• by David Kaplan , November 4, 2004

After years of unimpressive growth, digital video recorder (DVR) penetration has finally picked up pace in 2004, with analysts predicting that 7 million American homes will have a DVR by the end of this year and a study from The Yankee Group expecting 33.5 million to have one by the end of 2008.

The catalyst for the accelerated deployment of DVRs and video on demand (VOD) is by multiple cable system operators and TiVo, which was the first company to market the devices four years ago, a study by The Yankee Group, a Boston-based communications consultancy said.

"Not only will cable deployment of DVRs drive growth, VOD and DVR from cable is a competitive driver for DBS (direct broadcast satellite) to aggressively push DVRs," the study said.

In anticipating that 7 million U.S. homes will have a DVR by the end of 2004, The Yankee Group study matches other industry studies of where DVRs are now and where they're heading, said Tim Hanlon, senior vice president, director of emerging contacts for Publicis Groupe's Starcom.

"We've moved past the early-adopter stage by the middle of this year, and we're clearly now in the early majority stage and the numbers are going to continue to grow," Hanlon said.

The other baseline findings in The Yankee Group's forecast include:

- Aggressive pricing resulting from News Corp.'s acquisition of DirecTV and DVR services such as Highlights-on-Demand for NFL Sunday Ticket subscribers will drive DVR penetration on the DBS platform.

- Cable operators will continue to extend their DVR deployments to new markets and initial take-rates will hold true for newer markets.

- Consumer electronics manufacturers will continue to integrate DVR functions into DVD players, TVs, gaming consoles, and other devices.

- Consumer electronics manufacturers will deploy TiVo's basic service on low-cost devices that require no monthly service fee. This will lower trial barriers for consumers.

The Yankee Group's 33.5 million household DVR forecast represents a raise in their previous forecast by 2 percent, largely because of somewhat faster deployment of DVRs by cable operators than originally anticipated, they said.

"DVRs, by my estimation right now, is in 5.5 million homes," Hanlon said. "TiVo isn't the majority - it's in about 2.2 million homes currently - between the Dish Network, DirecTV and the cable operators, I could easily see that number being 7 million by the end of the calendar year."

The Yankee Group study also asserts that EchoStar and TiVo continue to be the dominant market players, but a question mark hangs over the fate of TiVo, as nearly 60 percent of it's subscriber base is comprised of DirecTV subscribers.

"I think the future of DVR is generic," Hanlon said. "It is a service add-on, a compelling feature as in integrated sales proposition for cable and satellite providers. TiVo is still the gold-standard, but if you're confronted with buying a box out of pocket for around $200 plus a $12 monthly service fee and hooking it up yourself, versus, making one phone call and getting a new box that you don't have to hook up yourself and having a $5 charge added to your bill, that determines where it will go."