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ReplayTV, Motorola record a set-top deal

The companies ink an agreement for Motorola to use ReplayTV's digital video-recording technology in set-top boxes.

Motorola will use ReplayTV's digital video-recording technology in cable set-top boxes under a five-year licensing agreement, the companies said Tuesday.

Digital video recorders (DVRs) are similar to VCRs, but instead of recording to tape, they store programs on a hard drive.

Although the agreement is nonexclusive, it provides ReplayTV with a path to the largest market of television viewers: cable subscribers.

"We expect our technology to be used in all their (Motorola's) set-top boxes," said Steve Shannon, ReplayTV's vice president of marketing.

Under the agreement, ReplayTV's DVR software will be used in Motorola's high-end DCT 5000 set-top boxes. According to Shannon, cable operators and subscribers will begin to see set-top boxes with DVR capabilities by the end of the year.

The Motorola deal is the first major agreement ReplayTV has signed since it recast its business plan late last year. Unlike its main rival, TiVo, ReplayTV changed course and decided to license its software to cable providers instead of trying to sell standalone boxes.

In February, Sonicblue acquired ReplayTV for $123 million in stock.

The agreement with Motorola is the first such one between a major DVR company and one of the big cable set-top boxes makers in the United States, Banc of America Securities analyst William Bean noted.

"This puts (ReplayTV) back in the game," Bean said. "TiVo has AOL and DirecTV, and now Replay has Motorola," he said referring to TiVo's licensing agreements. "So integrating DVR into set-top boxes will be a real race."

One potential cramp, however, will be cable operators, which make up a majority of Motorola's customers.

"Cable operators aren't exactly wild about DVR features because TV networks are concerned about ads being skipped," Bean said. "Additionally, the set-top boxes that DVR capabilities are being integrated into are generally pretty expensive, so roll-out will face some challenges."

IDC analyst Mary Joy Scafidi agreed. "Cable operators may also be turned off from these high-end set top boxes because they generally subsidize them and the cost will be high," she said.

The terms of the ReplayTV's deal with Motorola were not revealed. But Shannon said that the deal "represents 20 to 30 percent of our revenue for this year. Three or four more like this and we'll be profitable, which is our goal for the year."

After considerable hype in the early goings of the DVR market, expectations have cooled, but analysts still believe that DVR will be the main attraction in interactive TV.

A report from market-research firm the Yankee Group recently estimated the market will grow to 20 million customers by 2005.

Microsoft recently launched an interactive-TV service in conjunction with satellite-TV company DirecTV called UltimateTV. The anchor feature in that offering is DVR.

AOL Time Warner is also expected to add DVR features to its interactive-TV product, AOLTV. AOLTV has a stake in TiVo.