Switched On: TiVo should skip ahead and kill subscription fees
posted Dec 15th 2004 2:59PM
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.
Yep. The only thing keeping me from getting a TiVo is adding another $15 onto my tremendous amount of monthly bills.
I agree...I've never considered buying a DVR as a gift because it's hard to give someone something that they will have to pay for themselves!
As a consumer, I would enjoy seeing TiVo drop its subscription fees, but this is not truly a feasible business model. I purchased a ReplayTV in 2000, for the simple reason that I didn't want to pay a montly fee for a DVR, and while TiVo equipment was cheaper than the expensive ReplayTV, I waited until I could get an open-box buy, so the prices were comparable to a TiVo.
I used that machine up until last month, when Comcast offered me a dual-tuner, HDTV recording cable box, for $9.99, more or less the same cost as TiVo. Sure, the interface isn't as nice as a ReplayTV or TiVo, but with no equipment to buy, having it for a year is still cheaper than the TiVo Series 2 machines. And since the fee is added to my already exhorbinant cable bill, I don't even notice it. Besides, Comcast was already monitoring my viewing habits; why have more than one company checking up on how I watch TV?
The point is, ReplayTV switched some time ago from "lifetime" service to a monthly fee, because they were losing too much money without the fees. Sure, TiVo may have a larger base and better software, but having that dedicated income stream not only does wonders for a companies bottom line, it is an asset that can be borrowed against for R&D and advertising, something that ReplayTV has sorely lacked.
And until standalone DVR's (and Windows Media Centers) come with HD cable support for less than $1000, why should I BUY an expensive piece of equipment which will just be obsolete in a few years, when I can rent one for the same monthly fee?
While I respect TiVo and ReplayTV, and the author of this article, the writing on the wall mounted plasma display is pointing to the death of these two innovating companies. Until Microsoft finds a way to get a computer (or media center extender) into every living room, cable companies, with the resources to swallow equipment costs and direct access to your TV already, are best positioned to capitilize on the PVR market that ReplayTV and TiVo created.
TiVo may not be cutting their subscription fees just yet but they will be giving away free TiVo boxes to anyone who shows up at their offices in Alviso between 11 and 1 on Friday with a copy of their Comcast bill and a toy to donate.
I simply don't think your psychological model of how people view subscription fees. You seem to assume that people are more willing to pay an upfront fee than a continued subscription cost. I tend to think the opposite is true, especially in an area (TV service) which most people expect to pay a monthly fee.
This is why TV infomercials sell things for 5 payments of 19.95 rather than one upfront fee. It is also why cable companies are quite succesfull in getting people to pay just a slightly higher subscription fee to get premium channels. I sincerly doubt that people would pay a flat fee of $300 or even $100 for a lifetime subscription to HBO yet they are happy to pay $3 or more every month for 10 years.
People are bad at estimating long terms costs in this manner, especially at the unconcious level which decides if they will even consider getting the product. A $99 dollar DVR will attract the initial interest and consideration of the consumer while a $200 DVR will be dismissed as too expensive by many before any consideration of subscription fees even occurs. This is not to mention the gift effect where the purchaser is not the one commited to the subscription fee.
Remember also that the market now consists mainly of people who don't own a DVR and are probably unconvinced about it's utility. Individuals like you or me know having a DVR is great and we will never go back, but this isn't the case for my parents and I imagine many other americans. Only if you are really convinced that the TiVO will be worthwhile would you find an increased upfront cost a good value versus a subscription. Those who are skeptical about DVRs will prefer to put down less money upfront and reserve the option to cancel further payments if they are unsatisfied. In fact, the same reasoning also applies if you are the type to upgrade your DVR frequently.
In short I understand your intuition that the subscription fee is onerous. After all it's my DVR and it isn't like scheduling information isn't freely availible. However, most consumers don't share these intuitions about control over our electronic devices and posess psychological deficits which make even an advantageous conversion of a subscription into an upfront fee unpalatable.
