The Plight of the Networked DVR

Several major studios last week filed suit against Cablevision in a bid to stop the cable TV service provider’s imminent initiation of a networked digital video recording (nDVR) service. Studios including 20th Century Fox Film Corp., Universal City Studios, Paramount Pictures, Disney Enterprises, CBS Broadcasting, ABC Inc. and NBC Studios filed the suit on May 23. The studios object to Cablevision’s planned networked DVR service, which the company intends to implement without entering into new content licensing agreements. nDVRs are a solution developed by cable operators based on file-server technology. The service works the same as a conventional DVR set-top box (STB) from the consumer’s perspective. However, the content is not stored on a local hard disk drive (HDD), but instead on a remote server in the cable operator’s network. This is spurring a conflict with the studios, which assert that cable operators do not have the right to store content for later delivery. The studios liken the service to Video-On-Demand (VOD), where they require separate content licensing agreements. Cable operators prefer the nDVR to the standalone DVR for a number of reasons. nDVRs represent a more efficient storage alternative, because storage arrays can be shared across multiple users, so the same program need not be recorded multiple times and excess capacity can be minimized. Furthermore, centralized storage provides for less costly maintenance and higher reliability. The expense of provisioning HDDs in consumer STBs is significant. Beyond that, nDVR allows the service to be offered more easily to multiple TVs throughout a house. Finally, nDVR allows operators more control over customer behavior. For example, time shifting can be permitted while excluding fast-forward through commercials. While studios assert the right to prevent cable operators from storing content in the network, consumers are readily able to record content on local STBs based on well-established fair-use legal principles. Thus, the prevalence of today’s STB-centric DVR market. In a typical nDVR system, a cable operator records all programming on behalf of consumers. Thus, if a consumer wants time-delayed access to content, the content is available, whether the consumer actively initiated the recording or not. Cablevision’s nDVR system attempts to circumvent the studios’ legal position by provisioning unique storage for each consumer, and allowing the consumer to control what content is recorded and when. While this gives up some nDVR storage efficiency, it puts all recording control in the hands of the consumer and theoretically adheres to the fair use rules. The battle over network DVR has implications that go well beyond content owners and pay-TV operators. STB manufacturers, HDD manufacturers and semiconductor manufacturers all should pay close attention. If nDVR is successful, far fewer STBs will have embedded HDDs. The market will shift from client-based HDD solutions to enterprise-based storage solutions. Set-top boxes similarly will require less complex processors, codecs and tuners. Furthermore, nDVR would minimize the need for whole-home DVRs, AKA multiroom DVRs. While content companies are inhibiting the development of nDVRs, iSuppli believes networked DVR holds some significant advantages for them. A primary advantage is the ability to restrict ad-skipping. A secondary advantage is that digital content is more secure from illegal copying when stored in the cable operator’s network than when stored locally. Finally, nDVR could significantly increase the number of DVR users, thus increasing ratings for consumers that initially miss scheduled programming. Despite these advantages, the current market continues to favor client-based DVRs. iSuppli sees the highest interest and opportunity for nDVRs in Asia, aligned with new Internet Protocol Television (IPTV) services. iSuppli projects total nDVR subscribers will reach nearly 7 million by 2010, with subscribers heavily skewed to Asia. In North America, growth of DVRs is rising vigorously across satellite and cable, and is featuring strongly in early IPTV offerings, as well. More than 21 million DVR-enabled STBs shipped in 2005, with most going into the North American market. By 2010, iSuppli expects this figure to grow to 84.2 million, with both Europe and Asia emerging as significant markets. Meanwhile, the adoption of multi-room or whole-home DVRs is expected to grow quickly, with total unit volume exceeding 55 million by 2010.