DVR market set to fast-forward

DVR revolution remains on pause Adi Kishore, analyst, The Yankee Group

Though it's idling now, the market for digital video recorders will rev up to more than 20 million customers by 2005 as the technology is integrated into satellite receivers and cable set-top boxes, according to a report from The Yankee Group.

The Boston-based research firm sees promise for DVRs as more companies in the sector integrate their products with other systems for broadcasting TV signals. DVR technology uses hard drives rather than videotape for recording. Viewers can program systems to anticipate and record shows that interest them based on previous viewing activity and to fast-forward past unwanted advertisements when replaying shows.

A good example of the integrated model comes from Microsoft, according to Adi Kishore, one of the authors of the report, which was issued Thursday. In March, the software giant unveiled UltimateTV, which combines aspects of its WebTV e-mail and Web-surfing service with elements of the DirecTV satellite service and DVR technology.

Other integrated products are starting to appear from leading players in the DVR industry such as TiVo and ReplayTV--which recently was acquired by graphics chip maker Sonicblue--and from consumer electronics and set-top box manufacturers, according to The Yankee Group.

Consumers haven't exactly rushed to get hold of DVRs. A year ago, the industry envisioned booming sales, but fewer than 350,000 units have sold over the last one and a half years, the report said. In contrast, about 1.75 million direct broadcast satellite (DBS) units were sold in their first year and a half of availability.

The findings of the report did not come as a surprise to Kishore.

"We had earlier recognized the standalone units were less likely to get the consumer adoption the industry was expecting because of the high price point of the boxes and consumer confusion," he said. "We had also said then that they could find more success with integrating their products with satellite and cable systems."

Sales will pick up steadily over the next several years, according to the report. Some 880,000 DVRs will be installed in U.S. homes by the end of this year, 2.4 million by the end of 2002, 5.6 million by the end of 2003 and 11.5 million by the end of 2004, it said.

DVR technology will be featured more in products that integrate interactive, TV-based services than in individual services, and customers are unlikely to pay high costs for standalone products, according to the report.

In the next few years, DVR technology will not have much of an effect on advertising revenue or the broadcast industry, the report said.