TiVo And The Future Of Microcontent

Davis Freeberg —  November 17, 2006

With TiVo announcing that they plan on ushering in a new era of broadband based television, I was left with more questions then answers when it came to how this impacted their long term strategy as a business. In a series of press releases that addressed everything from celebrity recommendations to additions to their TiVoCast service, I found myself almost dizzy trying to understand the broader implications of their recent broadband announcements.

While many details, involving the program were only announced today, late last week, Evan Young, the Director of broadband services for TiVo, gave a keynote address at the Streaming Media West 2006 conference where he offered a significant amount of insight into what TiVo’s future may hold, when it comes to broadband television. During his presentation, Young gave a startlingly honest assessment of the challenges that TiVo faces, as well as the opportunities that lie ahead.

After viewing his presentation, if there was one impression I was left with, it was the importance that broadband distribution will play to TiVo’s future. In the past there have been a lot of gate keepers that have prevented independent producers from bringing their content to television viewers and whether it was the cable companies, the Hollywood studios or the film distribution networks, the web now threatens to end the monopoly that they’ve held on television. While the internet has served as a great democratizer for publishers, it still can’t match the large scale distribution power of television and with their broadband strategy in hand, TiVo hopes to make a direct assault on the 22 minute half hour and 44 minute hour that that big media providers have built their businesses around.

While there will undoubtedly be challenges in monetizing this revenue stream, TiVo intends to capitalize on the active nature of their service vs. the passive nature of traditional television by taking advantage of branded content at the browser level and by allowing consumers to opt into advertisements, instead of forcing irrelevant 30 second spots on them. While the major media companies have done a great job of addressing mass distribution for advertisers, they’ve done a terrible job of addressing the micro opportunities that exist today and TiVo hopes to fill the gap between short head content and longtail demand by opening up their subscriber base to the entire world wide web of video.One of the things that I found so refreshing about Young’s presentation was that he clearly spoke from his heart. Instead of trying to censor everything he said, he showed conviction in the thoughts that he expressed. While some may consider his presentation to be a less polished approach then what members of the executive team may have given, I found his direct and honest assessment of TiVo’s broadband initiatives to be a breath of fresh air, after listening to TiVo Executives dodge question after question after question over the last 12 months.

One of the more juicy tidbits that Young disclosed during his presentation was the actual number of TiVo subscribers that have connected their DVR’s to the internet, as well as the total number of DVRs that are eligible to be connected to the net. In the past TiVo has refused to disclose these numbers, but have said that they’ve seen a massive jump in customer satisfaction, between subscribers who have their TiVo DVRs connected via broadband vs. those who use a traditional phone line. As it turns out, of the approximately 4.5 million TiVo subscribers, a little over 2 million of them have the ability to connect their DVRs to the internet, but only 520,000 customers actually have access to broadband based services through their TiVo.

Other juicy details that Young revealed, were some of the more interesting background information on consumer adoption of these services. Despite only having 520,000 subscribers with the ability to use TiVo’s enhanced services, an astonishing 80% of them actually take advantage of it. Whether it’s listening to their favorite podcasts, tuning into Cnet’s weekly tech show or interacting with long form advertisements, broadband enabled TiVo subscribers are clearly making use of their connections. When asked specifically about advertisement acceptance rates, Young said that when it comes to general interest ads like movies and consumer products, the response rate is greater then 50%, but when it comes to luxury goods like financial services and high end vehicles, the number drops into the single digits.

When asked about how many people were taking advantage of TiVo to Go, surprisingly, Young responded that it was still a minority of TiVo subscribers that actually made use of the service. While I would have expected there to easily be a majority or users taking advantage of this service, to a certain extent, I can personally understand why this hasn’t been more popular. As someone who travels fairly infrequently, who has a very limited commute and who would prefer watching television on my gorgeous 60? HDTV big screen TV, I can tell you that TiVo to Go has limited appeal to me. I am by far, much more excited about the possibility of not only downloading video from the internet to my TiVo, but at the possibility of uploading my own videos for my friends, family and readers to be able to watch from the comfort of their living rooms.

