By Bruce Leichtman
Last month TiVo celebrated surpassing 1 million subscribers, and achieving its most successful quarter on record. These announcements, along with the long-awaited emergence of the digital video recorder (DVR) category as a whole, appear to be indications that the company is finally prepared to fulfill its goal of revolutionizing TV. However, these achievements may ultimately prove to be but Pyrrhic victories.
By the end of 2003, there will be approximately 3 million DVR subscribers in the U.S. While this is not close to the widely unrealistic expectations that many held for the category, it does represent more than twice the number at the start of the year. This is the first clear indication that the category is beginning to blossom.
Yet, well over three-quarters of DVR subscribers do not "own" a DVR.
Since its inception, TiVo has done an exemplary job of building a brand – even to the point of making "Tivoed" an adjective heard in some circles – and establishing the groundwork for a new category. Yet, the challenges that the company has encountered in growing a business stem from the fact that consumers (who are interested in the concept DVRs) perceive it to be a service rather than a product.
The bulk of growth in the DVR category is not as a stand-alone product, but rather from being bundled as a feature in DBS and cable set-top boxes. In nearly five years, TiVo has 526,000 stand-alone box subscribers. This is less than the number of DVR-enabled cable set-top boxes that Scientific-Atlanta shipped in the past five quarters. In addition, TiVo was not the first DVR provider to announce one million subscribers, since DBS provider EchoStar made that announcement in September. (Neither EchoStar nor Scientific-Atlanta use TiVo in their DVRs.)
In addition, of the 209,000 net new additional subscribers to TiVo in the third quarter of 2003, over 70 percent came from DirecTV. In total, 48 percent of TiVo's subscribers now come from DirecTV, a figure that has rapidly increased from 37 percent at the beginning of 2003. TiVo is clearly becoming increasingly reliant on DirecTV for its growth. With Rupert Murdoch soon taking charge of DirecTV, this unbalanced relationship may become more precarious.
TiVo's Web site boldly proclaims, "We've pioneered an exciting new category that will forever change the way the world watches TV." For nearly five years the company has journeyed through the desert leading the minions in this ambitious undertaking, and the promised land is now almost in sight. As this brave new world continues to take shape, how this will change the TV watching world, and what role TiVo will ultimately play, remains unclear.
Bruce Leichtman is president and principal analyst for Leichtman Research Group, which can be found on the Web at: http://www.leichtmanresearch.com. His e-mail is: Bruce@LeichtmanResearch.com.
