Monday, Mar. 19, 2001

Live and Clicking

By THOMAS K. GROSE

When Neil Johnston visited his parents in Northern Ireland recently, he found watching their television a truly frustrating experience. The 26-year-old software engineer from Southampton had to view his favorite shows at the times they were broadcast, a practice that is just so 20th century. Johnston, like a small but growing number of Europeans, has rushed headlong into this century and hooked his own television to a personal video recorder (PVR) that allows him to watch broadcast programs whenever he wants.

He can stop and replay live TV, as well as record every episode of every favorite show with just a couple of clicks of a remote-control button. "It's very liberating," Johnston says. "You no longer care when programs are on, you just set it once and forget about it."

PVR technology will likely change home entertainment forever, revolutionizing the way we watch TV, and forcing broadcasters and advertisers to rethink their business models. "The majority of programs will be routinely recorded, stored in the home and accessed on demand," predicts Durlacher, a London investment group that specializes in emerging technologies. That's a model quite like publishing, where stories and books are printed and marketed, then consumed at leisure. Early adapters in Britain of TiVo, one brand of PVR technology, bear out the revolutionary claim. "I don't watch regular TV now," says Jonathan Smiles, 33, who owns a DVD reproduction company in Newbury, south England. "The only thing I watch live is the news."

PVRs are not your parents' VCRs. They use no tape, recording programs instead on a hard drive. They work by making toll-free phone calls daily to every available channel — analogue or digital — and downloading broadcast schedules that are used to set automatic programming. TiVo's current British model can record and store up to 40 hours of shows a week, but future versions will hold hundreds of hours. PVRs aren't the same as a video-on-demand service, which stores a library of programming — mostly movies — on a central server and can relay it once to an individual TV set for viewing. (That's how in-room movies work in hotels.) Some services like Britain's HomeChoice offer a limited schedule of popular shows, but only after they've been broadcast. And, unlike VCRs, PVRs allow you to watch playbacks of shows while recording something else. PVRs are also easier to use than VCRs. "Gadget maven" David Heiland, 34, a Lucent technician from Malmesbury in west England, says, "The interface is straightforward, it's easy to use and quick to learn." You're a fan of EastEnders? Just set it once, and every episode is captured from then on. A PVR can also anticipate your viewing habits — more sitcoms, perhaps — and either recommend or record shows it "thinks" you may like. You still want to watch a live program, maybe a football match? Fine, but if the phone rings or you blink just as a goal is scored, hit pause, then replay the action — in slow-motion, if you like. Afterward, pick up the game where you left off, or see it again, without missing a kick.

TiVo, whose investors include AOL (this magazine's parent) and Dutch consumer electronics manufacturer Philips, was the first PVR service to launch in the U.S. in 1999. And it was the first to enter the European market when it began selling its set-top box in Britain last October. There is a good chance that someone will introduce PVRs in the rest of Europe later this year.

PVR technology will herald "the eventual death of scheduled TV channels in the form we know them today," according to Durlacher. Television's entire paradigm is time-based. Think prime time. Think of blockbusters going head-to-head in ratings wars. But if people are watching in their own time, it will rarely matter when a program actually airs. "Broadcasters will have to schedule differently, they'll have to be clever. They'll have to know that people will have this device in their homes," says Brian Sullivan, director of new product development and sales at British Sky Broadcasting, the satellite-TV firm that's one of TiVo's partners in the U.K. Of course, demand for nightly "event" shows won't completely wither — viewers like to discuss some shows with friends and colleagues the next day. But even those programs needn't be watched live; they can be captured and viewed minutes or hours after they've aired.

Broadcasters may have to change, but advertisers will have to adjust even more. A study of early TiVo owners in the U.S. found that 88% of them zapped right through the commercials. The behavior of British users also suggests that ads face a high hurdle of viewer intolerance. "I have to say, I'm not very aware of what adverts are on TV anymore," says Johnston, the software engineer from Southampton.

