Network DVR — Who Wins?

The U.S. solicitor general’s decision last Friday to recommend the U.S. Supreme Court not review the decision allowing Cablevision to host a network-based DVR service is an immediate victory for Cablevision, which is poised to offer the service as soon as this summer, and for other cable companies. But who else wins? Potentially other U.S. consumers. But certainly not telecom service providers pursuing their own video services.

The real value of the network-based DVR service is that it enables video service providers to offer a DVR service without requiring very expensive set-top boxes with a lot of memory for storing digital programming. In other parts of the globe, such as China, a network-based approach has enabled more rapid deployment of less costly services because service providers don’t have the upfront capital expense of more expensive set-top boxes.

The content companies who had sued Cablevision to stop its Remote Storage DVR service, including Turner Broadcasting System, ABC, CBS, NBC, 20th Century Fox, Paramount Pictures and Disney Enterprises, claimed the service infringed their copyrights, but there never seemed to be a clear explanation of how a network-based service differed substantially from a set-top box DVR service. If anything, the network-based service might be more appealing to advertisers, since it could prevent ad-skipping, which is one of the primary benefits of the STB-based DVR option. Time-Warner has been using essentially the same network technology as the RS-DVR service to provide its Start Over service, which doesn’t allow ad-skipping.

Allowing network-based DVR services opens up more options to service providers and potentially more choices for U.S. consumers. As Sanford-Bernstein analyst Craig Moffett noted, this is bad news for satellite TV providers, whose only DVR choice is putting a costly set-top box on every TV or using expensive master-slave technology to offer multi-room DVRs. Cable companies who have gone all-digital, such as Cablevision, will have the network capacity to provide RS-DVR service to any Tv with a digital set-top box, Moffett said.

Where telcos are still partnering with satellite providers - AT&T and Verizon do this where their next-gen TV services aren’t available and Qwest Communications does this across its entire footprint - there is now a competitive disadvantage. Local loop architectures which are more bandwidth constrained could also be more challenged to deliver network-based content, putting them at a disadvantage versus digital cable offers.

Where AT&T, Verizon and others do offer advanced TV such as U-Verse and FiOS TV, I don’t think a network-based DVR is that big a threat. If a customer is sold on the existing whole-home DVR offerings and content with the pricing, customer service, HD and VOD offerings, there shouldn’t be much of a lure. The complications arise when cable can compete with lower cost services, based on their ability to offer a lower capex solution. When a consumer, particularly one squeezed in the current economy, can get a DVR service at a much lower price, the cable industry gets yet another edge.

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