The CEO of my company sent me that link to ask my opinion. Rather than re-write it, this is the reply I sent. I probably would’ve used a different tone if I was writing it for a public audience originally, but you’ll get the idea.
Lots of FUD.
A lot of what he says is superficially true – but it is like saying that there is only room for one VCR vendor. I don’t understand why this guy, and a lot of other people, presume that just because there is a cheap option (like cable box DVRs) that everyone will flock to them even though they don’t have all the features. I have used the Scientific Atlanta Explorer 8000 cable DVR, my parents have one – it has a hideously poor UI and lacks MOST of the features of TiVo. It is really a basic digital VCR – hell, it lacks features most VCRs have now. The *one* advantage it has is being cheap – $6-$10 extra a month on your cable bill. And yes, I’m sure MANY people will opt for it – but you can still get a VCR for a few hundred dollars which a lot of nice features instead of the $30 VCR next to it. And they still sell. Personally I’m willing to pay for the features of TiVo and I would never switch to the SA8000.
He also presumes that TiVo is somehow rock stupid and won’t respond to the market. They continually respin HW to reduce the manufacturing costs. They’re cheaper to produce, and so they can sell them cheaper. TiVo is also diversifying into other products – you can get a Toshiba DVD player with built in TiVo, or a Pioneer DVD-RW recorder with built in TiVo (I have one). Later this year both Humax and Toshiba will also have DVD-RW TiVo systems for sale. TiVo supports sharing shows between units in the home (the DirecTiVo units have the HW, even the SW, but the feature hasn’t been enabled yet – that’s DirecTV’s choice), and they can play back music from PCs on a home network, or view pictures. Later this year you’ll be able to move video content to/from a PC and burn DVDs there – TiVo To Go announced at CES. These are all features most DVRs lack.
TiVo is also working with DirecTV on a new low-cost reference design. So yeah, News Corp/DirecTV will be dropping TiVo for lower cost HW – another TiVo. They’ve already done a few HW spins to bring down manufacturing costs. Even existing component costs are dropping – especially hard drives. And TiVo and DirecTV are in the early part of a multi-year contract, I don’t see DTV breaking the contract and reinventing the wheel when they have a solid, competitive product.
Yes, the HDTV unit is very expensive right now – $1000. But put that in context – it is just being released and there is a lot of pent up demand. Even at $1000 there are already reports that the initial production run is selling out in pre-orders alone. Simple supply and demand, why should DirecTV (and it is DTV, not TiVo – DTV licenses the software and controls all aspects of pricing, features, etc, in their units) drop the price when people are willing to pay for it? Especially since the closest competitor, the Dish 921, is also priced at $1000 – and the DTV unit has more features. Of course the price will come down – but they’re going to soak the early adopters first, that always happens.
When the Pioneer 810H DVD-RW/TiVo came out it sold for $1200 MSRP, and a lot of stores sold it full price. Now you can get it online for under $700, and the price is dropping. As more DVD-RW home units street, especially the coming Toshiba and Humax units, it will push the price lower. Oh, and his price info is bullshit. He says a unit costs ‘$300 or so’. Try $149 for the low end unit, or $99 if you pick up a factory refurb. The DirecTiVo units start at $99. You also have the option of the monthly fee or lifetime. Yes, it is still more expensive than the cable box – but it does more too. Of course TiVo has also split the software as well – there is their standard software used on their TiVo branded boxes, but the software on the Toshiba and Pioneer units comes with ‘TiVo Basic’. TiVo Basic provides basic, entry level DVR features without any subscription fee. If you want the full feature set you can subscribe to enable them. So they’re already creating ways to compete on price – I notice he didn’t mention that at all. Again it is like saying no one will ever buy a Mercedes because a Saturn is cheaper.
TiVo is also hedging their bets – they’re looking to do more than just record TV. They recently acquired Strangeberry, a company that was working on distribution of entertainment content over IP networks. TiVo is looking to integrate that work into their product line. Current TiVo’s already support Ethernet connections, and TiVo is looking to allow users to pull content off the net – think of it as IP Video On Demand. It could also be news feeds, games, etc. Anything – the TiVo is basically a small Linux PC. (200MHz MIPS CPU, 32MB RAM – with dedicated MPEG hardware.)
He also completely avoided the fact that the FCC has mandated open cable standards for digital cable, including cable HDTV. The OpenCable standard – also sometimes called CableCard or Digital Cable Ready – was set by FCC rulemaking in 2003. By July 2004 all cable companies must be in compliance. Instead of requiring you to use their cable boxes you will be able to buy OpenCable compliant devices – VCRs, TVs, DVRs – like you have been able to do for years with analog cable (Cable Ready devices). The new devices will have a smart card reader, similar to how satellite receivers work, and the cable company must provide the card(s) to subscribers to allow their devices to decode the cable signal. TiVo is keenly interested in this, in fact the FCC ruling includes several comments submitted by TiVo during the rulemaking process. I think that we may see an OpenCable TiVo before the end of 2004, but certainly in 2005. He was overly snide with his ‘a year late’ statement. The fact is HDTV is still a minority of the market. HDTV sales have just overtaken non-HD sales, but that is *new* sales only – there are many millions of TVs in the field that don’t do HD. While there is growing demand for HD systems there is still plenty of market for non-HD systems, and there will be for some time yet. TiVo is already prepared – they first showed an HDTV reference unit at CES 2003. It is available for license by any vendor that wants to produce it. Thus far the demand hasn’t been sufficient for them to do it themselves.
And nothing is stopping anyone from starting a TiVo leasing business, or for TiVo themselves to add leasing to their business model. If it is a serious problem for TiVo to be selling against cable leasing, I don’t expect them to roll over and die – they’ll shift their model to compete.
I really don’t understand his statements about TiVo’s software licensing and how it isn’t going to happen – since they *already* license it to Sony, Pioneer, Toshiba, and Humax for standalone products, as well as DirecTV (who uses Sony, Hughes, Thomson, and others to produce DirecTiVo units). TiVo is actively pursuing additional licensees, especially in the cable STB market.
And what’s his problem with them suing Dish? Dish is *blatantly* violating several of TiVo’s core patents, what does he expect them to do? And this isn’t the first time – TiVo also sued ReplayTV several years ago, and RTV settled.
Overall this guy came across as a complete ass and ill-informed at best. He could’ve turned up half this stuff with 10 minutes in Google.
I do fully expect that TiVo will not be the largest DVR vendor in the market – just like more cheap, crappy DVD players are sold than quality units. That doesn’t mean no one makes quality units. TiVo has over 1.3 million users at this point, and their growth rate is *increasing* even as more and more competitors enter the market. I think it is just the trendy thing for reporters to pick a popular company to bash, it is sensationalism. ReplayTV has gone bankrupt – *twice* – and yet they’re still around. TiVo has massively outperformed RTV, and they get bashed.