PVR Growth to Exceed That of DBS, but Not DVD, New Report Says
PVR ownership will grow nearly tenfold, reaching 58 million U.S. homes for 49.5% penetration by the end of the decade, Smith Barney said in a new report that examines the technology’s impact on the media industry. The PVR boom will outpace that of cellphones and DBS, but not DVD, and network TV advertising faces the biggest risk, the report said.
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Today’s PVR user isn’t necessarily tomorrow’s, the report said. Much of today’s PVR market is made up of “early adopters who likely harbor a relatively more negative view of advertising” and so have been willing to buy a TiVo at retail or pay extra subscription dollars for the service, the report said. However, “past behavior may not be predictive of future behavior,” it said. “Accelerating competition” between cable and DBS providers means PVRs “could become a very inexpensive option, or even a freebie, in coming years,” it said. As a result, “we think this substantially changes the customer profile and potential usage pattern” of the typical PVR user over time, it said.
Compared with the adoption rates of “other, similar technologies” such as cellphones and DBS, Smith Barney said it believes its forecasts on the growth in penetration of PVRs is “reasonable.” PVR’s growth in its 4-1/2 years of availability has been in line with DBS’s pattern and ahead of the cellphone’s, but “well behind DVD’s growth curve,” the report said. But once the PVR reaches an “inflection point” in 2005 and 2006, it will grow “notably faster” than DBS or cellular, it said. PVR has the advantages that it needn’t “convert customers from an alternative technology, as DBS had to in many cases, nor does it involve high monthly fees, as cellular did in its earlier years,” it said.
Consumers will be the ultimate beneficiaries of the PVR boom in the number of low-cost product options, and cable and satellite will be in the best positions to take advantage, the report said. Facing mixed prospects long term is the “standalone” PVR category dominated by TiVo -- still growing in subscriber numbers, but expected to keep declining as a proportion of users to only 16% of the total installed base by year-end 2005 from 44% 3 years ago, the report said. Cable “will lead the evolution” in PVR use, followed closely by DBS; both should benefit from PVR subscription revenue, expected to more than offset any loss of cable or DBS advertising, the report said. Internet advertising stands to gain from the drop in TV ad spending. Smith Barney upgraded its rating of Time Warner stock to “buy” from “hold,” because of AOL’s possible ad windfall.
Ad-supported network TV will be the business in the most precarious position by 2007, when the first meaningful declines in viewership of TV advertising could be recorded, the report said. It projected a 12.4% drop in TV advertising viewed by the end of 2007 as a “base- case” scenario, with a 9% falloff as best-case and 16.9% worst. The 12.4% drop would amount to as much as $7.6 billion in TV ad expenditures freed for other advertising, the report said. Key variables determining PVRs’ impact on advertising will be household penetration, usage, and avoidance of commercials, it said. It said household penetration of 20-30% -- “potentially reachable” in 2007 - - will be the “tipping point” at which marketers can no longer ignore the growing threat of ad-skipping and “begin to move money away from TV more dramatically.”