At the end of the presentation, Young was asked about two hot topic issues. The first was whether or not TiVo intended to introduce placeshifting to their service and the second was whether or not TiVo intended to allow PC functionality on their systems. In regards to placeshifting, Young said that TiVo wasn’t ready to address some of the DMCA concerns when it came to streaming live TV into other regions. While he stopped short of agreeing with the television industry’s position on this issue, I did get the sense that TiVo may have learned something when Replay TV was sued into oblivion over their commercial skipping functionality.

When it came to PC functionality, I was a little surprised at his answer. Earlier this year, when Davina Kent, TiVo’s VP of National advertising gave a presentation on TiVo’s advertising initiatives, she said that TiVo subscribers had demonstrated, in consumer surveys, that they really didn’t want their DVR to function like a PC, yet Young seemed to indicate that it was less of a desire by TiVo to offer this functionality and more of a technological issue.

I’ve long wanted TiVo to introduce a linux based operating system that would allow internet browsing and PC functionality from my couch. While I don’t intend on doing any intense document editing from the comfort of my living room, it would be nice to be able to tap into a friendly poker game, email or any other web application that might be more interesting then watching TV. When this issue was raised Young responded that even though people may think of TiVo as a computer, deep down inside it really isn’t. Between their dual tuners, broadband downloading and their always on functionality, 99% of TiVo’s capacity is typically in use and it would be difficult for an operating system to run on top of this. He instead pointed to some of the open APIs that existed for developers who are interested in building home media engine applications for TiVo, but did admit that the video API would remain closed for now.

While he did say that TiVo expects to open their video API, at some point in the future, for the time being, TiVo is sensitive to the fact that their users expect a premium experience when using their box. By allowing people to download any content through the TiVoCast service, TiVo is concerned that poor video quality could taint the customer experience. Instead, they intend on allowing any non-copyrighted video to be played, but consumers must first download it from the web. By doing so, they hope that it will differentiate the content delivered via TiVoCast, from the content that users choose to bring to the service, even if it still ends up being poor quality.

Regardless of where the content comes from though, one thing that Young made absolutely clear, was that TiVo has no intention of discriminating against web based content. They intend not only to include your net downloads directly into your now playing list, but are currently working on ways that they can incorporate their TiVo suggestion technology into internet content as well.

During the presentation, Young discussed in great detail their experience with Rocketboom and the learning process that it’s been for the company. When they approached Rocketboom to take part in their TiVoCast program, one of the things that they asked Andrew Baron for, was higher resolution copies of the video files that they were posting online. By utilizing mpeg2 copies of the files, instead of flash videos online, it improved the experience from a television perspective and this is something that potential TiVoCast producers should consider, if they’d like to be added to the program.

When it comes to distribution costs, TiVo employs a BYOB strategy (bring your own broadband). By requiring producers to use their own broadband to distribute their films, TiVo avoids becoming a hosting solution provider and instead acts as a distribution content portal. In exchange for providing your own broadband to TiVo subscribers, content owners are allowed to sell their own advertising in their video streams, very much in the same way that traditional television does today. Because TiVo is providing access to their subscribers through the TivoCast program, they do reserve the right to use advertising tags and long form opt-in commercials around the content, but it sounded like this hasn’t been very controversial for their existing content providers so far.

Monetizing video in a TiVo environment certainly has it’s challenges, but at some point TiVo hopes to create a system where microcasters will be able to charge subscription revenues and then split these fees with TiVo. While this is clearly a process that is still in development, as more compelling content becomes available we could see a world where a la carte television actually becomes a reality for TiVo subscribers.

While the video of Young’s presentation runs nearly an hour and it’s filled with side tangents between his love for the Ask A Ninja video blog to highly technical commentary, I would still strongly encourage readers, who are interested in TiVo, to watch the entire interview. Despite the presentation being a keynote address at a stuffy industry event, I found this to be one of the most fascinating TiVo presentations that I’ve seen in a very long time. Whether it was Young’s remarkable candor in admitting the challenges that Tivo faces, or his willingness to talk about issues that executives from the company have consistently dodged, his open dialog was a breath of fresh air from the usual PR spin and it made me very excited about the upcoming changes that are in store for the company.

