TiVo's competitive position in the digital video recorder industry

¶ … industry TiVo competes in including the product segments and the industry chain process relied on by the company. Also included is an analysis of the key competitors and their relative advantages and disadvantages, in addition to their relative market shares.

Industry Analysis

Industry Description

TiVo is one of the pioneers in the development of Digital video recorders (DVRs) and associated Digital Video Services (DVS), both of which have grown rapidly in popularity throughout the last ten years of existence. According to Oppenheimer (2006) there are about 90 million households subscribing to multichannel video programming, DVRs are being used by consumers to help improve the TV viewing experience by allowing them to intelligently sort through and record an ever-increasing amount of programs. In the broader DVR Service marketplace there are two levels of service offerings: Basic Services and Enhanced Services. Many of the competitors in this industry offer these two levels of service of DVR service to consumers, with the Basic Service offering providing the options of pausing, rewinding and fast forwarding both recorded programs and live television. Many of the competitors in this industry offer a three-day program guide as well, as part of this baseline level of service. While not initially bundled in with the costs of the DVRs, companies are increasingly doing this as part of the baseline service delivered with units so customers can get them up and running quickly. TiVo and other companies in this segment do not as a result count these baseline customers as subscribers.

Industry Product Segments and Revenue Growth

Segmenting the DVR and DVS markets by technology illustrates the relative rates of adoption by product generation and the replacement strategies all competitors in this market must contend with. It is clear that the first generation of DVRs as represented by the blue line in the graphic is facing significant pricing pressure from the next generation of DVRs that International Data Corporation (IDC) forecasts as having a 33% compound annual growth rate (CAGR) through 2008. These technology adoption curves shown in Figure 1 also show the influence of Multi-System Operators (MSOs) which collectively are the most significant competitive force in the DVR market. Many financial analysts including Oppenheimer (2006) expect to see acceleration in subscriber growth. The consensus of industry analysts including IDC and Forrester Research is that DVR subscriber growth will hit a 60% CAGR over the next three years. We expect it to slow to 45% and 16% annual growth in 2007 and 2010, respectively. By the end of 2010 IDC estimates there will be roughly 52 million DVRs in the United States. Assuming an $8 monthly billing rate, we estimate the DVR market will be a $5.0 billion revenue opportunity according to IDC (2007).

Figure 1: Comparing DVR Product Segments Adoption Rates

Competitors

The competitive dynamics of the DVR and DVS market is changing significantly due to the dominating role of cable MSOs, who have the potential to do more bundling and churn-reducing strategies than many of TiVo's best-of-breed competitors. In conjunction with the en masse move of MSOs into the DVR/DVS market arena, Microsoft, Dell and HP have all announced plans to move into this marketplace. IDC (2006) does not see PC manufacturers having a significant impact on the overall market, but larger cable and satellite providers, partnering with MSOs, look to dominate the market.