In fact I'm actually quite happy that TiVO charges a subscription fee instead of billing this upfront. At the moment the future of their buisness looks shaky and I would hate to rely on a bancruptcy judge to allow the TiVO company to continue servicing it's subscription obligations . However, as providing the scheduling information is surely profitable the subscription fee virtually guarantees that some company will continue to provide TiVO scheduling information even in the unfortunate event of TiVO's bancruptcy.
How about trying Comcasts' Dvr, only $5.00 more than the regular box and the best thing is that you don't have to wait on a d*** rebate ^_^
There are a few flaws with this arguement. First off, TiVo can't support itself and future innovation based on advertising revenue. And even if they could, what kind of product would your already-paid-for TiVo become? TiVo is already making sacrifices on the user's behalf in order to "play nice" in the world of big media. Knowing that their salaries are paid by subscribers helps them stay a little hungrier and little more honest. What can a pre-paid user base demand from TiVo if things start heading the wrong way, other than a threat to not buy more boxes that they don't really need? And how much more likely would they be to just closing off all of the "nice" community hacks in one sneaky overnight update?
Cut the fee down a bit if it's possible - TiVo has already shown some good faith by discounting fees in multiple TiVo households. Goal #1 of owning a TiVo is time shifting. #2 is watching less untargeted advertising. If TiVo wants to mix in a bit more TARGETED advertising for products and services that people are more likely to truly interested in, they are welcome to shave a few bucks more off of the monthly fees. But that's a slippery slope.
Oh, and I agree with #5 that consumers are only interested in lower base prices. Tacking on fees up front won't sell very well to 90% of consumers.
For most people once they purchase a Tivo they don't upgrade their model until absolutely necessary and Tivo's user base can only grow so much. A monthly fee guarantees them steady income.
If anything Tivo should merge with a company like Comcast and supply all of Comcasts DVR needs, then they will increase their user base.
I've got an 80hr Tivo I bought the lifetime sub with it. Also purchased the home media option a few months before they gave it away. Now I'm just hoping they hold together long enough for me to get my monies worth out of it. If someone in the OSS community would come up with an OS that would work on tivo hardware and give me the same basic functionality I'd switch the day after my (theoretical) subscription was up.
Tivo blew it and is continuing to blow it.
tivo without subscription?
I thought I read something about "basic tivo" where you can still record & such but you loose some features. If all I loose is tivo suggestions & showcases & things like that, I'd do it. Anyone know about this?
I'm not sure I sit on either side of the fence. As a subscriber, I have to say that it took me a long time to plunk down my card for the DVR (40hr). Years. This was due to both the price of entry and the subscription cost.
Now, after 6 months of service, I'd say that I'm willing to pay "something" for the TiVo service but $14/month could well be beyond the utility I generate from the service; (1) I don't follow that many shows week to week and (2) those I do follow with a Season Pass are often plagued with one glitch or another, which renders the service useless to me as the programs aren't recorded.
As a customer considering the purchase of a TiVo as a gift, I'd have to say that I'd never do it. My father is curious as to how much he'd enjoy/use a TiVo, but he's not willing to pay the costs. As such, I'd be very hard pressed to shell out $100 for the box and $300 for the LT service as a gift for him this holiday. What if he winds up not using it? What a waste. Worse, what if I just give him the box and no service, or the box and I pay for monthly service until. . .well you get the idea. It's a problem, and every time I see the "Give TiVo" promotions I think that it's a bad idea.
TiVo's got a sticky wicket on their hands. They've got a complex formula to come up with in order to stay in business. Worse, I think they've squandered their first-mover position by tinkering with the formula a few too many times and appear to have negotiated too firmly with potential partners.
Why I stopped using TiVo.
I was a subscriber a long long time ago. I was always against buying a lifetime subscription because the lifetime was the lifetime of the product. Being hard drive based, I had no faith that "lifetime" meant anything more than a few years and there was no way I was gonna send it to Philips for expensive repairs. The rate increases really killed the subscription for me and after they increased I canceled.