That leads Ben Langdon, chairman of ad agency McCann-Erickson U.K. Group, to declare PVR technology "another nail in the coffin of the mass market and the 30-second TV ad." Advertisers won't pay huge sums to reach audiences that number only in the thousands, he says. Television's broad reach made the mass market possible; now, TV is creating a highly fragmented marketplace. To grab this audience, commercials will need to be shorter and more entertaining. It may also force advertisers to come up with novel incentives to get people to tune in to ads.

But if technology is taking the mass market away from advertisers, it's giving them something valuable in return: mass individualization. PVRs are interactive — as they play the selected program they also collect data about viewing habits that advertisers can use to target commercials at specific audiences. "TV becomes a direct-market medium rather than a mass-market medium," Langdon says. And that, he adds, creates ample new opportunities.

Broadcasters and advertisers will have time to prepare for the shift. Datamonitor forecasts that 21% of European households, or a total of 31 million, will have PVRs by 2005. Durlacher expects PVR penetration will hit from 65% to 75% by 2010. "They will be very popular, but not for a long, long time. It's hard to build a business model around them, and they're pretty expensive," says Coleen Kaiser, a software and e-commerce analyst at Merrill Lynch in London. To be sure, this much fun in a box isn't cheap. TiVo retails for $580 in Britain, plus subscribers pay a monthly $14 service fee. Moreover, it's a "must-see" product that's hard to describe. TiVo hasn't released subscriber numbers in Britain, but in the U.S. it has only 136,000. "That's deeply unimpressive," sniffs John Hardie, marketing and commercial director at Britain's ITV Network, who likens the PVR hype to "hysteria." Hardie is convinced that PVRs will remain simply a toy for "devotees" for years to come.

To speed the technology's spread, analysts say that pay-TV providers like BSkyB and Canal Satellite should subsidize the cost to consumers. But that's an expensive option. Indeed, BSkyB will later this year offer its current subscribers a digital TV box that will have PVR functionality, but it's unlikely to subsidize it. Another option available to TV content providers is leasing the boxes to customers for a small monthly stipend plus a service fee.

Whatever the revenue model, it's likely that the pay-TV industry will spearhead the PVR market in Europe, though manufacturers will also figure in the mix. Simon Poulter, a spokesman for Philips Electronics, says he anticipates "some sort of an announcement this year in Europe" on PVRs. Philips, which builds some of the TiVos sold in America, envisions a pan-European personal video product, and that's a very complex proposition, given the crazy quilt of channels, languages and regulatory issues across the Continent. TiVo says it will expand further into Europe, but first wants to become entrenched in the U.S. and Britain. Jerel Whittingham, Durlacher senior consultant, is doubtful that TiVo will survive on its own and figures it might link up with another manufacturer, broadcaster or pay-TV operator. As a retailer of PVRs, "it's not in a particularly strong position," he says. Whittingham foresees PVRs becoming mere commodities as prices fall and competition grows among content service providers. That's because the basic set-top box hardware is uniform, just as VCR technology doesn't change from brand to brand. So content and service, mainly in the guise of electronic program guides, become paramount because viewers will need help in wading through hundreds of choices to record.

Once the time-shifting technology is widely available, will it really change people's viewing habits? TV watching is a passive "lean back and soak" experience and viewers often can't be bothered to record shows or zap commercials, no matter how easy it is. When VCRs and remote controls first appeared in Britain, itv's Hardie recalls, pundits wrongly predicted they would doom ad-driven TV. "What people tell surveys is not what they actually do in front of the box," he says.

But Jeremy Mayhew, BBC Worldwide director of new ventures and strategy, is convinced that the technology will catch on and change the nature of the industry because it "puts the control of the viewing experience in the hands of viewers," who will quickly learn to enjoy that power. Couch potatoes, arise. Pick up your remotes. And enjoy.