Industry Focus 2

Demand is growing for digital video recorders

February, 2004

David Tsuji can’t imagine life without his digital video recorder (DVR).

The 31-year-old from Makiki records hundreds of hours of TV shows on the DVR he got as a gift in 2000. He records ER, Friends and reruns of Seinfeld to watch whenever he has the time.

“It totally fits my lifestyle,” says the information-technology specialist at Verizon Wireless, who doesn’t get home from work until 8 p.m. “I’m not your typical couch potato.”

While Tsuji does admit to watching TV motionless from the couch, he prefers to do other things, such as checking e-mail or doing laundry, while the TV is on. The DVR allows him to ignore the TV until he hears something that interests him; then he can rewind to see what he’s missed.

“I can make my own instant replay,” he says.

DVRs are the latest technological additions to the TV viewing experience. Instead of grappling with a VCR to set and record a particular TV show at a particular time, a DVR will do it automatically. No hassles, no problems.

This user-friendly quality is what has made DVRs so popular in recent years, with various cable companies offering the service introduced by TiVo six years ago.

“I define generations by those who can program a VCR and those who can’t. [DVR service] was created for the latter group,” says Nate Smith, president of Oceanic and Time Warner Cable’s Hawaii Division. The subsidiary of Time Warner Inc. (NYSE:TWX) was No. 22 on Hawaii Business’ Top 250 list, with $249 million in 2002 gross sales.

Oceanic Cable began offering a DVR service in mid-2003, and had already seen an increase in popularity with the service by December 2003. Approximately 10 percent of its digital customers, or roughly 9,000 households, were subscribing to the DVR service at a cost of $9.95 per month.

“It’s so easy to use,” says Smith, who admits to enjoying the luxury of DVR at home. “You don’t have to be a technology wizard whatsoever … It’s more than just easy. It’s amazing.”

A DVR is a device that allows users to record hours of television on a hard drive, as well as pause and rewind TV shows while they are airing. DVRs are becoming as mainstream as DVD players, changing the way Americans watch TV.

TiVo pioneered the DVR in 1997, offering a monthly service to operate a DVR that records up to 80 hours of TV shows. Currently, TiVo charges $12.95 a month for its service.

However, the difference with TiVo, Smith argues, is that it operates much like a VCR. You have to watch your programs through TiVo in order to record them. With a DVR service, through digital cable companies such as Oceanic, users don’t have to switch from TV to a DVR to watch and record programs. The DVR is already recording whatever they’re watching without having to program it. Pausing or replaying a scene is as easy as pushing a button.

In Hawaii, the demand for DVR service has grown consistently, Smith said. That follows a nationwide trend. When Time Warner Cable of New York City, which serves 1.2 million customers, began offering a DVR service in 2003, people waited in a two-hour line outside a customer service center on 23rd Street in Manhattan.

Nationwide, Time Warner has about 250,000 DVR customers. The company plans to add a DVR box, with a high-definition picture, early 2004, as well as a DVR that can link to more than one TV set.

In November, TiVo, the industry’s pioneer, reported record subscription and revenue growth for the third quarter ending Oct. 31. The San Jose-based company earned a quarterly revenue record of $43.3 million, an increase of 73 percent over the same period in 2002. TiVo added about 59,000 new service subscriptions in the quarter, nearly doubling the growth of the same period in the year prior. The company expects those figures to grow.

Although DVRs are becoming more advanced, Tsuji is content with what he uses now – a first generation TiVo DVR that does the job. “I have a second-generation one,” he says, “and it’s still sitting in the box.”

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