adoption, churn reduction and incremental revenue generation.

Points of difference

He gave DVRs the edge at increasing customer value. He contended that the average U.S. household purchases less than one movie per month with via PPV at present, and rents slightly less than four titles.

Factoring in other special events, Kishore calculated that in the average household, viewers watch less than 15 hours per month of nonlinear TV programming.

Conversely, members of the average household spend seven hours per day — or roughly 210 hours per month — watching TV. "The PVR, which gives consumers control over TV viewing, will therefore offer considerably more value than VOD," Kishore wrote.

Additionally, Kishore said DVR owners watch TV in this order of preference: They view what's already recorded on their DVR, what's on linear TV and then what's on VOD.

Kishore also gives DVRs, also known as personal video recorders, the edge in terms of churn reduction, based on the high satisfaction rate among TiVo subscribers. "PVRs are the perfect churn-busters," he said.

But Kishore gives VOD the thumbs up in differentiation from DBS, digital adoption and incremental revenue generation.

The DBS differential is a given, Kishore said, since DBS can't offer VOD, only DVRs. VOD holds the edge over DVRs in terms of digital adoption, Kishore said, "because the value proposition for PVRs does not resonate with consumers."

While DVRs have been in the market for a number of years, only 2% of U.S. homes own the equipment, according to Kishore. VOD usage rates, meanwhile, range from 20% to 67%, depending on the product line.

"MSOs will find that it's considerably easier to educate consumers about the value of VOD, and therefore it is much more likely to drive digital penetration," Kishore said.

Incremental advantage

Kishore predicted that MSOs would generate $10 to $15 in incremental revenue per VOD household over the next several years, while DVR revenue would likely remain low because operators will keep lease prices down to spur penetration.

"PVR penetration is dependent on the MSOs' ability to lower trial barriers for the service," Kishore said. "As a result, they must price the service as low as possible to drive adoption. This severely limits the revenue potential for the service."

Based on the research, Kishore recommended that operators move quickly to deploy VOD because it's an easier sell, cuts down churn and doesn't require a truck roll. Kishore also believes the current generation of DVRs will be inadequate for handling storage heavy HDTV. Should HD take off soon, existing DVRs would have to be replaced anyway, he said.