Davis Freeberg is a technology enthusiast living in the Bay Area. He enjoys writing about movies, music & and the impact that digital technology is having on traditional media. You can read more of his coverage on technology at www.davisfreeberg.com. Davis owns shares of TiVo stock.

7 responses to TiVo And The Future Of Microcontent

  1. Interesting development. I agree with you, the microcontent is an emerging media, if you take it as a special type of media. I think the low enterance level for microcontent will lead to more indapendent publishers, which is good.

    Thank you for sharing this story with me !

  2. Wow. 520,000 broadband users. And that is the future of Tivo?

    I can’t begin to express how incompetent Tivo management can be.

    Here’s a hint. Instead of JACKING up prices and SERVICE Commitments, send each of the 1.5 million Tivo subs who don’t connect to broadband a free Tivo wireless adaptor.

    Cost: 1.5*50 = 75 million. OK, a bit high, but considering their burn rates…

    Or here is another idea: actually expand the drivers so you could use any wired or wireless adaptor. Or maybe even use WPA? Again, I understand the R&D expense but how much can that be?

    Great post, but if anything Tivo needs something a little more powerful inside so it can actually run WPA and a few other computing functions.

  3. Charlie,

    A lot of people don’t network their TiVo because they don’t have broadband, or they don’t feel any desire to do so. Giving them an adapter isn’t going to help. Anyone without broadband, or without a WiFi network for that matter, wouldn’t have any need for a TiVo adapter. It’d be a poor move to just send them out.

    TiVo started out by trying to support a number of adapters – and it was a nightmare for TiVo *and* end users. First of all, there has to be a Linux driver for the chipset used in a given adapter. Then TiVo has to port it to their hardware. But that isn’t enough – vendors kept changing the chipsets in their adapters without changing the model number, packaging, etc.

    Consumers would buy adapters, only to find they wouldn’t work because they bought a Rev.B, not the Rev.A, and the vendor had changed the chipset to the drivers stopped working. TiVo even tried partnering with Linksys – which didn’t help. Linksys still changed chipsets often, without warning their ‘partner’. TiVo often didn’t find out there was a change until consumers got burned and complained.

    Releasing their own adapter is a superior solution. It is sure to work. They have complete control over the hardware and the software. And it performs far better because it was designed specifically for TiVo, not a generic PC. PC-based USB adapters tend to leave all the work up to the PC’s CPU, being nothing more than a radio chipset. That’s not too bad when you have GHz to play with, but it really loads down a TiVo. Making the TiVo several times more powerful just to handle that is a poor decision. Instead, they put the power in the adapter.

    As for WPA – it is in 8.1, and the priority sign-up list for that is already up.

  4. I’ll have to watch the video later – since I’m at work now – but I question the 2 million figure. If they have roughly 4.5 million subscribers, 2 million would be over 44% of the total. And all of them would have to have Series2 or Series3 units.

    4.5 million sounds right for the total, based on past figures (4.4 million last quarter, IIRC), but roughly 2/3 of the total were DirecTV subscribers.

    They have, maybe, 1.5 million standalone subscribers, but some of those are Series1.

    It sounds like somewhere between one-third and one-half of eligible users are using broadband, which isn’t bad.

  5. The two million is either a round up from about 1.7M SA subs, or includes all BB capable boxes ever sold, not just ones currently subed, or some other thing I don’t think of.

    Are any DTV units BB capable? If so then he’s not counting them I figure.

    Charlie – yes, that 520K is a problem, considering ~511K are MPEG2 capable only. ;)

    Yes, TiVo made many strategic mistakes in the past and continues to do so today, including how they approached their networking strategy.

  6. Ironically, I would much rather watch this video on my TiVo than my laptop.

  7. I’d love to be in on this, but I can’t get the search function to work to find any of my posts! Hey, I tried! I guarantee I’ve posted (and not always anonymously) :)