• by Larry Dobrow , March 30, 2004

The technology wonks at IDC have released yet another study touting the increased adoption rates and massive growth potential of digital video recorders--and this time, they mean it.

Although the bullish projections for DVR adoption made in earlier reports were never realized, IDC senior research analyst Greg Ireland believes the device has finally reached a point where, in his words, "the stars are aligning." To that end, he predicts that as much as 30 percent of U.S. households will use DVRs by 2008.

Rather than attempt to excuse IDC's overly optimistic estimates of years past, Ireland freely acknowledges that he got a bit caught up in the hype. "For those of us who saw [DVRs] early on, there was such enthusiasm," he says. "We fell into a mindset where it was a no-brainer that everybody would want one of them."

He also fesses up to having made one or two miscalculations along the way: "I underestimated how difficult it is to tell somebody what a DVR is without showing them, and I also underestimated the impact of advertising. Replay TV and TiVo were both in financial situations after the dot-com crash where there wasn't money to do ads. Without the ads, consumers weren't educated about DVRs."

Of course, these past oversights do not keep Ireland from turning around and making even loftier projections for the years ahead. His reasoning this time around, however, seems spot-on. Prices have tumbled, with even TiVo discounting its box well below the $300 mark. Warring cable and satellite TV providers have started to tout DVR availability as a key benefit of their respective services; DirecTV, in fact, hyped its TiVo partnership with print ads in mainstream publications like Entertainment Weekly. And word of mouth has finally risen above a whisper, with an increasing number of DVR devotees yapping about their new toy to anyone who will listen.

"The market has its ducks in a row," Ireland says. "There are much better entry points, both in terms of price and simplicity, now that cable TV and satellite are making the boxes available. There's finally some good consumer advertising and promotions. It really came together over the last year."

Despite all the optimism and publicity, it's not as if the DVR is a living room mainstay just yet--only 3.2 million out of 108 million U.S. households currently have one. Also, as Ireland takes pains to point out, DVRs are increasing in sophistication even though consumers haven't entirely ingested their basic features (time-shifting, etc.). So while manufacturers have already created next-generation boxes with high-definition and networking capabilities as well as built-in DVD recorders, they must be mindful of overwhelming slow adopters.

"The technology advancements, like networking and HD, are exactly what they should be," Ireland explains. "But the flip side of it is that penetration is still so low. How do you communicate the basic value proposition of this device and not get everybody confused? It's essential to keep doing customer education while adding features."

As for DVR-wary television advertisers and networks reliant on a steady current of ad dollars, Ireland believes that their concerns might have been a bit overstated. He notes that they have several years before DVR penetration will reach even 25 percent of U.S. households, and that some combination of product placements and on-screen ad teasers could eventually fill the void.

"It's time for them to get creative," he says. "Besides, as much as DVRs are hyped as killers of commercials, the most re-watched segments of big events like the Super Bowl or the Oscars are the ads. [DVRs] obviously have the potential to disrupt how viewers watch commercials, but I don't think they're going to end TV advertising."