The television industry changed forever back in January 1999 when a new home entertainment device debuted at the Consumer Electronics show in Las Vegas. Presented by TiVo Inc., this technology gave TV viewers recording capabilities far beyond the limits of their old-fashioned VCRs. The company officially introduced its TiVo box in March that year and it caught on like wildfire, revolutionizing the way we watch television. Essentially, TiVo has jumpstarted an entirely new technology known as digital video recorders (DVRs), or personal video recorders (PVRs). Other terminology has emerged since TiVo's introduction, like DDR, DSR, DNR, and HDDR for digital disk, digital satellite, digital network, and hard-disk-drive recorder, respectively. But DVR has taken hold, and advertisers and TV producers are concerned (see "Is DVR Technology Pushing The Legal Limits?" below).
The TiVo DVR has become so popular among home-entertainment "technofiles," TiVo users' groups have formed, and TiVo fan clubs have become widespread. People now say "TiVo it" instead of "record it." TiVo's popularity has even reached the point of user addiction. According to the company, 96% of users say they'll never give up their TiVo service.
Even though the firm continues to lose money, losses have narrowed dramatically, and it was on a pace to break even financially by the end of 2002. It claims over 500,000 subscribers, and this steadily climbing figure has more than doubled since a year ago. The company hopes to achieve at least 1 million subscribers, which should provide respectable profits. Judging from the subscription rate, that goal is certainly attainable.
Of course, success is a matter of perspective. Naysayers see the cup as half-empty. They note the firm's record of losing money. They also compare TiVo to Marconi, who invented radio, and RCA, who pioneered television, only to lose their grip on the technology to upstart competitors. And there are lots of competitors, including Digeo, Metabyte, Microsoft, and SONICblue. But Michael Ramsay, TiVo's cofounder, chairman, and CEO, is unabashed. He's confident the company will win out. TiVo's market share in its number of subscribers seems to bear him out.
WHAT'S A TiVo?
Basically, the device is a digital recording and playback disk. Users can program it through an on-screen menu using its "peanut-shaped" remote control (Fig. 1). Users select, upload, and download program information via the home telephone line, usually during off hours like after midnight. Some people call it a souped-up VCR, but that's really an understatement. "Under the cover, the TiVo is really a complex computer, but the user never sees that," says Howard Look, vice president for TiVo Studios.
With TiVo, viewers never have to miss their favorite show, nor will they be bothered by phone calls or other interruptions. The unit can pause for as long as 30 minutes on any TV channel at any time, letting viewers tend to whatever they need and return to the program without missing a moment. Viewers can watch what they like when they choose, without videotaping, as well.
Users can buy TiVo directly from the company or via outlets like Best Buy, Circuit City, Amazon.com, Good Guys, and Tweeter. They can also get it from other consumer electronics and media giants like Sony, DirecTV (part of Hughes), and Toshiba. TiVo licenses the technology to these companies to use in their receivers. TiVo costs about $349 (after a mail-in rebate), which includes 80 hours of programming for the Series 2. Subscribers also pay an additional $12.95/month for the program service or a one-time $249 product lifetime fee.
TiVo licenses its program data from Tribune Media Services, the same outlet that supplies program information to daily newspapers. Tribune delivers program data for the next 14 days daily to the TiVo over the phone line and updates the information automatically as the television networks update their schedules.
But there's more to this system than just the program data (Fig. 2). "Let's say you know your favorite football team is playing a game this coming Sunday," Look suggests. "There are several different ways you can tell TiVo to record that team's showing. One would be by creating a 'wish list' on the on-screen menu and enter in your team's name as a keyword. The system then automatically records anything to do with that team's name, including pre- and post-shows, local and national interviews of team members, etc."
From a hardware-only perspective, TiVo may be a complex computer. But its software, with its user-friendly menus, makes the difference. "The TiVo service is really all about putting the consumer in control of their TV experience," explains Brodie Keast, senior vice president and general manager for TiVo Services. "It makes sure that TV fits into one's life instead of planning one's life around it. It automatically records all of a viewer's favorite shows upon user command and organizes them so a user can watch them whenever they have time to do so."
The idea for TiVo goes back to the early 1990s. That's when cofounders Michael Ramsay and Jim Barton, the firm's senior vice president and "technical visionary," were involved with TV and entertainment at Silicon Graphics Corp. Ramsay dealt with the studios that used Silicon Graphics equipment during production, while Barton handled early video-on-demand trials. "They learned what works and doesn't work and were looking for better ways to serve TV viewers," Keast says. Next, they started their venture-funded company in 1997 and went public in August 1999.
Each TiVo box contains an NTSC decoder/encoder, an MPEG encoder/decoder, an ASIC media switch made by NEC, an IDE hard-disk drive, a power supply, a modem, and other supporting electronic circuitry. All of this is packed into a 15-in. wide by 11.5-in. deep by 3-in. high unit.
