• by Paul Gough , March 23, 2003

A DVR pioneer's parent company said Friday that it would file for bankruptcy and sell its ReplayTV unit, but analysts said it wasn't going to stop the DVR's march to high penetration in the future.

SONICblue Inc. said it would sell its ReplayTV unit for $40 million to D&M Holdings, a Japanese company that owns audio-equipment maker Denon Ltd. CEO Gregory Ballard said in a prepared statement that SONICblue tried to continue despite its corporate debt but said that it finally concluded its best move was to "sell businesses to better-heeled owners."

"It's a sad story for that particular company but in no way does it resemble the health of the DVR industry. This is an isolated incident. It is no way an indication of the growth of the potential of DVR," said Sean Badding, senior analyst at The Carmel Group.

ReplayTV gives owners the ability to not only fast-forward through commercials, but to skip them completely. Other ReplayTV features include live pause, rewind or slow-motion plus a recording space of between 40 hours and 320 hours and, even more controversially than commercial skipping, video sharing via the Internet.

Badding notes that EchoStar, the nation's second-largest direct-broadcast satellite service, and cable companies have begun to offer these value-added services along with ReplayTV competitors like TiVo. He predicted the DVR technology - which today has about two million users of the 106 million TV households - will grow to nearly 28 million users by 2008. He said that SONICblue's failure was a factor of thin margins and a bad economy.

"This is just the beginning of an evolution that we're going to see spawn from the VCR. This is going to be much more powerful and much more sophisticated than the VCR," Badding said.

He said that for manufacturers like ReplayTV, it's hard to have a profitable business model right now.

"SONICblue really just ran out of gas and was not able to reach enough subscribers or sales for its ReplayTV and not continue to grow out its products," Badding said.

Badding said DVRs haven't become profitable moneymakers yet but predicted that in the next three to five years, they're likely to become more profitable with new advertising revenue streams and advanced services.

"We haven't found the middle ground between advertisers and DVR providers. But we're getting near there," Badding said.