Consumers are confused…on demand from the cable company or the box? It’s taken awhile, but DVRs and VOD can live together; if cable can just teach its subscribers the advantages of both. By Anthony Crupi For a while, DirecTV and TiVo were the Class Couple, a dreamy union of the starting quarterback and the head cheerleader. You’d see them murmuring in low whispers in front of TiVo’s locker, sneaking a furtive kiss before practice. That was before NDS moved to town from England, and while we’re averse to trafficking in feckless innuendo, let’s just say that there were a few things the new girl would do in the backseat of DirecTV’s Camry that TiVo just wasn’t into, thank you very much. NDS was fast and easy. There was no way red-blooded DirecTV could resist. Rather than resort to indulging in the weepy retreats into imaginary colloquies with her stuffed animals and bingeing on chocolate, TiVo picked herself up off the ground and set about looking for another beau. At the risk of pushing the analogy to the breaking point, we’ll just report that the hunky senior with the Camaro and the fat bank account walked into the gym on prom night with TiVo on his arm. Turns out the two had been meeting in secret behind the Circle-K while things were going south with DirecTV, and though it wasn’t apparent at the time, Comcast and TiVo were working toward an open relationship dynamic likely to incite certain stirrings in the rest of the student body (i.e., the other MSOs). Whatever comes of our John Hughes movie scenario, it is inarguable that Comcast chairman and CEO Brian Roberts saved TiVo’s life on the Ides of March. Roughly 70% of TiVo’s subs were pulled in via its relationship with DirecTV. While the split wasn’t as definitive as the sundering of a romantic entanglement—the contract binding TiVo and DirecTV doesn’t officially expire until February 2007—TiVo’s future was looking bleak. Now that it’s in good with the country’s largest cable operator, that’s all irrevocably changed. What, then, did Comcast see in TiVo? Although the MSO doesn’t release its cumulative DVR numbers, in January Roberts told an investors’ conference that the cable giant had 300,000 DVRs in the field and was "just getting started," so it’s not as though it doesn’t already have a viable product line in place. Roberts gave a clue to his motives in an interview with Georgia Public Television taped two days after the deal went down. "I think TiVo is like a religion to some people," Roberts told the Georgia Business Report. "It is a fabulous brand and a fabulous product, I think a little bit like Apple and Windows." Roberts, who has an endearing way of employing "fabulous" as a sort of catch-all adjective—George W. Bush does a similar thing—understands the value of the TiVo brand, which has become a generic signifier for an entire range of consumer electronics devices, the way Q-Tips stand for all cotton swabs. Adherents use the brand as a verb; i.e., "I TiVo’ed Deadwood last night," even when the box doing the recording is a component of generic cable DVR service, i.e., a Motorola or Scientific-Atlanta product. All of which is to say that with TiVo in tow, Comcast (and, perhaps, other cable operators) now has a product that enjoys an undeniable place in the Zeitgeist, early sub numbers be damned. Now, How Do You Market It? At this point in the game, the most reliable indicators of marketing efficacy are the numbers. By that token, Time Warner Cable has been the most aggressive shill for DVR by far, having deployed the devices in all 31 of its divisions and leading the industry with a total of 710,000 DVR customers as of the third quarter of 2004. Those numbers account for 15% penetration among all of the MSO’s digital subscribers, and, more strikingly, about 65% of all cable DVR users. None of this should come as a surprise, considering that Time Warner was the first cable operator to seek out a DVR of its own. In 2000, while Comcast was testing ReplayTV in its southern New Jersey market, Time Warner realized that the economies of scale weren’t there, and it asked Scientific-Atlanta to create a set-top box with a DVR built in. The speed with which the cabler went from looking over the schematic diagram for the first DVR-enabled cable set-top box, the S-A Explorer 8000, to its initial deployment in Time Warner’s Rochester, N.Y., system in July 2002 is emblematic of how the company handles every product launch, says SVP of marketing Brian Kelly. "The reason we can introduce new products so rapidly is that we start with intensive research," Kelly says. "We find out what features of the DVR resonate with people the most, and which would have an impact on their intention of buying the product and how such a product might affect their perception of the company." The responses are boiled down to the most salient points and lo, there is your message. "And from those we never stray. That’s the secret sauce, and it hasn’t let us down yet." While that approach keeps Time Warner in clover, the DBS competition thrives on a compelling blend of spin and obfuscation. EchoStar is getting set to market a new wrinkle called Dish On Demand, a service that it likens to VOD but is nothing like the classical video-on-demand app that is sui generis