ReplayTV's strategic shift away from the marketing and advertising business essentially was a concession that its rival had won the consumer-branding battle. The war, however, is far from over.
Replay will no longer market digital video recorders to consumers, but will instead license its enabling technology to cable-system operators, set-top box makers and other TV providers. The company also canceled a series of highly touted interactive advertising deals with blue-chip marketers such as Coca-Cola Co. and Ford Motor Co.
Replay cited the difficulty in striking carriage deals with cable operators and an overreliance on an ad-supported model as factors in its decision. The shift has resulted in layoffs of at least 100 of 260 employees, including ad-sales and consumer-marketing executives in the company's New York, Los Angeles and Mountain View, Calif., offices.
While both Replay and TiVo are looking to license their technologies, TiVo has advanced a consumer-brand strategy based on the promise of better TV. At least one analyst believes TiVo's strategy and marketing expenditures will eventually pay off.
"Replay's move is good for TiVo because TiVo is now offering more of a solution," said David Card, senior analyst, interactive TV, Jupiter Research. "It eliminates a competitor from a branding point of view."
TiVo maintains its business model is more inclusive. "We're doing this in a very prudent and thoughtful way, working with TV makers, [ad] agencies and broadcasters to create a compelling experience," said Stacey Jolna, chief programming officer-VP, TiVo Entertainment Group.
While Replay relied heavily on advertising revenue under its original business model, TiVo also charges a monthly subscription fee to consumers, giving it another revenue stream.
"I actually think this is a very positive move for Replay," said Josh Bernoff, principal analyst, Forrester Research. "Replay is valuable now because they are in the position to work with everyone in the cable business." Replay recently signed a deal to conduct a cable trial with AT&T Broadband. It already has deals with Comcast Cable Communications and Time Warner Cable and will now aggressively seek similar arrangements.
The emerging interactive-TV landscape is fraught with complex revenue-sharing arrangements between DVR marketers such as Replay, cable operators and programmers, satellite providers, broadcast networks and the consumer-electronics marketers that produce the set-top hardware. All are eager to collect a cut of services and e-commerce revenues. "There are too many pigs at the trough," said Jupiter's Mr. Card.
In addition to TiVo, Replay faces competition from other major players, including Microsoft Corp.'s UltimateTV and America Online's interactive-TV services.
HAND-WRINGING IN AD INDUSTRY
Digital video recorders have been the cause of much hand-wringing in the advertising business since they allow consumers to digitally record and store TV programs, pause live TV and skip commercials. Concerns about the impact of commercial skipping are prompting advertisers and their agencies to cut deals with companies such as Replay to avoid being left behind by new technologies.
Replay aggressively courted the advertising industry; the company counts Interpublic Group of Cos., Omnicom Group and Grey Global Group as investors. In recent weeks, Replay also enthusiastically trumpeted advertising deals with Coca-Cola, Universal Pictures, Ford and Toyota Motor Sales USA. Those marketers will be released from their contracts.
Steve Sturm, VP-marketing, Toyota Motor Sales USA, said the automaker won't be deterred from its interactive experiments. "We are going to continue to explore new technology. That was the compelling thing about doing business with Replay," Mr. Sturm said. Coca-Cola will also continue to aggressively explore new-media advertising, a spokesman said. In addition to its Replay deal, Coca-Cola recently inked a similar pact with RespondTV, an enhanced TV software platform.
Matushita Electric Industrial Corp. of America's Panasonic brand, which manufactures the Panasonic ShowStopper digital video recorder with Replay service, said it will continue selling set-top boxes currently at retail. Matsushita Kotobuki Electronics Industries, a subsidiary of Matsushita Electric, is an equity investor in Replay.
While Replay's move was good news for TiVo in the short term, some in the advertising business said they were sorry to see a contender go. "Replay had a lot of momentum in the advertising arena, along with TiVo," said Tim Hanlon, director of emerging contacts at Starcom MediaVest's Starcom IP group, an interactive media agency. "They made a lot of headway in getting marketers and advertisers scared and interested enough in the space to start playing with it. We had three clients who were ready to pull the trigger on a charter relationship with Replay." He declined to identify the marketers.
`AN EARLY HICCUP'
David Adelman, senior-VP and director of convergence media at Y&R's Digital Edge, said the company was also "about to sign a charter deal with [Replay] and they pulled it off the table. This is an early hiccup," he added.
Other media executives view Replay's move as inevitable and said the long-term battle will be for the delivery of interactive services via software built into TV sets and set-top boxes.
"TiVo and Replay and other [DVRs] are wonderful technologies for the consumer, but we never felt they had strong advertising applications," said Mitch Oscar, senior VP-media futures at Universal McCann. "We still believe in Replay, but we also know that TiVo and Replay have to migrate to set-top boxes."
"Reply and TiVo were never about building boxes," agreed David Verklin, CEO of Carat, which has worked with both companies to develop new advertising opportunities. "They always wanted to be embedded technology in the set-top box of the future."
Replay's shift out of the consumer market was bad news for Leagas Delaney, San Francisco, which recently won Replay's ad account, with budgeted spending of $30 million (AA, Nov. 13). The agency was asked to halt work on the account.
Steve Shannon, VP-marketing for Replay, said the strategic shift came in response to the needs and demands of cable operators. "These guys want to run their own personal TV services and own the service revenue streams from e-commerce and pay-per-view," he said.
Forrester's Mr. Bernoff projects household penetration for DVRs by year end at about 350,000; he estimates that figure will skyrocket to more than 1 million for 2001.
Contributing: Alice Z. Cuneo and Jean Halliday