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Cheaper chips could lower costs of digital VCRs

A small company is hoping to make a big impact on the high prices for the latest digital devices for taping TV shows.

A small company is hoping to make a big impact on the price of digital video recorders, a device that could revolutionize the taping of TV shows, analysts have said.

The company, called iCompression, is offering a chip that it hopes will give rise to a mass market for digital video recorders (DVRs), low-cost videoconferencing, and perhaps even video email devices.

It's the market for DVRs where the chip could have the most impact, analysts said. iCompression says its cheaper chip could help the cost of such devices fall significantly.

Following a pattern common in the chip industry, iCompression took several formerly discrete chips and combined them onto one small piece of silicon. The result is a $49 chip (in mass quantities) that the company hopes will take business away from other chip suppliers such as IBM, Sony, and C-Cube.

Analysts think DVRs will be a big hit with consumers--once they are affordable enough. A basic box from TiVo now sells for $499, plus a monthly service fee. A DVR from competitor Replay goes for $699, although its program guide service is free.

"In this era of Internet frenzy where its 'get an installed base now and make money later,' you can see that between Replay and TiVo, [they still can't] afford to lose too much money," said Stephen Solari, vice president of marketing at iCompression. "[We think] they will be highly motivated to buy from small, nimble companies that can help them get product deployed."

Instead of a traditional video cassette, personal digital video recording devices from Replay and TiVo use a large hard disk drive like the one found in a desktop computer to record TV shows.

Coupled with an easy-to-use electronic programming guide and pared-down online service, these devices can be programmed to record shows much like a standard VCR.

But there are many improvements. For instance, unlike a VCR, an entire season's worth of shows can be scheduled for recording with the click of a button, even if the show is broadcast at different times during the week. In addition, these devices can freeze and play back television shows while they are being broadcast. For instance, a viewer could "pause" a football game, get a snack, come back, and resume viewing where the viewer left off, even though the game has continued on.

Furthermore, the shows are recorded on the hard drive, which reduces the clutter of videotapes around many TVs these days.

But the path for TiVo and Replay isn't without potential pitfalls. The ability to easily record programs and zip through commercials has made broadcasters uneasy. Furthermore, a number of media firms formed a group that warned the companies about infringing on their copyrighted material.

Both companies are also working to ensure that they haven't lost broadcasters because of the ad-skip capability.

Currently, all the chips needed to run a DVR make them too pricey for the mass market.

It's a complex setup. The boxes work by taking an analog broadcast signal and translating it into the ones and zeros that computers can understand. Then, they squeeze the data down with a set of chips called encoders and store it on a hard disk drive in a format called MPEG-2. When a user wants to watch a recorded program, the data goes through another specialized chip called that decompresses the data for display on a TV screen.

"After the hard disk drive, the MPEG encoding chips are some of the most expensive components," said Michele Abraham, senior multimedia analyst at Cahners-InStat. Saving money on those chips is critical, because "manufacturers really need to get those boxes under $300 to make it a mass-market item," she said.

Investors clearly think DVRs will be a big hit. TiVo, which just went public this year, is valued at $1.3 billion while posting revenues of only $33,000 for the most recently completed quarter.