I think had they marketed it as a $400 device instead of a $99 device with a $300 lifetime subscription, I wouldn't have even thought of it as being a problem. For me I was more concerned that even though I paid $300 for a lifetime subscription, if my device happened to break the next day, I'd be out $300. If they allowed me to transfer that subscription to another device, I would've gladly paid the fee. But that would probably not be good for them revenue-wise.
Alas, I've since moved on to HDTV. Since TiVo has no plans of going HDTV, I no longer even recommend TiVo to family and friends who are picking up plasmas and HDTVs in the droves. Instead I've been pointing them to their cable companies' DVRs and they're all generally happy with the outcome, especially the much lower costs.
Also wanted to add that I simply don't think the $13/month is worth it for essentially program guide data.
Forcing customers to buy a lifetime subscription up front would be a disaster and a self-fulfilling profecy - they would have lots of people just bail because they don't want to shell out a big chunk of cash either on top of the actual box or after they've already had the service for a while with a subscription. I only bought a TiVo a couple of months ago, but I refuse to buy the LT subscription becuase of how shakey TiVo's future looks at the moment. If TiVo forces me to do this, I'll sell my unit and go buy a DTiVo or Dish-DVR. Speaking of which it seems you can get an HD-capable Dish DVR for around $500 compared to DirectTV's $1000 unit. Or heck, I'll just build my own PVR. I don't know what the answer is myself, but maybe TiVo needs to be bought out by someone with deep pockets and who can provide a steady stream of content for not a lot of money. Maybe it will eventually get bought out by one of the Sat or Cable co's. It would be a shame to lose an indy company like this, but TiVo seems to be on a slippery sloap towards caving in to any and every concern from the content providers. Guess we'll see what happens, but I'm not wagering $300+ on TiVo's future!
AMEN! I am a DirecTV/TiVo subscriber, and I only pay $5 or $6 a month for the service, but I love it and doubt I'm going to go with the NDS service when it comes about. I am also getting increasingly grumpy about the fact that DirecTV hasn't implemented the Home Media Option or enable Ethernet on their boxes (bad DirecTV!).
So, I'm beginning to shop around for my options. My local cable monopoly, Comcast, has an exclusive agreement in my area. Comcast Digital, in comparison to DTV and TiVo, is still more than I currently pay, and I'm sure they will charge an arm and a leg for their DVR. Thus, I'm sticking with DTV.
How about replacing TiVo? I could go with a Windows media center set-up... but am really happy with TiVo and want the additional services TiVo itself (not the DirecTV version) offers. And, frankly, I'm not interested in spending over $1000 on a PC that I then need to trick out to work the way I want it. I work on computers for a living, I work on computers at home. The last thing I want to do is be hacking around in a Windows box connected to my TV when I really just want to be entertained.
So I've been looking at going to TiVo itself... but the service is double what I pay DTV and the lifetime service is $299 for the life of the box (thus, of course, I would want a good box that will last me for at least 24 months). And then we add the dual tuners, which I've become very happy with...
So, essentially, I would pay upwards of $750 to get two (entainment room and bedroom) Ethernet-enabled, dual tuner TiVo boxes (with at least one with a built-in DVD burner), with 80GB drives and lifetime (of the boxes) subscriptions. Do you hear me TiVo? This is not unrealistic - I'm not asking for the moon. This is all very do-able and, frankly, should be more than profitable. I can live with the limited life on the pay-per-view (I really don't watch that much). I can even live with the banner ads during fast forwarding... but I need something from you in return.
As long as I'm asking Santa for presents, I would like the Home Media Option to play protected AAC files from the iTunes Music Store, too. But I'm not holding my breath. ;)
My Tivo has no monthly fee. I bought it over 3 years ago, with lifetime service.
