Here Come PVRs

How much would you pay never to see another talking frog or battery-powered bunny again? To program your own all-Luke Perry channel? To add impromptu bathroom breaks to live broadcasts? Replay Networks and TiVo, creators of new digital-TV recording devices, are popping the question, working to persuade you to add yet another cube to the towering ziggurat of entertainment–cable box, VCR, DVD and video-game player–on your TV table. They say their new gadgets could just change TV itself in the process, a possibility that has the networks more than a little nervous. Lawyers have been summoned.

Personal video recorders, or PVRs (also called “digital video recorders” and “personal TV”), save programs to internal hard drives that can hold 10 to 30 hours of programs. Sounds like a VCR, but there’s a big difference: using a phone line, the players download program schedules that pop up on the screen, where you click on a show rather than punching in times and channels and hoping you have got it right. This feature is free with Replay, while TiVo charges $9.95 a month, $99 a year or $199 lifetime. The ReplayTV box, currently sold only online, starts at $699; TiVo, recently arrived in retail stores, at $499.

Manufacturers hope the ease of the interface will win over people who have given up mastering their VCRs. The result, if users embrace it, is the telefuturist’s grail: TV on demand. “It takes away the meaning of prime time,” says Rob Enderle, an analyst at Giga Information Group. “The time a show is broadcast becomes meaningless.” ReplayTV allows users to create “channels” based on search criteria, like home-improvement shows or Steve McQueen movies. TiVo lets you search by category and makes recommendations based on how you have rated other programs.

Equally interesting is what the devices do with live programs. You can rewind or pause in the middle of a broadcast while it keeps recording–say the doorbell rings with the count at 3 and 2 and two runners on–resume watching from that point, then skip ahead to catch up to the live broadcast if you want. And that’s not all you can skip. Among the players’ most anticipated, and controversial, features are buttons that allow you to flash past commercials at super-high speed.

Analysts give TiVo, which plans to sell shares in an IPO, the early lead in the competition, noting that it has outstripped Replay in sales and investment partnerships. Last week, apparently to boost its dealmaking power with Hollywood, Replay named Kim LeMasters, former president of CBS Entertainment, as its chairman and CEO. “They have not brought me in for my ability to figure out what bugs are on the CPU,” LeMasters says. “They brought me in for that portfolio I brought from Hollywood and for my different mind-set and my ability to examine the marketplace.”

For PVR companies, the money may eventually be, as it was for Microsoft, not in the hardware but the software: the interface, program databases, associated content like TV “magazines” to guide users and advertising. (Neither system currently shows ads, but each has discussed future possibilities, including sponsorships.) “Our strategy is to embed it into other boxes,” says TiVo CEO and cofounder Mike Ramsay. “We’re going to build it into television sets and DVD players…It will eventually get embedded into every device.” Ultimately, several companies will manufacture the boxes under license. Philips currently makes TiVo’s box, and this month TiVo signed another deal with Sony; Replay has a similar agreement with Panasonic.

Replay’s LeMasters will also be helpful in negotiating peace with the networks, which are unsure whether to love the new technology or hate it. A number of media companies and TV networks have invested in TiVo and/or Replay. But many of the same players (including Time Warner, parent company of TIME) also formed the Advanced Television Copyright Coalition, which has threatened to sue the companies in the future for nonpayment of copyright license fees. No one, of course, is making such noises anymore about VCRs, which also record copyrighted material.

What spooks the nets is that PVRs could, theoretically, strip out their ads and insert ads of their own, and ultimately upset the entire system of ad-based TV. “These boxes are not a simple piece of consumer electronics, like a VCR,” says Bert Carp, attorney for the coalition.

To hear PVR companies tell it, advertisers should be delighted, since the marriage of TV and online will make possible interactive ads and the ability to purchase products right off the screen. Changing the ads to include contests or other carrots will encourage viewers not to skip them. “Wait till the end of this commercial, and you can win a Ford Explorer,” ventures TV analyst Josh Bernoff of Forrester Research.

Some industry observers have suggested that networks, through a combination of legal threats and investments, might try to pressure makers to drop the skip buttons. But analysts predict that as competition increases (Microsoft’s WebTV satellite service will offer PVR-like features later in the fall), nothing short of an outright ban will prevent someone from offering such an option.

Nor will it take a big shift to affect television’s business model. Ads are sold based on demographics. Suppose only relatively well-off, younger, tech-savvy viewers–the kind advertisers crave–adapt to PVRs. Bernoff posits that if X-Files fans bypass all those pricey tech ads, such highly acclaimed, high-budget programs could migrate to pay cable, replaced by more America’s Favorite Self-Immolations–cheap programming aimed at downscale audiences.

The next step in broadcasting! TV on demand! On-screen shopping! We’ve heard this before, of course, from budding interactive TV services that so far have failed to deliver a video revolution. Television remains a defiantly passive medium, even though technology has changed viewing habits. Cable television cut into networks’ audiences, and the humble remote created channel surfing. But beyond pushing buttons on keypads, couch potatoes have not proved willing to do much more. PVR sellers can perhaps count on your neighbor with the satellite dish and DVD; they now must convince the rest of us that they have not gone a box too far.

–With reporting by David S. Jackson/Los Angeles