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Is Personal TV Bundling A Revolution?

Last month’s “Revenue Streams” column referred to six types of new devices that will drive new consumer electronics sales in the year 2001. These include digital satellite radio (DSR), personal video recorders (PVRs), digital versatile disks (DVDs), game consoles, personal digital assistants (PDAs)/net appliances and MP3 players.

This column focuses on what is likely to be one of the strongest sectors among these six, the new video service known as Personal TV or PVR.

For context, attention must first be paid to the bundling of services, which ultimately is what will drive the sales of Personal TV. Put another way, PVRs will really only thrive in an environment where the service can be built into a set-top box (STB). This would be the same STB that would today typically be provided by a cable operator or purchased by a consumer at retail.

In our opinion, PVRs, in the form of separate stand-alone hardware and STBs, will never thrive, which is reflected in our year-end 2000 combined sales estimates of TiVo and Replay stand-alones of not more than 75,000.

The space on top of (or anywhere around) the TV is too precious to easily allow another STB, especially when the same functionality can be built into just one, main set-top box. Reflecting this challenge, our total year-end 2000 estimates for Personal TV services, both as stand-alones and those built into STBs, have been recently revised backward to 375,000, from an optimistic first-quarter figure of more than half a million.

Looking historically at PVRs and Personal TV, their growth began in tandem with the satellite TV players, by way of early investments in TiVo by DirecTV and in Microsoft’s WebTV by EchoStar. By mid-1999, EchoStar had announced an additional investment in the PVR and Personal TV provider Replay Networks.

DirecTV added to its Personal TV stable during fourth-quarter 2000, via an alliance with Microsoft’s new UltimateTV service-an Internet, PVR and subscription TV provider. Further deployments have been, or will soon be, launched by such other Personal TV providers as Metabyte, Philips and New Corp.’s NDS, which offers a PTV device called XTV.

Today, the field is rife with STB companies and system operators, both cable and satellite, that are lining up to offer Personal TV services to consumers. But stepping back a minute to learn some lessons, both satellite providers must be at least slightly disappointed with their respective Personal TV rollouts thus far.

For EchoStar, this comes because of the relatively slow adoption rate of its WebTV devices during the past 18 months, to no more than a quarter of a million total WebTV Dish Network subscribers as of year-end 2000. During that year and a half, however, EchoStar gained valuable data about billing, marketing and the technological side of PVRs.

Also, despite the slow penetration rate, EchoStar and WebTV gained solace in the fact that their new Personal TV, Internet-access and TV product beat rival DirecTV to the PVR finish line, and their PVR deployment beat out the majority the dealers in today’s entire retail industry.

For DirecTV, the disappointment is that it took so long to get its first Personal TV service into the marketplace. DirecTV’s TiVo service is just now being introduced into the consumer retail chain, but still in time for Christmas. Also, the Personal TV product UltimateTV, scheduled for first-quarter 2001 rollout, is expected to be a significant hit for DirecTV and Microsoft.

One big challenge that lies ahead for all providers of Personal TV, whether cable or DBS, is to teach consumers the importance of the service. Although it is highly likely that early adopters will help spread the positive word of mouth that is so critical to any CE product’s success, providers such as TiVo and Replay will both have to do much more to convince consumers what it is that Personal TV can do.

Thus far, the bulk of today’s Personal TV commercials simply do not tell potential subscribers just what the service is and why they will want to have it soon. Emphasizing the “personalization” features of the new Personal TV devices is key.

An additional challenge of great significance is the ability of viewers to “personalize” their services to the point where they no longer listen to (or see) advertisements. This presents a huge issue for Madison Avenue and the companies that provide the content in this realm, because ultimately, revenue streams must be found in order to pay for these Personal TV services and their content.

Much potential lies in the area of “customized” advertisements, where individual viewers pick and choose the ads they want to see because they are interested in a particular product or a particular class of products.

In addition, not unlike the special onscreen scoreboard ads that were incorporated into soccer telecasts in recent years, we believe that the advertisement, Personal TV and telecom communities will ultimately develop creative new ways to address this dilemma.

In summary, bundling in general-and especially bundling in the form of Personal TV-is inevitable and will become as much a part of future video viewing as color is a part of today’s TV screens. But first, the Personal TV service must be bundled into every set-top box coming off the manufacturing line. And second, consumers must be taught how to use it and love it (so that they can no longer watch TV without it).

To make this happen, CE retailers must clamor for strong Personal TV services, built into lots of STBs, that they can sell at retail today.

Jimmy Schaeffler is a consumer electronics analyst at The Carmel Carmel-by-the-Sea, Calif.-based publisher and consultancy that specializes in telecommunications, computers and the media. His e-mail address is; telephone (831) 643 2222.