TiVolution: How the DVR Pioneer Is Pushing Beyond the Box

The brand name TiVo has morphed into a verb that describes the action of recording TV content. Now the word ‘TiVolution’ may be added to the communications lexicon to describe how this DVR pioneer successfully is moving far beyond its original service profile.

TiVo's Tom Rogers

The next time you hear of TiVo it could be regarding the company’s launch of a PC platform for recording movies, or perhaps a rollout with cable giant Cox Communications Inc. of a software package that brings DVR capabilities to set-top boxes. Or maybe it will be about results of TiVo’s landmark customer research on ad viewing. All three and more are currently in the works, as this ever-evolving company continues to expand and simplify TV and movie viewing options for an increasingly hungry audience of viewers.

"We’ve gone from pariah to network partner," says TiVo CEO Tom Rogers. "That’s a growing indication of TiVo’s importance to all sides of the media industry and this clearly underscores the tremendous value that TiVo is bringing to major television industry participants to solve the significant strategic challenges they are now facing in the age of the DVR."

This TiVolution has been made possible by the company expanding both its customer base to include advertisers, cablecos and broadcasters, and its product line to include software, services and precious consumer data.

"The path they are on right now, which includes partnering with Comcast and the other major MSOs, re-initiating their relationship with DIRECTV, and potentially working with telco IPTV providers, is the best one for them," says Jeff Heynen, directing analyst for broadband and BSS/OSS with Infonetics Research. "De-emphasizing their hardware and focusing on their software platforms as the premium interface to the television is the way TiVo will finally achieve sustained profitability."

TiVo's Jim Denney

The box business had been bountiful for TiVo, but the company realized early on that not all folks who want the TiVo service are willing to pay several hundred dollars for the unit, which is something of a one-trick pony. Jim Denney, vice president of product marketing for TiVo, estimates that since only about half of TiVo’s installed base of 1.7 million standalone DVR subscribers are broadband connected, a product expansion was needed to sustain growth anyway.

"TiVo had to evolve, as many consumers were not willing to pay for the box but showed they were willing to lease the DVR from their pay-TV provider," explains Michelle Abraham, a principal analyst with In-Stat. "Cable subs have not been clamoring to buy their own set-top boxes and this remains an issue for TiVo as they are not adding owned-subs at a high rate. The ARPU they receive from MSO/broadcaster-owned subs is much lower."

 Nonetheless, the opportunity not only to displace cable-provided DVR functionality, but to do it in a way that provides extra value, and in conjunction with the cablecos, is a big part of TiVo’s strategy. Witness the Comcast deal, whereby customers can download TiVo software into their set-top boxes and get TiVo’s DVR functionality along with a better user interface, search functionality (across broadcast TV and VoD), and more, for $2.99 per month. The cable colossus is offering the upgrade in the greater Boston area and may take it territory-wide. TiVo says it’s trialing a similar application with Cox Communications, but would not commit to a rollout date.

Meanwhile, to keep those customers who buy the TiVo DVR and have broadband connectivity happy, TiVo has added a number of services, or "plug-ins," that make its offering far more alluring by delivering more content than what’s available on broadcast TV or even on cablecos’ massive VoD libraries. Embracing the resources of the Internet early and often, TiVo forged a landmark deal with Amazon.com last spring whereby customers can have movies from the portal sent to the DVR for viewing. More recently, it forged deals with Rhapsody and created TiVoCast, which goes beyond movies and music. The free service enables broadband-connected boxes to view content from more than 30 online sources including Break.com, CBS Sports, "Days of Our Lives," New York Times, Nickelodeon, The Onion and The Weather Channel.

"There are already not any lines between broadcast and online for us," says TiVo’s Denney. "We want to be source-agnostic."

But TiVo’s embrace of the Internet is much stronger, as the company reportedly is working on a software application that would enable PCs to find and record video, what Heynen from Infonetics calls "a virtual TiVo."

"You have to believe that TiVo will offer a PC-based platform to intelligently search and record online video content," says Heynen. "Imagine if TiVo charged you $9.99 a month for a service that allowed you to search for content just as you do on TiVo now, and then recorded or pushed that content to you. Practically all online videos are tagged with descriptors and other metadata to help your virtual TiVo pick and choose the content for you."

Noting the TiVo already has entered a deal with a PC software company, which he declined to name, Denney adds: "We want to expand the scope of what leads you to your video."

TiVo's Todd Juenger

And TiVo already offers the TiVo-to-Go service, which allows subscribers to access video on their laptops and a growing list of Windows Mobile devices. "What better incentive to drive subscribers to upgrade their mobile packages for larger data consumption," says Heynen.

Now fast-forward past hardware and software to customer data, specifically ad- and program-viewing information that TiVo collects from its devices. Did anyone think way back when that the device that brought us the ability to skip ads could be used to check the performance of commercials?

Well it can, and that’s exactly what TiVo is doing.

The company launched the PowerWatch Consumer Panel last fall."We have second-by-second data per night from 20,000 households that are part of an opt-in panel," explains Todd Juenger, vice president and general manager of audience research and measurement for TiVo. By comparison, DVR measurement from Nielsen — which some believe is being spread too thin given it now is tracking DVR, Internet, regular TV, video on demand, gaming and more — provides samples of just 60 or so households.

