On-Demand: Market Grows But DVR Supply Fails To Meet Demand

It's believed by many to be something that will transform the way people watch TV, especially advertising, but there hasn't been any significant transformation in the so-called "on-demand" television marketplace, at least not since early spring, when a major ad agency group issued a benchmark study on the marketplace.

"Nothing transformational or radical has happened in the past five months," says Brian Wieser, vice president-director of industry analysis at Interpublic's Magna Global USA unit, and author of an updated on-demand report that the agency plans to issue quarterly.

While nothing substantive has happened in the on-demand sector, which Magna defines as including both set-top based digital video recorders (DVR), as well as server-based cable or satellite TV video-on-demand (VOD) services, he notes that "adoption rates are still growing at a decent clip." However, he says the deployment of DVRs has been limited by the ability of cable operators to "procure and distribute them."

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"They added 190,000 subs," says Wieser of the increase in the DVR universe since Magna's benchmark report in April. "It's not a bad number, but it's not like everyone is getting one."

Currently, Magna estimates the U.S. DVR universe at about 4.4 million, only 1.8 million of which come from so-called standalone units such as TiVo's or ReplayTV's. The rest come from satellite and cable TV operators, which Wieser says are having a harder than expected time getting sufficient hardware to meet customer demand and rollout expectations. While that may come as a slight reprieve for Madison Avenue, which has dreaded the rapid adoption of on-demand technologies, especial DVRs, Wieser says it leaves the industry at a crossroads in terms of which on-demand platform will ultimately dominate: DVRs or VOD.

Currently, Magna estimates VOD is available in some form to 61 percent of U.S. cable homes, which is equal to 15.5 million digital cable subscribers. But because major cable operators such as Comcast and Cox Communications are aggressively expanding their VOD "footprints" Magna projects penetration will rise to 68 percent of cable homes, or 18.6 million VOD households by the end of 2004.

"DVRs and VOD are complementary, but if we're looking out about 10 years or so, I think we will see server-based DVRs will be battling with PC-based Internet bypasses," predicts Wieser, referring to the emergence of a Web-based VOD platform that ultimately is expected to complete with cable and satellite based services. Recently, some major cable program suppliers, including pay TV service Encore, have begun marketing Web-based download services.

"In the intermediate term, there will be three sets of on-demand customers," predicts Wieser: "Those who are just DVR; Those who are VOD; And those who do both. We don't believe that one will necessarily dominate."

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