Competition, Technology
Enhance the DVR

TiVo, Telecom Companies Vie
For TV-Recording Consumers;
Heartburn on Madison Avenue

By MARIAM FAM
March 16, 2007; Page B1

Digital video recorders, which transformed television watching for millions of households, are undergoing a makeover as they become a major weapon wielded by cable, satellite and telephone companies in their battle for market share in the pay-TV business.

Telecom companies are adding a range of new features to the devices, which were originally launched in the late 1990s by TiVo Inc. and gained popularity for their ability to let people record and pause live TV. Users can now do such other things as program their DVR from afar by cellphone or computer to record a favorite show. Some recorders also now allow viewers to download content off the Internet or record a show in one room and watch it on a TV in another.

The competition is heating up thanks in part to technological advances that allow phone, TV and Internet features to be combined. The speed with which the DVR is morphing also reflects the growing importance of new technology in the pay-TV business as the market becomes saturated and telephone companies emerge as new competitors.

In the past, satellite and cable companies would introduce at most a couple of new products or features a year. Last year, Time Warner Cable alone rolled out more than 10 new features including interactive ads and "Quick Clips" a continuously updated on-demand news and weather service.

On Wednesday, TiVo and Verizon Wireless (jointly owned by Verizon Communications Inc. and Vodafone Group PLC) made it possible for Verizon cellphone users to schedule recordings on their TiVos using more than a dozen handsets. AT&T Inc.'s Homezone television service added a similar feature last week. Users of any Web-enabled handset can browse its TV guide nine days out, select shows and choose to record an episode or an entire series.

The DVR innovations are causing heartburn in some parts of the TV industry because most owners use their devices to skip commercials. Already, fear of ad skipping has helped prompt advertisers to shift money to the Internet and develop interactive ads for TV. (A lot is at stake: According to TNS Media Intelligence, the value of TV advertising in 2006 was $65.4 billion.)The pressure is expected to intensify as new features help attract even more DVR customers. The devices are expected to be in 25.5 million households by the end of this year, up from 18.6 million at the end of 2006, according to Leichtman Research Group.

One of the leaders in developing new features is industry pioneer TiVo. The company has a history of innovation, but the new drive also reflects TiVo's struggle to compete against phone, cable and TV operators who sell more of their own DVRs than TiVo, thanks to their size, customer base and broad array of other products. At the end of January, TiVo had 4.4 million subscribers up only 100,000 from one year earlier.

Two years ago, TiVo rolled out "TiVoToGo," a feature enabling subscribers to transfer recorded programs to laptops and certain handheld devices. TiVo also offers a high definition DVR and a feature that allows viewers with more than one TiVo to record a show in one room and watch it in another.

TiVo last year also began allowing subscribers to download selected content off the Internet for playback on television sets. The content is made available by partners such as the National Basketball Association, CBS Corp. and Reuters Group PLC. TiVo later cut a deal with Amazon.com Inc. to make movie and TV shows available for rent or purchase as well. Movie titles include "Babel" and "Casino Royale."

But competitors are beginning to improve on some of these features. For example, subscribers to Verizon's new TV service can watch recorded programs in up to three rooms with only one DVR connected to the so-called "hub TV." The other two TVs can access the same programming via set-top boxes. A customer can begin watching, say, a recorded movie in the living room and then finish watching it in the bedroom.

Jim Roche, who works for an insurance company in Richmond, Va., said Verizon's multi-room feature comes in handy. "My girlfriend and I have different TV tastes," he explains. "She can record something and go later watch it the bedroom" while he's watching something else downstairs. "So we're not fighting over the DVR at the same time," he says.

EchoStar Communications Corp.'s Dish Network also has introduced a multiroom DVR while DirecTV, the other large satellite-TV operator, has one in the planning stage. Time Warner Cable and Charter Communications Inc. have the multiroom feature in some of their markets. Most cable operators say they're planning a similar feature.

Most cable, satellite and phone companies also offer high-definition DVRs. Operators are a little slower, though, in allowing users to program DVRs from Web sites. Subscribers to TiVo and to AT&T's new TV services, Homezone and U-verse, can do that now. Cable and satellite operators say they're planning similar features.

Michael Sawyer, a Charter subscriber in St. Louis, says he would consider switching to another company to get more features including the one that would allow him to program his DVR from a Web site. "If you hear about something when you're at the office and somebody tells you about a program and you go like: 'Man, I'd like to catch that,' it would be great to be able to jump online and tell your box to save it for later," he says. Charter is working on activating that feature.

But consumers also will be influenced by price and one of the downsides to some of the new features is cost. Verizon's multiroom DVR costs $19.99 a month (not including the cost of leasing the extra set-top boxes), compared with $12.99 for its standard device. TiVo's high-definition DVR costs $800 to buy. Its other models start at $100. TiVo and Verizon Wireless' new service costs $1.99 a month.

The latest feature to begin gaining traction among operators is wireless programming. TiVo and AT&T's Homezone currently allow that. But a venture of Sprint Nextel Corp. and four of the country's largest cable operators is planning to start enabling users to program DVRs from wireless handsets starting later this year, says John Garcia, president of the venture. The venture isn't disclosing which cable operators would be first, but a spokeswoman for Time Warner Cable (a unit of Time Warner Inc.) says that it is planning for a 2007 launch of this feature.

Future technological advances may do away with the need of a set-top DVR altogether. Cablevision Systems Corp., the country's fifth-largest cable operator, wants to give subscribers storage space within its network for recording shows. Cablevision executives say this would cut costs and make DVR technology available to more subscribers.

If Cablevision succeeds in doing this, other cable operators would probably follow suit. But the company's effort is being battled in court by some of the country's biggest TV and movie producers, who claim that a "network DVR" would violate their copyrights.

Write to Mariam Fam at mariam.fam@wsj.com