All this hand-wringing over DVRs misses a key point: They can be good for cable.

BY JENIFER CISTOLA After a slow start, digital video recording devices are gaining momentum. However, most consumers have to try the product to understand its value. Millions of marketing dollars seem to have done a poor job of getting the message out. Instead, word of mouth is a primary driver for the DVR. Those who have one find they can’t live without it…and they tell their friends. While studies indicate that the DVR is having a very positive impact on how consumers are able to enjoy TV, some cable operators and programmers worry about its effect on their business. Most cite issues such as the fear of widespread content sharing with no clear mechanism to drive revenue back to the content producers; reduced advertising revenue due to the ability to fast-forward through previously recorded content; and the cost of launching DVR devices as potential deployment roadblocks. A closer look reveals that DVR is a secure technology, which is simple to deploy, drives revenue and most importantly gives consumers what they want when they want it. When the subject of recording is discussed, content providers understandably question security. Similar questions were raised with the initial ramp up of VCRs. Since DVRs enable digital recording, the content provider’s concern is heightened. Concerns are minimized once it is understood that, in a cable network, all of the content from the head-end to the set-top can be encrypted. This means that the material recorded on the set-top is not viewable on another remote device. There is no incentive to remove the set-top hard drive because encryption authorizes content for that unique set-top. As DVR technology becomes more popular, consumers will want to record programming in multiple rooms. To make this possible while keeping the content secure, the cable operator will be able to authorize the viewing of that recorded programming on other set-tops, but only those specific set-tops. The ability to push a button on the remote and skip past ads is another hot issue. Many look at this as a potential threat to ad revenue. This change in capability could, in theory, change the way programmers generate income and the way advertising models work today. Consumers, however, have always had the ability to skip commercials — via remote control. They can also practice “advertisement avoidance” by using the TV’s picture-in-picture feature, the mute button, or by simply leaving the room. According to the fall 2002 issue of PVR Monitor, the majority of DVR users watch commercials at about the same rate, whether on live TV or post-recording. Also, an overwhelming majority (about 70%) only watch commercials occasionally when viewing live TV. This indicates that DVR users are simply carrying over existing habits of avoiding commercials. Interestingly, about 80% of DVR users actually choose to watch certain commercials, either because they’re entertaining or of special interest. DVR users also are less likely to channel surf. This indicates that, by using some creativity, advertisers can better target their ads demographically and psychographically. Alternate methods for reaching consumers include exclusive sponsorship of programs with limited or no commercials, product placements and short messages that are actually woven into the program. Bottom line: The TV advertising business was already seeking ways to improve its efficiency, and DVR may not only give it a push, but actually assist companies in improving their effectiveness. The rollout of DVR technology, integrated into a set-top, can be very cost-effective for the operator, and the return on investment may be achieved in an even shorter time than some traditional set-tops. In terms of deployment, operators don’t have to upgrade their plant or coordinate between multiple hardware and software vendors. Instead, the operator downloads the software, completes internal testing and quality assurance and begins to deliver and/or ship the boxes to subscribers. Self-install has met with great success. Research also shows that a typical $9.95 monthly fee for DVR service is not only seen as a good value, but also improves the subscriber’s perception of their cable provider. And, unlike premium services and VOD revenue, the operator retains the entire monthly fee. Is DVR a replacement for VOD, or must operators choose between the two? No, the services are complementary, each offering viewers programming choices. By combining these two services, cable can make an offer that many consumers will find compelling. DVR is clearly a technology that can have a positive impact on the way consumers watch TV, as well as on those who deliver it. Jenifer Cistola is VP of product marketing, subscriber network systems, Scientific-Atlanta Inc.