Like many disruptive technologies, the impact of digital video recorders, or DVRs, was overestimated in the short term and perhaps underestimated in the longer term. DVR adoption has been relatively slow, considering the technology has been around since the late 1990s, but all indications suggest DVR technology will be a mainstream product/service by 2010.
Apart from the early standalone boxes from TiVo and Replay TV, DVR technology has already been integrated into cable and satellite TV set-top boxes, and in the future the technology will be integrated into game consoles, media center PCs, TV sets, DVD recorders/players and other devices.
Cable TV companies are also exploring embedding DVR technology within the network (at the head end), so cable TV subscribers will not necessarily need a specific DVR-capable set-top box in order to receive DVR functionality. This would enable cable companies to roll out DVR services much more quickly.
DVR users "skip" the majority of advertising they are exposed to and watch 50 percent or more of their TV out of scheduled times. This is the evidence presented from a variety of studies over the last few years. A study conducted by the Myers Group in June 2004, for example, showed 62 percent of DVR owners skipped or fast-forwarded through all or most commercials.
A study conducted by Lyra Research in 2004 showed that the longer the tenure of DVR ownership, the greater the percentage of ads skipped while watching time-shifted programs. In other words, as DVR users become comfortable with all the features of their device, they are more likely to use them.
TV viewers having been "zapping" commercials for some time through dexterous use of the remote control, but the significant increase in time-shifted TV viewing has major implications for traditional media buying, which tries to target particular audiences within particular times.
A study conducted by the American Advertising Federation (AAF) indicated that the perceptions of advertising professionals regarding the potential impact of DVR technology changed significantly between 2003 and 2004. In 2003, 13 percent of survey respondents indicated they saw DVR technology as spelling the end of the 30-second ad spot and dramatically transforming TV. A year later, 21 percent of respondents felt this. The majority of respondents felt that while DVR technology will spur significant growth in non-traditional ads, the 30-second ad spot will remain a key format.
It was not until DVR technology was included free into the set-top box of satellite TV providers like EchoStar and DirecTV that consumers began to embrace the concept. Greater awareness, understanding and availability of DVRs in the market will ensure DVRs continue to grow strongly over the next five years.
Company reports from the leading DVR providers indicate there were approximately 7.4 million DVR households in the US in early 2005, equating to about 6.5 percent of all US households. TiVo is the best-known DVR brand in the market, and with its partnership with DirecTV, it reported over 3.3 million subscribers (1.9 million of which are DirecTV) in the first quarter of 2005. EchoStar, with its own DVR service, has approximately 1.8 million DVR subscribers, according to Magna Global Research. Time Warner recently broke through the one million DVR subscriber barrier to lead all cable MSOs.
Currently, 50 percent of all DVR households in the US come from DBS subscribers, compared with 31.1 percent from cable and 18.9 percent from standalone boxes.
eMarketer assessed the potential growth of DVRs across cable, DBS and standalone/integrated products. Publicly available company data over the last year, in conjunction with comparative data from Magna Global Research, which monitors the DVR sector each quarter, enabled eMarketer to establish a baseline of DVR households at the end of 2004 of six million. This equates to approximately 5 percent of all households.
eMarketer estimates that the number of DVR households will grow to 47.4 million in 2009, as the majority of those who trade up to digital TV in the coming years will do so with DVR functionality. All cable MSOs are now driving their DVR services, which will have the effect of driving the entire sector.
eMarketer estimates that DBS households will continue to lead the DVR market over the next couple of years, but cable DVR services will grow rapidly from 2006 onward and eventually outnumber satellite DVR services, simply because of cable's much larger footprint. Recent reports from the leading cable set-top box manufacturers, Motorola and Scientific Atlanta, indicate that the majority of all set-top boxes they shipped in 2004/2005 were DVR-enabled.
Standalone DVRs, such as those offered by TiVo, are unlikely to ever reach a mass market, but integrated devices such as game consoles, PCs or DVD recorders with DVR technology are likely to garner significant market share. Microsoft and Sony are due to launch their new game consoles with integrated DVR technology in the next 18 months, which will ensure many households have DVRs, whether they want them or not.
Ben Macklin is a senior analyst at eMarketer. This article is drawn from his new report, "US Digital TV: Think Outside the Box"