Digital Video Recorders Will Have Installed Base Of Over 20 Million By End Of 2005, Says The Yankee Group

Integration Of DVR Functions Into Electronic Devices Will Help Drive Penetration

13-Apr-01

The integration of hard drives and digital video recorder (DVR) software into electronic devices, particularly satellite receivers and cable set-top boxes, will result in 880,000 DVRs being installed in U.S. homes by the end of 2001, according to an upcoming report from the Yankee Group. This figure is projected to grow to over 20 million by the end of 2005. Year, DVR Installed Base (In Millions) 2000, 0.352001, 0.882002, 2.402003, 5.602004, 11.502005, 20.20 The report, ""Digital Video Recorders: The Revolution Remains On Pause,"" notes that standalone units have not been able to gain the widespread adoption that was envisaged by the industry one year ago. Less than 350,000 units have sold over the past one and a half years. In contrast, direct broadcast satellite (DBS) sold approximately 1.75 million units in its first year and a half of existence. In a November 1999 report, the Yankee Group recognized that standalone units were less likely to elicit the dramatic consumer adoption the industry was expecting, and that developing integrated products would greatly spur growth. With leading players, both in the DVR sector and consumer electronics and set-top box manufacturing sectors, now beginning to roll out integrated products, the Yankee Group believes that DVRs will see consumer adoption pick up significantly. ""Is it an electronic device that you buy at retail, or a service that is paid for every month? What exactly does it do, and how does it work?,"" said Adi Kishore, Analyst with the Media & Entertainment Strategies research and consulting practice at the Yankee Group. ""Add to that the high price point for the device, and you have the issues that are confusing consumers and limiting the penetration of DVRs. With the integration of the technology into consumer electronics and set-top devices, the DVR becomes an incremental feature or service. That greatly increases the value proposition for the consumer, and coupled with greater understanding of the service through word of mouth and advertising, it will help drive the adoption of DVRs over the next few years."" Some of the key findings included within the report are:- The DVR will develop into a feature as the market evolves, and consumers are unlikely to pay significant charges for the basic time-shifting service. Thus, it will be most successful as a bundled or integrated offering, along with an increasing number of interactive, television-based services. A solution aimed at cable MSOs or satellite operators is more likely to find success. DVR vendors that go at it alone will find a tepid market, very high burn rates, and competition from the operators that will offer subscribers an integrated offering that is more cost effective.- Since the cable and satellite operators will hold most of the cards here, incremental service revenues moving forward, from sponsored channels, interactive advertising, commerce opportunities, and so forth will largely go to them. DVR vendors counting on gaining the lion's share of those fees should recognize their dependence on the operators and accordingly adapt their business model toward a licensing solution that would bring in lower revenues initially, but ally them with the operators.- Despite concerns of a shakeout in advertising revenue models and the broadcast industry, DVRs' time-shifting and ad-forwarding capabilities will not effect widespread changes in the next few years. Once DVRs gain sufficient penetration to affect a sizable viewer base, advertisers and programmers will again bring up these issues; but for now the impact will not be significant.For more information about The Yankee Group, visit www.yankeegroup.com.

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