to cable. In fact, the DOD amenity (which was scheduled for release in March) is little more than a DVR with a honker of a hard drive, with enough memory to store 100 hours of content. "Credit where it’s due: DBS has been doing a great job of stealing the concept of `VOD’ from cable. Nearly half of DBS subs think it’s possible," says Bruce Leichtman, president and principal analyst of the research group that bears his surname. Protecting the VOD advantage will come a lot easier if the MSO can reinforce the notion that VOD and DVR are perfectly complementary services. "Cable has to articulate that idea a lot better than it has," Leichtman says. "Everyone from the CSR to the installer needs to drive home just how great these two things are together." At the same time, the Reese’s Peanut Butter Cup pitch demands a minimalist’s touch, lest the intricacies of the two feature sets overwhelm the customer. "Simplicity means everything," Leichtman says. "Show them that the DVR is the best recording device available and then let them learn to understand pausing live TV after they get it plugged in. Is trying to explain the concept of time shifting a salient selling point? I don’t think so. Yet that’s how operators are pitching it." Who Needs to Market It? One operator that’s not pitching DVR at all just yet is Cablevision. The Long Island-based MSO began deploying S-A Explorer 8300 boxes (both SD and HD) in November, but as yet has held off on promoting the new service. In fact, Cablevision didn’t even mention its DVR rollout in its latest 10-K, filed last month. Turns out the service isn’t held in very high regard in the boardroom, which accounts for the ninja-esque lack of marketing push. COO Tom Rutledge considers the DVR to be an "inelegant solution…a transition product, something you do for competitive reasons and to meet market demand." Instead, Rutledge is pushing to offer a network DVR later this year, a scheme that offers "the same functionality" as the juiced-up set-tops and requires no additional investment. "Our network is capable of delivering it at a much more efficient capital investment per customer than the DVR model provides," he says. "Every one of our [3 million digital set-tops] is capable of interacting with a network server…without any truck rolls, without any new hardware on the part of the consumer." While the MSO’s stealth marketing approach makes perfect sense in the light of Rutledge’s ambitions, the company still plans to go through with a hard launch of the boxes later in the quarter. (Stage one began with a relatively small shipment of units, about 40,000.) How the company flogs the service remains up in the air, although it’s reasonable to suggest that the operator simply will redraw the margins around its existing family of iO products. Though market demand may have nudged Cablevision to begin shifting away from an all-VOD network, analysts say it’s next to impossible to compare the way the company does business with anyone else. "They truly have the best demos in the entire country, but you’re looking at a completely different market than anyone else," Leichtman says. "More than anyone, they’ve always been very much about incremental revenue." Which brings us back to Comcast. In the GPT interview, Roberts revealed that TiVo will be offered as a "premium product for a couple of extra dollars a month." Subs will be allowed to choose between the standard Motorola DVR experience and the TiVo version, which suits Moto just fine. "Anything that grows demand for DVR is a good thing," says Moto’s Paul Alfieri, who adds that it’s still too early to say how each service will be branded. (Why pay for the TiVo brand if the application is just going to disappear inside of a Moto box?) All of which Comcast approached in its own inimitable fashion. A champion of VOD, Roberts wasn’t moved to depress the plunger on DVR until he had at his disposal the most robust model available to run on Comcast’s network. This came to pass last summer when Motorola began rolling out its long-awaited dual-tuner DCT-6412 box. Cox signed on first, deploying the DVR in more than 10 markets and making it available to 95% of its digital base by the end of the year. Thanks to the vendor’s cozy relationship with the NFL, Cox was able to parlay the obvious benefits of time shifting a football game into a slickly produced ad campaign that made the value proposition as clear as a perfectly thrown spiral. Again, think marketing. TiVo’s stand-alone box may have foundered a bit because it overwhelmed consumers with too many killer apps in one box. "That’s why cable has done so well with DVR," Yankee Group analyst Adi Kishore says. "As a consumer, you get a chance to play around with it for next to nothing, and after a while, you learn how to interact with it, fall in love with it." For his part, Brian Kelly isn’t writing off a Time Warner/TiVo t�te-�-t�te. "It’s so critical to find those messages that resonate with our subs, and once you find them the critical thing is to have the fortitude not to drift off from your core strategy. Set the record straight and make the message clear and repeat it until it drowns out anything the other guys have to say."

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