Three or four years ago, in the heyday of gotta-have-it technology, scarcely a week would pass without a clutch of Silicon Valley executives trooping through our offices to demonstrate one or another hot new gizmo. In all that time, only once did I ever see something I thought would take the world by storm.
That device was a DVR, or digital video recorder.
It worked by diverting a TV signal onto a hard disk, like the one inside the average personal computer, before passing the image to the TV screen. This process enabled viewers to exploit the disk's storage capacity to view live TV with VCR-style pause, rewind and replay functions -- and, given sufficient delay, to skip obliviously through commercials, all without videotape. The electronic services designed to work with the boxes also allowed viewers to schedule off-hour recording of shows with unprecedented ease.
It was the greatest thing I'd ever seen demonstrated in an office cubicle, a device you had to check out only once to understand its potential to revolutionize the television experience.
At the time, the technology was being developed by two competing companies, TiVo Inc. and ReplayTV Inc., that harbored great hopes for it. (The latter had given us the demonstration.) As a ReplayTV executive told me then: "Five years from now, all TV will be watched from a hard disk."
This forecast sounded plausible at the time not only because we were in an era when the spread of great technology seemed to operate under its own organic logic, but also because the device was so compelling. Television network executives, contemplating a world where viewers could zip through commercials with the flick of a remote, talked about DVRs the way music executives would soon be talking about Napster: with utter fear.
Yet here we are in 2003, the executive's prediction has only a year or so to run, and it must be said that the revolution is way behind schedule. Far from being an indispensable household appliance, the DVR remains a device of cliquish partiality.
The best estimates are that over the last four years, only about 1.7 million DVRs have been sold to U.S. consumers (out of 105 million TV-viewing households). Digital video recorders are not exactly a flop, but the number of users has probably failed to keep pace with the number of newspaper stories that quoted TV executives fretting that mass commercial-skipping might destroy the business model of broadcast television.
The purest picture of DVR growth comes from the financial records of TiVo, the Alviso, Calif.-based company that markets the leading player and earns most of its revenue by charging a subscription fee for its programming guide and other services delivered through its box. (ReplayTV, now owned by Santa Clara, Calif.-based audio-video gadget maker Sonicblue Inc., has about one-sixth of TiVo's installed base.)
This month TiVo released its 2002 results, showing that it had quintupled revenue, cut its chronic losses roughly in half and registered a 64% gain in subscribers, to 624,000. TiVo presented these results cheerily, but fourth-quarter subscriber growth came in almost 10% shy of what investors expected, and TiVo's stock price fell sharply.
The figures also disclosed a sharp slowdown in the rate of subscriber growth; the gain in 2002 was less than half the 154% surge the year before, although the absolute numbers were about the same. Among other things, the performance renewed questions about how long TiVo may last as a going concern, even if DVRs eventually become as common as, well, television sets.
The sluggish diffusion of TiVo machines and other DVRs makes for a worthwhile study in what it takes to get even a great technology into consumers' hands. Technology gurus tell us that to spread rapidly, a new technology has to do something new at an acceptable price, or take on a tedious task more efficiently or cheaply than existing solutions.
Sometimes the process looks easy: Consider the DVD player, which hit the 1.7-million mark in sales (i.e., where DVRs are today) within 24 months of its introduction in 1997. There are now an estimated 45.5 million DVD players in U.S. homes, and they continue to sell at an average rate of 1.7 million units per month.
It's only fair to note that Michael Ramsay, the affable Scot who is TiVo's chairman and chief executive, contends that this is a false comparison. The notion that the rollout of DVRs has been sluggish, he says, is a bum rap. "It's wrong to think this is going slowly," he says. "It's actually going really well. But we're conditioned to think that if a product category is hot, it will take off like a bat out of hell."
The pace of DVR sales is deceptive, according to Ramsay, because they are still relatively expensive contraptions; even the cheapest TiVo can cost nearly $600, including subscription fees. (These run $12.95 a month or $299 for the life of the unit.) On a kind of dollar-per-sales-rate basis, he contends, the devices are matching the growth rate of DVDs.