"A major challenge in designing TiVo was to build a system that could retail at prices consumers can afford," says Ted Malone, the firm's director of product marketing. "That meant the SCSI and Ultra-SCSI hard-disk drives that our competitors used were too costly, and we chose a regular IDE disk drive instead. In addition, we're using a Linux operating system. We found that other operating systems our competitors are using make it more difficult to multitask, which means stopping the modem while recording."
To handle all of the complex streaming video and audio signals and still use an IDE disk drive, TiVo's designers opted for a special ASIC made by NEC. They took this approach instead of employing a conventional FPGA-based design used by their competitors. "The FPGA approach is a bit easier to use but doesn't scale well to large volumes," Malone notes.
"Testing and packaging were other challenges," he adds. "Having a sealed enclosure that can withstand the rigors of consumer use and abuse was critical. So was the use of a quiet cooling fan. Loud fans are not good for use in living rooms and bedrooms."
SOFTWARE IS THE KEY
TiVo's designers agree that the menu-driven interface is the crucial element in its success. "We could've taken the approach of building a unit with a high-tech 'geeky' interface, which is what some consumer electronics companies do," Look says. "Frankly, that's what some of our competitors have chosen to do, which is to build something that looks like you have to be smart enough to use. Instead, we chose to make it very friendly and not intimidating. We actually have data that shows that once an adult purchases a TiVo and brings it into the house, the children take over. We're very pleased at this acceptance. We designed a user interface that works for everyone, including children and grandparents. My two-year-old knows how to use it."
Having a DVR that simple and easy to use is no guarantee for market success. Despite an early advertising campaign, the company has adopted a new approach in marketing by using celebrities such as former National Football League quarterback Joe Montana and TV's Jay Leno and Rosie O'Donnell for endorsements. The company has also embarked on a campaign of creating special content around big media events like the Super Bowl and the Academy Awards.
Last summer, the company partnered with New Line Cinema to produce original content surrounding the release of the latest Austin Powers movie. TiVo users were able to opt-in to view a special showcase consisting of the full theatrical movie trailer, music from the movie featuring Beyonce Knowles, and a clip of Mike Myers speaking directly to TiVo subscribers. This content was available through the "Showcases" icon located on TiVo Central. "We recently did a promotion with BMW, where TiVo subscribers could go into BMW's showcase and watch their new film series, The Hire, highlighting some of their cars," Look adds. "We've done similar deals with Best Buy. These are very compelling ways to get information to the consumer."
In 2001, Sony licensed the TiVo technology, allowing for the incorporation of TiVo functionality in Sony's consumer electronics products. This includes Sony's "MyCast" DVR, unveiled last year only in Japan. MyCast comes with two timers and a 160-Gbyte disk drive that can store 15 hours of HDTV signals or 100 hours of regular TV signals. The unit can be expanded up to 320 Gbytes.
Other licensees include DirecTV, whose viewers constitute about 45% of TiVo's subscribers. Under a new agreement, TiVo technology will be integrated into Toshiba chips to accelerate the development of new TiVo-enabled products. Toshiba has already used the technology in a combination DVD/DVR that will be available in the second half of this year.
NEW PARADIGM FOR MADISON AVE.
In many advertising offices, TiVo is indeed a four-letter word. That's because TiVo users can "zap" TV commercials. A button on the remote control lets viewers skip commercials by fast-forwarding, in three different speeds, over real-time events and then rejoin the show in near real time. TiVo has found that most users don't mind this timeshift, and data on viewer likes and dislikes supports this claim. A random sampling of viewer timeshift habits for popular TV programs bears this out (see the table).
The ability doesn't thrill advertisers or TV networks. The day after the 2002 Super Bowl, TiVo released subscriber data that showed which parts of the game were most often replayed. Other than the winning field goal, the Britney Spears Pepsi commercial was replayed more than any other part of the game. TiVo also has released data showing which TV shows are the most popular among its subscribers.
This creates a new audience metric well beyond what the Nielsen ratings provide. In fact, some in the advertising community see DVRs as more of an opportunity than a threat. They say that advertisers in the future should concentrate on getting their message in the program's content, not in separate, annoying, show-stopping commercials.
TiVo certainly agrees. It believes advertisers should look into alternative media to reach consumers and has demonstrated this by teaming up with record and film companies to promote movies such as Austin Powers in Goldmember and The Lord of the Rings: The Two Towers. "Surprisingly, or perhaps not so surprisingly, we have found a very good relationship with a number of advertisers," Look says. "They've realized that this is the future of television and that what we've done is create new ways for them to advertise."
As for the future, the company sees its product as just one part of a larger user-controlled home entertainment system. At last month's Consumer Electronics Show, the firm unveiled a Home Media Option for TiVo that transforms the DVR into an entertainment center for enjoying video, music, and digital photography throughout the home. It will be available to TiVo Series 2 subscribers this spring for a one-time fee of $99. Activating the service on additional TiVo Series 2 units in the home will require a one-time activation fee of $49 per DVR.
"When you look at digital pictures on a large TV screen in a living room, instead of having only one or possibly two people straining to view a photo album, this all of a sudden becomes a more enjoyable family experience that hadn't existed before," Look says. It appears as though TiVo is on its way to even greater success.
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