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Tech Industry

TiVo buries the VCR

The company offers free DVR boxes in exchange for videotapes and new subscriptions.

A correction was made to this story. Read below for details.
TiVo hosted a mock funeral for the VCR on Friday as part of a promotional sales event for its digital video recorders, highlighting the expanding role of emerging DVD formats.

The funeral service, which coincided with the opening of the Digital Life consumer technology event in New York, also featured a eulogy and a casket overflowing with VCR tapes.

"Today we're officially saying farewell to the VCR, goodbye to the flashing 12:00, sayonara to a product that broke new ground in home entertainment when it came to playing movies but fell far short of making it easy for consumers to record and play back television programs," said TiVo Vice President Katie Ho.

TiVo's digital video recorder (DVR) and service lets users pause live TV and record broadcasts.

People at the event were able to get a 40-hour TiVo Series2 device for free if they traded in an old videotape and signed up for a subscription plan. The company's lowest-priced boxes retail for $49.99 with a rebate. A one-year subscription goes for $12.95 per month or a one-time payment of $299, which is good for the life of the box. TiVo is also offering consumers three months of free TiVo service with all TiVo box purchases made at Best Buy stores between Oct. 14 and Oct. 16.

While the death of VCRs and the VHS format has been long expected, it may be a bit premature to announce its arrival. Some 97 million households still have at least one VCR, according to the International Recording Media Association. However, TiVo's stunt does point out how fragile the VCR market is.

Panasonic and Toshiba still make VCRs, as do lesser-known companies such as Lite-On, a Taiwan-based electronics manufacturer that sells its recorders through Wal-Mart Stores. But several manufactures have quit making VCRs. Brian Lucas, a spokesman for Best Buy, said that the retailer carries less than 10 models of standalone VCRs now. Ten years ago, it carried more than two dozen.

"We have no plan to phase out all sales of VCR machines at this time," Lucas said. "However, many customers are opting to purchase our dual machines (which retail for about $150) that play both DVD and VHS formats."

Best Buy and Circuit City stopped selling VHS movies online earlier this year. Target said it is also phasing out sales of VHS tapes. In its most recent filing with the Securities and Exchange Commission, Wal-Mart reported a sharp decline in VHS sales, but still continues to sell videotapes.

Many of the major studios are also wrestling with the VHS format. Fox and Warner Bros. are reportedly phasing out VHS tapes by 2006. The increased popularity of DVDs and next-generation DVD formats--Blu-ray and HD DVD--are also having a major impact on the VHS market, according to Steve Kovsky, senior analyst at Current Analysis.

"We have already reached that point where DVD sales and rentals have outpaced VHS formats," Kovsky said. "Motion picture studios are more likely to pull the plug in 2006 because that is when HD DVD and Blu-ray formats will emerge. Conventional DVDs will become the mainstream format until there is a clear market direction. But studios are indicating that the market for VHS isn't strong enough to duplicate efforts for those products."

TiVo, meanwhile, could use the business. The company's most recent financial statements were positive but showed its fee-based TV recording service falling to 254,000 new subscribers from 288,000 in the same quarter one year ago. Its total subscriber base is 3.57 million.

The company is now looking for additional partnerships to make up for the eventual loss of its largest partner, DirecTV, which is promoting its own digital video recorder.

DirecTV said it will continue to support the TiVo service for $5.99 a month. The two companies have a contract that will expire in 2007, but DirecTV has not indicated it will renew the contract.

DirecTV's replacement DVR is expected to be introduced later this month, after four months of delays. A second, increased-capacity version that supports high-definition television is expected in mid-2006.

TiVo is struggling because its technology is available to any company that wants to implement it, Kovsky said.

"You don't have to be TiVo to have this service," he said. "Most people are becoming aware of what TiVo and its competitors do, but they're finding it is a lot easer to acquire the boxes from their cable or satellite provider than buying it on their own."

Correction: This story incorrectly stated the number of TiVo subscribers.