Switched On: TiVo should skip ahead and kill subscription fees

Each week Ross Rubin contributes Switched On, a weekly column about the future of technology, multimedia, and digital entertainment:

The sworn enemy of the savvy consumer is the asterisk. This pesky punctuation can sweep the wind from the sails of enthusiasm around a product. At best, it connotes a complication. At worst, it signals that something here is too good to be true, the company is overpromising, and that you better watch your back – particularly the pocket in which your wallet rests. For TiVo, it's been an albatross preventing more consumers from enjoying their well-designed digital video recording product. The asterisk explains that – after you purchase a device - a subscription is required.

TiVo, which was founded in 1997, did its business planning during the height of the dotcom era. The desire to create recurring revenue was a dream that reflected the overly optimistic investor enthusiasm at the time. TiVo saw some future threats, though. It knew that, despite its patent portfolio on recording digital video, other DVRs would come to market. Positioning TiVo as a service would allow it to work with a variety of products from different hardware companies. The company also had its eye on the cable and satellite industry, and a monthly fee would make it easy for those companies to resell a DVR service.

Unfortunately, neither vision came to full fruition. While other retail DVRs � some using TiVo�s software � have come to market, the company has had to introduce a watered-down version to appease manufacturing partners rightly concerned about double-billing. And while cable and satellite companies are now shipping out hundreds of thousands of DVRs, only DirecTV�s use TiVo�s software. With DirecTV�s new sister company NDS offering DVR software, the writing is on the wall-mounted plasma for that relationship.

TiVo�s time has shifted, and so should its business model. The subscription fee merely added insult to injury when the first TiVo units came to market north of $500, but now the company offers a basic Series 2 DVR for $99 after rebate. Embedding the $299 �lifetime� subscription fee would allow a complete package of $400, about the price of many DVD recorders now on the market. On one level, we�re talking about semantics � $400 is the effective price. However, removing the positioning of a subscription would eliminate an important psychological barrier as well as a good deal of hassle.

Without the subscription fee requirement, TiVo would turn the marketing tables on cable DVRs that now soundly beat it at face value. Paying a one-time $400 fee for stable DVR service with home networking links and a great interface is compelling versus paying $8 or more per month to your probably beloved cable provider for which the only �Lifetime� option is a barrage of sappy women�s TV movies. TiVo will never be able to beat cable and satellite providers at a subscription price war, so why fight one? And when compared to a Media Center PC for $1,500 or more, TiVo would be closer to the price of a far less versatile Media Center Extender.

TiVo could still force registration, or perhaps even a credit card, to activate its service. That would allow it to continue to sell research on DVR viewers, expand its audience for targeted �fast forward� billboards, and sell premium services such as Netflix rentals, Internet programming, or content that could be delivered to its boxes. In contrast, it has never done a good job articulating the naked value behind that monthly fee. TiVo might take a short-term hit losing the monthly revenue from customers who continue to pay by the month (or could simply make them a �lifetime� conversion offer), but its product�s gift value (which now represents the gift that keeps on taking) would grow tremendously. And the best part is, it would still amortize that subscription fee.

TiVo started life as an application, but if it wants to become a content platform it has to expand its customer base. Even TiVo CEO Mike Ramsay admitted at last year�s Consumer Electronics Show that DVR was just the beginning. The landscape has changed; it�s time for TiVo to make bold moves and kick asterisk.

Ross Rubin is director of industry analysis at NPD Techworld, a division of market research and analysis provider The NPD Group. Views expressed in Switched On, however, are his own. Feedback is welcome at fliptheswitch@gmail.com.