It has long since past the break even versus the monthly fee.
ReplayTV has and STILL does offer a lifetime subscription ($299)
I purchased my Sony 30 hour TiVo unit 50 months ago, and paid something like $600 for the unit and lifetime service combined. 4 years later, I am laughing at how much that lifetime subscription worked for me. I want a high hef time shifting device, and I really want it to have TiVo sofware, but I cannot stomach the prices I am seeing at the moment. I am seriously considering building a home pc to just record high def content.
Comcast is just starting to implement in my area now, and are charging $9.99 a month for the subscription, included in the price is use of their horrible DVR included in the price.
I really hope TiVo takes note of this and lowers their price to something at least equal to that; preferrably lower... even if just by a dollar or so. I can see this as the only way they can compete on subscriptions.
...or!? What if they implemented an additional "rental" scheme to their offerings? Lower the pricing of their subscriptions to $6.99/mo (with the purchase of a box)... but also offer a subscription plan for $13/mo (including rental of the hardware). Then they could also sell the old rental units at a later date for a discount and still make some money off them? This might help newbies who are used to the cable-box model of TV pricing adopt into TiVo as well.
Just an idea. I really hope TiVo has something up their sleeve which will solve all these issues.
Ps. What is up with comment #4 regarding TiVo giving free boxes tomorrow? I live just a stones throw away from their office and would love more info on that. Thanks.
Your TiVo contract says "life of the machine." but today, with 'replacement' TiVo drives available cheap, that effectively means 'forever'. Good for you, bad for TiVo(when the original lifetime pricing was set, the MTBF for TiVo's was expected to be 3 years.)
It takes fewer than 5 people to run the TiVo service...yet TiVo employs nearly 500 highly compensated people--manufacturing is contracted. The box itself has the same value-proposition it had March 31, 1999 when it first shipped.
All Tivo needs to get profitable is admit the truth, fire 75% of its workforce, and then perhaps a new and viable business model could emerge.
If it does not, it will flounder, get bought, and someone else will fire 75% of the employees.
I agree with comment #5. I've had my Tivo for 3 years now. I bought the cheapest one that I could find and signed up for a monthly subscription not knowing whether I would like it or not. With higher upfront cost because of a lifetime subscription, I would not have even taken that plunge. That is one advantage cable companies have since there is no upfront cost for their DVRs... only a monthly fee. If you don't like it, you can stop using it and not be stuck with a useless box.
I don't how feasible this is but what if Tivo develops a software distribution strategy as well. It could be similar to the CD-based Linux distributions and would run on the user's PC hardware. That way users could try out Tivo w/o any upfront cost in terms of a hardware purchase. I should be fairly simple to recompile Tivo/Linux PPC to Tivo/Linux Intel. Granted support calls might be more costly but it might drive more subscribers.
I also just went with the DirecTV Tivo unit SPECIAL. As a long time DirecTV subscriber the SPECIAL was $50.00 for a brand new 40 hour Hughes Tivo unit (easily upgradable HUGHES DVR40) with two tuners... I didn't have the proper cables from the dish on the roof, so the installation (including crawling under my house to run the cables) WAS INCLUDED (in other words it was a completely free install)...and I pay $5.00 a MONTH. I think this DEAL Free Install, ($50.00 upfront and $5.00 a month) is good till FEB 05.
Tivo is about to get "Microsofted". We're seeing DVR functionality now emerging in TVs, DVD/HD combo units, cable boxes and satellite tuners. Who is going to buy a Tivo, when there isn't a need for a Tivo because we already have the functionality in something we already own? I suppose Tivo could take the Netscape/Sun approach and start suing Comcast, Toshiba and others for "bundling" their DVR functionality into their products and not allowing the consumer a choice of choosing a default DVR application for their boxes. No, what Tivo needs to do is morph the Tivo concept into the next generation. Initially that could be adding support for other video standards that noone else is supporting like MPEG4/DIVX/XVID. They currently have significant cost advantage over Media Center PC, so they really need to keep parity with the features being offered. Given a choice between Media Center PC and Tivo, if there is no feature differential, then who's going to not choose the Tivo?