TiVo also can pair volunteers’ demographic data with viewing data to produce detailed reports on programming and commercial viewership. "We can tell [advertisers] how a 10-second piece of content did during a break," adds Juenger. "People make choices [about] what they fast-forward through."

Late last spring, TiVo measured commercial activity for those that time-shifted the season finale of the show "House" on Fox. The highest-rated commercial landed 7.3, and the lowest got a 3.2 rating. The average for all commercials in the episode was a 4.7 rating. "The takeaway is, there’s a huge variance in commercial viewership in DVR homes — even in one single program episode," says Juenger. "Viewers really are ‘voting with their remotes’ on what they want to see, [or] don’t want to see."

TiVo's Telco Impact
By Bob Wallace

For years, DVRs have provided top telco TV providers opportunities and challenges in the way they market and look to monetize their evolving video services.

For example, AT&T Inc. and Verizon Communications Inc. both spent a big chunk of last year developing and launching features that let customers remotely program their DVRs via the Web. They later extended that functionality to handheld wireless devices.

But clearly, the DVR has had far more impact on telco TV providers and their services than simply in the feature/functionality department. It has allowed carriers like AT&T to go beyond providing a subscription-based entertainment service to tackling advertising also.

"DVRs have forced advertisers to look differently at the way they reach customers," says Amy Friedlander-Hoffman, senior vice president of programming with AT&T Operations. Her group continually is working on "how we can give customers what they want and give advertisers the biggest bang for their buck."

While TiVo is working with cableco giants, such as Comcast Corp. and Cox Communications, on the software front, it’s not engaged with Tier 1 U.S. telcos, in part because they are much newer entrants to the TV services market.

"We are working with smaller telcos, ones that realize it’s all about TV and IP," says Jim Denney, vice president of product marketing at TiVo. "We personally don’t care where content comes from. We care about how it’s accessed, how to navigate through it and how to enjoy it."

Experts believe TiVo can play a crucial role in helping telco TV providers understand business models for Internet video by educating folks on what content attracts advertisers.

"There are three business models: I pay, you pay or someone else pays," quips media and entertainment guru Shelly Palmer, managing director at Advanced Media Ventures Group LLC.

Subscription models, viewed as the simplest of available options, can work, says Palmer. "There are the 4 Gs: Girls, God, Gaming and Gambling. If you’re not there, you aren’t making money on Internet video."

For now though, the telcos are focused on better competing and succeeding with TV services that don’t arrive via Internet or wireless, against the likes of entrenched cable giants and satellite-based providers.

Given that TiVo is partnering with long-established broadcasters and cablecos for research and software respectively, to help them understand and evolve in the media market, can big telcos who are playing catch up in almost all phases of TV be far behind?

N-DVR — TiVo Killer or Opportunity?

With TiVo plugged in tightly to cablecos, broadcasters, services, customer research and, of course, the retail market, what exactly is the next threat or opportunity?

Some would say it is network-based (n-DVR) DVR services, one of which was proposed some time ago by Cablevision Systems Corp. However, that cableco effort was blocked by Hollywood powers said to be concerned about the safety of their content should it be stored in network servers. In the long time since, many cablecos and a few telcos have said they’d follow suit and introduce n-DVR service if Cablevision has the ruling overturned. Nothing’s changed at last check.

Operators like the n-DVR option, which would allow them to leverage existing network infrastructure like servers and storage to lower costs and eliminate the need for costly truck rolls when box DVRs at customer homes need servicing. They add that using their servers and storage would eliminate DVR hard drives filling up. Companies such as ABI Research claim n-DVR would help drive the overall DVR market, the hardware element of which wouldn’t do enough, over the coming years, alone.

"The network DVR services are still mired in legalities, but the industry is making strides with services like Start Over," says Michelle Abraham, principal analyst at In-Stat, referring to Time Warner Cable’s service launched in 2005 that allows viewers to restart TV programs already in progress. "There are also many networks to upgrade as pay TV moves from broadcast to unicast TV. One advantage for network DVR for content owners is that viewers can be prevented from skipping ads so the content owners may become more inclined to grant rights in the future."

TiVo seems neither concerned nor interested in n-DVR, however.

"A lot of people have entered our space before," says Jim Denney, TiVo’s vice president of product marketing. "The value we bring is a simple-to-use user experience, a platform we know works and expertise in managing different kinds of media."

So what’s next for TiVo?

"TiVo has two straws to grasp to succeed," says Tom Nolle, president of CIMI Corp. "One, they can take a leadership role in a ‘store-for-play’ or downloaded video strategy, which will mean getting a really strong DRM engine and alliances with some of the movie players."

The second calls for TiVo to take a leadership role in the personalized ads and interactive ads in broadcasting," adds Nolle. "Local PVRs could store ads based on a profile and insert them into shows, either live or when played back. That requires alliances with the networks and the ad companies."

The bottom line: "If they do both, they’re a major success. If they do neither, they’ll fade from the scene."

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