On The Verge

Don't misunderstand: I'm a huge fan of TiVo. I've had one of the original TiVo boxes for four years or more and also have a newer DirecTV-based TiVo. I wouldn't want to return to the pre-TiVo days. But TiVo still hasn't come close to the perfect design for consumers—nor has anyone else. And now TiVo faces a big question: Can the company get the design right before ceding the market to cable-company PVRs, new satellite PVRs, and/or Windows Media PCs?

A Nov. 22 press release (PDF) from TiVo, and the ensuing news coverage in the mass media, in part prompted this post. In that release, TiVo boasted that revenues grew 73% over Q3 2003, and that its subscriber base had reached 2.3 million.

The popular press, especially those working in the financial area, didn't buy TiVo's positive spin. Deeper in the press release, TiVo revealed that of 419,000 new subscribers gained in the prior quarter, 316,000 were actually DirecTV subscribers. There are at least three troubling aspects to TiVo's dependence on DirecTV for growth. TiVo takes in a monthly fee of $13 for its standalone boxes, which work with cable systems, antennas, or satellite receivers, but gets only $5 a month for each TiVo that's integrated into a satellite receiver. DirecTV is working on its own PVR, and that may eliminate a huge market for TiVo. And the slow growth of the traditional standalone TiVo box is in part attributable to the cable companies renting PVRs to their customers.

I suppose the financial press made some valid points, but I prefer to look at the situation from the customer service/satisfaction perspective. While TiVo and other PVRs are a huge improvement over VCRs, they have hardly evolved since coming onto the market in the late '90s. Yet the tech-savvy fans of PVRs would surely prefer advancement.

For starters, TiVo has yet to support the ability to record two programs simultaneously in the standalone box. You will find the dual-record feature in satellite and digital-cable PVRs including the DirecTV TiVos. Both the satellite and digital-cable boxes receive the video stream in digital format. So recording two programs simultaneously is relatively simple; mainly it requires that the box write two streams to the hard disk simultaneously. The standalone PVR, however, accepts an analog video input. Therefore it must encode the signal in real time in addition to recoding the encoded data to the disk. I understand the need for more horsepower in the standalone box. But Broadcom, among others, showed silicon for handling two programs simultaneously several years ago.

Still, I think tech-savvy consumers, myself included, have a far bigger problem with the company continuing to tie the TiVo functions and the storage subsystem together instead of taking advantage of home networking. I'll always believe that the codecs, authentication, menus, program control, and other functions should be separated from the disk drives. I want TiVo electronics in every display device in my house, and I want my programming stored on my home network for all to access.

The way I see the PVR market, TiVo still has a window of opportunity to capitalize on its brand. In the past, the company has refused to unbundle its technology—presumably in part due to concerns about content security but really because it believed it could hold the dominant spot in the state-of-the-art living room. It's time for the company to take a risk and open its system. TiVo's business model is purely based on subscription and ad revenue at this point anyway. The company needs to make the offering so compelling that customers demand TiVo as opposed to a generic PVR, and that means letting customers have TiVo their way.

I'll follow up later this week with thoughts on business models and the Windows Media PC threat. The latter certainly offers the most open support for home media networks.