in the PVR Business Case
personal video recorder pioneer, shed of retail, now
sells to SONICblue with promises of expansion.
acquisition by SONICblue in January reflects a change in
thinking about the business case for the hard-disk
personal video recorder (PVR). The implications of the
Replay sale, especially which of pre-sale contracts will
continue, reveal primal trends in the American
interactive television marketplace.
Anthony Wood outlines his company's progression toward a
sale. "We felt the original business model of subsidizing
retail products and making it up on service revenues just
was not a sustainable model for ReplayTV. That's why last
year we changed to the business model of licensing our
technology, and we've had a good reception."
partnership with Panasonic, for example, includes
licensing the proprietary Replay software for use in
stand-alone PVR boxes and consumer electronics products
with integrated hard disks, such as set-top boxes and
television sets. Replay also is developing a PVR
licensing relationship with CE manufacturer Sharp.
Replay is expanding
its relationship with Motorola, meanwhile. Beyond PVR
development for the DCT 5000 and other advanced digital
set-tops, Replay and Motorola are participating in a
joint venture with Charter Communications and Vulcan
Ventures to develop revenue-generating PVR services.
Replay also will continue trial deployments with AT&T
Broadband, Comcast and Time Warner.
The "ReplayTV" name
will not vanish as a PVR vendor licensing to other
businesses, apparently, but consumers who bought a
branded Replay box now own a collectors item,
effectively. What about the branded TiVo boxes still
"There are cable
operators and other types of customers in the TV services
business," Wood says, "who can successfully provide PVR
subsidies, which they make up with e-commerce and
advertising. But we recognize it's going to be difficult
for any company to make a go of it as a stand-alone
Competitor TiVo is
still mirroring Replay's original business model of a
subsidized PVR, he adds. TiVo's subscription and hardware
pricing is about the same as Replay's initial pricing
while TiVo's subscription service lets customers pay up
front or monthly.
"Maybe TiVo has
something figured out that we don't understand," Wood
says, "and we'll see what happens with stand-alone PVRs,
but we foresee PVR integration into set-tops,
televisions, computers, and portable players as the most
profitable path forword."
TiVo did not
comment for this story.
SONICblue CEO and
Chairman Ken Potashner says Sb is leveraging its success
with the Rio player to evolve a broad line of media
products. First up is integrating video PVR functionality
into the stand-alone protable Rio MP3 audio player, then
comes offering PVR software for computers, including home
media servers integrating Replay's PVR technology. Also
in development is a mobile product using a wireless
receiver to download more than 10,000 songs to a
vehicle's hard disk.
origins of the acquisition, Potashner says Sb initially
approached Replay about adding PVR capabilities to the
Rio player. "We initially thought this meant licensing
their technology, just as Panasonic and others are doing,
but after we engaged in discussions with them, we saw
that buying Replay would be best for both of
approval, the deal will be final by the end of March
2001. Replay's investors will see their stock convert to
The business case
for subsidizing the PVR challenges Neil Gaydon, president
of Pace Americas. Pace developed its own "X-TV" version
of the PVR for integration into the set-tops that Pace
customizes for each order from a satellite, cable or
terrrestrial operator. "The entry price point is very
important in any business," he says, "and PVR pricing at
the moment is too high for mass markets."
The problem is all
the additional costs beyond the hard drive and software,
he says, such as adding a power supply for the
hard-drive, plus additional memory, plus a central
processor chip with sufficient horsepower to handle the
question everyone's asking here," he says, "is how to pay
for the PVR in a way that makes money at the end of it.
equation is everything," he continues. "Sometimes you
have to bear a high up-front cost to get into a market,
to understand how that market operates, to be competitive
by early market entry. Yet how far down the line can you
wait for a payoff?"
Gaydon notes that
TiVo and Replay both began with a business-to-consumer
(B2C) model. Last year Replay shifted into on a
business-to-business(B2B) model. "Which will prove better
in the long run?"
the TiVo strategy. "When you sign up for their guide and
search engine, you get a cheaper box, but TiVo's take-up
rate has been really low, even with a strong advertising
campaign that helps educate consumers."
He predicts that
how PVRs are defined in the marketplace will be the
critical factor. "It's obvious that consumers will make
or break PVRs, but it's taking longer than expected for
people to wrap their heads around what exactly a PVR can
do for them, whether the expense is worth it. The value
proposition still is not yet clear to the public."
proposition is unclear to the public, perhaps, because
the business case remains unclear for the
Wood insists that
integrating the PVR into consumer electronics products is
the most viable path forward, and that's why the Replay
sale to SONICblue is so propitious. Sb makes the leading
portable MP3 player, Rio, which has sold about 1.5
competitive landscape," Wood says, "by merging Replay's
PVR technology with that of SONICblue, we're both now in
a stronger position than we were before the merger. We're
both able to offer a more complete package to service
providers than we could before.
The merged company
will focus on developing and marketing the next
generation digital platform," he says. "Replay does not
have the resources to offer such a product, but SONICblue
does, and together we can build a very profitable
"Replay has already
taken the hard actions necessary to lower costs."
Potashner says. Before the sale to Sb, Replay had begun
restructuring itself, reducing staff by about 40 percent.
Further layoffs are not now foreseen, but he concedes
it's too soon to be certain.
departures may come back to haunt Replay/Sb. Replay's
former business development executive, for example, was
hired by the Microsoft TV Platform Group as director of
business development for North America. Microsoft is
launching its retail "UltimateTV" box with an integrated
PVR in alliance with the satellite service DirecTV.
Sb will maintain
Replay's trial deployment deals with cable operators and
CE manufacturers, Potashner says, but many of Replay's
other pre-sale deals will not endure.
Because Replay is
no longer offering a branded TV programming services (as
TiVo still does), the studio deal with Universal Pictures
and Universal Music Group has been voided. Also voided
are the PVR advertising deals with Coca-Cola, Ford,
Toyota, and Universal Pictures. The expired or expiring
contracts for "ReplayZones" on E!, Showtime and NBC
channels will not be renewed.
Replay deals that
were in the pipeline but not yet concluded will be
examined and negotiated on a case-by-case basis,
Potashner states . "Each will be assessed in terms of how
it fits within our objectives. We have to look at what's
out there and decide what makes sense."
On the issue of "ad
zapping," he says Sb plans to support Replay's
"QuickSkip" function on remote controls, which offers
30-second incremental jumps over any content, commercials
and programs alike. In contrast, TiVo only enables fast
forwarding over content.
On the issue of
digital rights management, he says Sb will continue and
expand Replay's negotiations with Hollywood to protect
studio copyright holders from piracy. "We're not going to
police consumers, but we can embed security software to
avert unlawful downloads."
With all these
elements in place, Wood looks forward to a bright future
for Replay. "With the resources of SONICblue behind us,
we're ready to move ahead rapidly to build the critical
mass necessary for the PVR business to succeed."
of March 2001)
by Sb; Letter of Intent (LOI) & definitive
agreement in Feb. Pending SEC approval,
acquisition will be final in April. ReplayTV
stock converts to Sb.
joint venture with Motorola and Vulcan
development for DCT 5000. Ongoing venture with
Charter & Vulcan.
partnership for CE products
Pictures/Universal Music Group