STUDY: DVR THREAT TO ADS OVERBLOWN

Sales Growth Slows; Broad Mass Market Not Adopting New Technology

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NEW YORK (AdAge.com) -- The rate at which consumers are purchasing digital video recorder services is slowing in a manner that may indicate the devices don't have broad mass-market appeal, according to a new report from Magna Global.
TiVo, the system that popularized the digital video recorder, has just slashed the price of its system by 50%.
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In its just-issued "On Demand Quarterly," Magna Global reports that in the second quarter around 965,000 subscribers signed up for DVRs, down from 1.15 million in the prior quarter and 1.32 million in the fourth quarter of 2004. There are currently around 8 million DVR subscribers in the U.S.

Maturation of the marketplace
“We believe this quarter’s decline reflects the gradual maturation of the marketplace for DVRs,” read the report, written by Brian Weiser, director of industry analysis at the Interpublic Group of Cos.-owned research unit.

“If predictions of large numbers of DVR subscriptions in the next couple of years are unfounded -- and the data we are seeing shows the rate of growth is slowing, not increasing -- our point of view is that DVRs appeal to higher-end subscribers,” Mr. Weiser told AdAge.com.

That news is controversial because it flies in the face of current thinking and widespread concerns throughout the media, marketing and advertising industry. The advertising business has been rushing to develop product placement and integration in TV shows as a way to reach DVR-equipped consumers who can fast-forward through ads in recorded programming. DVRs also allow time shifting of TV programming -- a new reality that many fear as a threat to the broadcast network business model.

But those fears may be overblown if Mr. Weiser’s report conclusions prove to be true.

Lack of VOD progress
In a related area, Mr. Weiser also points out the distinct lack of progress in the world of video-on-demand. “There have been minor steps and Comcast Corp. has made great strides in content, but [the parties] are still at loggerheads in terms of making the A-grade content available. That is so far away from happening. In most cases the networks still don’t own the rights.” He points out that it’s unlikely that consumer will see ABC’s hit Desperate Housewives available on VOD this fall.

Separately, TiVo, an independently backed DVR service that is coming to the end of a supply deal with DirecTV, today announced it would slash its prices 50% to $49.99 after a mail-in rebate. TiVo added 40,000 stand-alone subscribers in the second quarter.

Satellite and cable TV services
The largest provider of DVRs is News Corp.-backed DirecTV, which added 160,000 units during the quarter, according to Magna estimates, and now has 2.1 million DVR subscribers or 14% of its customers. DirecTV is planning to provide its own DVR boxes to customers. EchoStar, another satellite TV provider, does not make its figures public, though Magna estimates that EchoStar’s Dish Network has 2 million DVR subscribers.

Among cable companies, Time Warner Cable and Comcast are the biggest providers of DVRs. At Time Warner Cable, sequential rates of growth have slowed from a high of 67.3% in the third quarter of 2003 to a low of 13.2% in the second quarter of 2005. Time Warner Cable added 132,000 DVR subscribers with its current total standing at 1.1 million or 22.4% of its digital cable homes. Comcast has a total of 775,000 DVRs in the market.

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