Another big key to Tivo survival is to start making the box more open. Let the internet development community do their thing and innovate the box into something that Tivo wouldn't be allowed to do on their own.
The subscription seems to be tried out by more and more industries, probably inspired by the mobile phone world. In France I've seen ads for a Nikon 4MP digital camera for 19 Euros and a year of digital photo printing, with a subscription (the ad didn't say how much the monthly fee was).
Though a newbie to the DVR consideration market, I have a friend who is very satisfied with what TiVo provides. From what I've seen, the main difference in cable provided DVR and TiVo is the addition of ethernet capability. What I find to be the most tempting feature is that TiVo is WiFi capbable and, with the addition of home media, allows mp3 playback through home theater systems. My friend no longer needs phone line access and is able to program his TiVo remotely - over the internet. If I do go the TiVo route, I feel that the lifetime subscription is the only logical way to do it.
Information on tivo's basic service.
http://customersupport.tivo.com/knowbase/root/public/tv1199.htm
The basic service is almost the same as what comcast is charging for. So for just the cost of the box you can have that forever. With the fee you get what in my opinion makes tivo. Season Passes,Wish lists, and now online scheduling. I haven't seen another DVR that offers so much.
Tivo 2 Go will be included soon and allow you to transfer shows to a PC. I would bet most people waste more than the tivo subscription fee on starbucks every month. For me it's worth every penny.
My mother recently asked about getting a tivo for herself because she has trouble with setting the VCR. At $99 plus the subscription it's an easy sell. At $400 I doubt that would happen. For tivo to be successful they need to get into as many households as possible. $99 pricepoint will do it for them.
I'm not buying a second Tivo until they release an HD Tivo.
Has Tivo considered selling their DVRs without forcing people to buy the service? For example, without their service, the tivo units would basically act as digital VCRs, recording programs when told to record by the user. They could even include a month's free service, and show to consumers how useful their subscription might be.
Personally, I want a DVR to replace my old VCR, but I don't see the need for the service. Now, I don't have tivo, and I might really like the service if I try it out. However, the subscription fees, combined with the need to have a phone line (I've long since switched to a cell phone) and/or an ethernet adapter (another piece of equiptment to buy), really turn me off from tivo. I'd much rather pony up the cash for a DVD recorder + hard drive unit than buy a tivo + subscription.
$400 DVD recorders? Where'd THAT number come from? Gateway is selling their rebadged LiteOn DVD recorder for $149. I'm giving one as a Christmas present so we'll soon see if it works or not. But it was only $149. Worth a shot.
I have one DirecTivo and love the thing. I would never have paid out hundreds for a lifetime subscribtion but I can swing a hundred bucks and low monthly fee. The features and quality have been outstanding and I really want to replace all my DTV receivers with these things just because the picture quality is so good.
One thing is stopping me: every DirecTivo sale hurts Tivo because DirecTV is selling them so cheap that Tivo can't make any money off the box, and Tivo doesn't get much of the monthly fee. Every sale is therefore another nail in Tivo's coffin, and that's what DTV wants so they can swoop in with their new NDS box and kick Tivo out when Tivo is in no position to fight back.
At this point, Tivo is like a starving man being fed soup laced with poison. Tivo knows it's poison but it's better than starving to death, but ultimately they're still going to die.
I also got the DirecTV deal with $5 a month subscription fee. That's a great deal in my opinion. Keep in mind that the satellite signal is digital, so you are recording higher quality. The Comcast deal still doesn't compete with DirecTV, and if you want digital cable you'll pay extra for that. Cable will always just be cable, DVR or not.
Simple question: If I buy a DVR, can I program it manually to the few shows I want to record each week and forget the fee? If yes, which is easiest to use?