Lesson for DirecTV: DVRs pick up steam in U.K.

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In a possible template for Rupert Murdoch's U.S. plans, his British Satellite Broadcasting in just three months has more than doubled its customer base in the U.K. for digital video recorders.

When Mr. Murdoch recently closed his acquisition of U.S. satellite operator DirecTV, it was reported that the News Corp. chairman would dangle the digital video recording feature as one of his main carrots in any consumer marketing efforts to convert cable subscribers to his system.

British Satellite Broadcasting, better known as BSkyB or simply Sky, dominates the satellite business in the U.K. and has reduced cable to a minor player in the digital spectrum. In the U.K., BSkyB introduced the Sky + DVR feature in August 2001, but after winning just 115,000 customers in two years, the company decided it was time to get tough and kick-start the DVR market. A $37 million marketing campaign launched in October 2003 through WPP Group's HHCL/Red Cell has more than doubled subscribers to the DVR feature to about 250,000. This was achieved by selling the core idea that Sky + enables users to "create your own TV channel." The ads feature comically mismatched celebrity couples who nevertheless enjoy a harmonious life together, thanks to Sky +.

something new

Richard Huntington, HHCL/ Red Cell's head of planning, said, "We deliberately positioned it as something new in your life rather than a glorified VCR. Our aim is to make Sky + a mass luxury product."

At the same time, Sky slashed the price of the box from $550 to $370 and scrapped the $18 monthly charge for customers who subscribe to premium Sky satellite TV channels.

Sky's new target is 315,000 Sky + customers by June 2004. Sky currently has 7 million subscribers. DVR penetration is just 1% of U.K. households, but U.K. research group Datamonitor predicts it will reach a quarter of U.K. homes by 2007, similar to the 20% penetration forecast by 2007 for the U.S. market offered up recently by the Yankee Group.

Like DVRs in the U.S., Sky lets viewers avoid commercials. The company's research indicates that the overall decrease in advertising consumption is 17% in Sky + homes, but claims that there is no corresponding drop in advertising awareness.

According to Sky's research, ad recall in Sky + households is, at 57%, only slightly down on the 59% measured in ordinary Sky households, and still remains higher than the 54% recall in analog households.

A Sky spokesman said, "[DVRs] will become ubiquitous and they will be integrated into all kinds of household consumer goods. We are working with the advertising community to address the challenges and exploit the opportunities, and we have designed our products to enable us to work with them. " Other DVR manufacturers, in fact, pose little threat to Sky + at the moment.

TiVo launched in the U.K. in March 2000 but withdrew from the U.K. last fall, leaving only a small subscriber base (numbers are not revealed) who are serviced mostly from the U.S.

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