• by Lydia Loizides , Op-Ed Contributor, June 28, 2006

So, I was having a conversation with a friend of mine a while back. I had called her for some insight into the mind of cable operators and how they think about CE (consumer electronics) in the home. The conversation digressed, as it usually does, into the fringe area of how consumers use CE to access and consume content. Her argument was that it is expensive for a cable operator to continually provide set-top boxes with hard disk space in the form of a digital video recorder (DVR) to customers. She thought that as customers' needs grow, so does the size and capacity of the set-top box itself, as does the need to expend more in capital upgrades, and so on and so on. Point taken.

Then I remembered a conversation I had had a while back with another cable executive who had said one of the most provocative statements I've heard--well, at least about technology. We were talking about video-on-demand (VoD) and whether or not it was a "failure" in the eyes of the industry. Being who I am, I kept saying, "show me the money!" and he kept saying he would ... in time. Hmmm. Go on, I said. Well, he said, how about we look at it this way: VoD is a necessity right now. The industry has spent the money. The content is being aggregated and new channels are being launched on the platform. It's a bit late to stop now. But why would the industry want to stop? DVRs are hotter than hell. They cost a lot. What are in my best interests as an operator over time? Get my customers weaned off the DVR and use my VoD infrastructure to support personal and all "linear" programming. Hmmmm. So Mystro proved it could be done technologically--the poor sods just couldn't make the licensing work (Cablevision, by the way, is about to test the legality of caching content at the head end for later consumer use). That, he said, should be the goal of cable--to move from the physical platform to the virtual platform, to be able to better manage the network. And then it hit me. He was right--but not for the reasons he expressed.

Now, fast-forward back to my conversation with my girlfriend. Here, I say, is my thesis: DVR is the stepping stone to VoD. Why? Because of the consumer, silly! Create something tangible, something that they can see and feel and it becomes real to them. Once customers understand and are proficient at time-shifting content, it will be easier to transition them to a virtual, on-demand world. DVR is an emotionally satisfying experience not only because it allows people to watch television on-demand through their own control. Part of that experience is also that they can "connect" with the product--they see the box, they see the lights, they feel the remote in their hands. Over time, when the content migrates from the physical to the ether of the head-end, consumers will still press the same buttons, they will still see the same menu, they will still see all their programs--it just won't be housed on an archaic hardware device. And by then they won't really care. Because they will have been taught, gently, how to watch television in an entirely different way. Now that, my friends, is consumer-friendly.

Which begs the question--why are we so focused on the DVR? Shouldn't we be focusing the majority of our efforts on understanding how to monetize and familiarize marketers with VoD in preparation for the inevitable transition? Shouldn't the cable industry be going out of its way to share usage data and build interfaces for creating metrics that will become the lingua franca of VoD CPM? MAGNA Global, an IPG Media company, has estimated that by the end of 2006, there will be approximately 18 million DVR households versus 30 million VoD households. By 2010, those numbers will be 34 million versus 65 million--in favor of VoD households. So I ask you, why have we been clamoring over the impact of DVR? Shouldn't we be celebrating the possibilities that VoD offers brands? More importantly, have I just drunk too much of my own Kool-Aid? You tell me.