KPMG: Rosy future for PVRs

Survey respondents less sanguine about DTV, citing high prices

Personal video recorders (PVRs) will reach 25% market penetration within three years, forcing advertisers to make their commercials more compelling to prevent viewers' zapping through them with a press of a button. And the rollout of digital television (DTV) will continue to held back by the high cost of DTV receivers.

Those are a few of the predictions from "Personal Video Recorder Outlook" and "Digital Television Outlook," two new technology surveys from KPMG Consulting.

Both were conducted at the NAB 2000 convention in Las Vegas by KPMG's Digital Media Institute, the research division of the firm's Media/Content practice. For "Personal Video Recorder Outlook," KPMG asked questions of 105 NAB attendees ranging from broadcast operations and engineering executives to programmers. A similar pool of 196 attendees participated in "Digital Television Outlook."

The results of the PVR survey point to the growing popularity of disk-based devices from TiVo, ReplayTV and other suppliers that allow viewers to easily time-shift programming, pause viewing during a live program and, yes, fast-forward through commercials. Of the respondents, 64% thought PVRs would reach 25% market penetration within three years; 31%, in five years.

PVRs represent a simple, single-box decision that is easier for consumers to understand than DTV, says Haig Hovaness, program director of KPMG's Digital Media Institute.

Also, he adds, their usefulness isn't dependent on an "extended-value chain" of broadcasters, cable companies and the FCC: "You buy your TiVo, plunk it down, and you've got value. And people are already trained to do video recording. It's almost a presold technology."

In that vein, the majority of respondents felt that PVR functionality would be rapidly embraced by the personal computer industry: 33% said PCs would have affordable PVR features within a year, while 56% said within three years.

KPMG's respondents also acknowledged that PVRs will have a major impact on television advertising. Forty-seven percent predicted that PVRs will have automatic commercial-suppression capabilities within three years. Forty-one percent expect advertisers to improve the entertainment value of their commercials in response. Twenty-nine percent felt that advertisers would fight the potential loss of eyeballs by making deals with PVR manufacturers to keep advertising in the playback process; another 25% predicted advertisers would give viewers incentives to watch their commercials.

Overall, KPMG's respondents didn't believe that PVRs would kill TV advertising revenues. Thirty-five percent felt that the devices would have a 1% to 5% negative impact on ad revenues over the next five years, while 22% predicted a negative impact of 5% to 10%. Only 18% believed PVRs would dampen revenues more than 10%, and 22% predicted negligible impact on ad revenues.

As for PVRs' effect on program scheduling, 40% of KPMG's survey participants believe the disk recorder technology will lead to a greater diversity of programming. Thirty-five percent predicted more-flexible scheduling, while 10% felt that programming networks would make increased use of late-night airtime (midnight to 6 a.m.).

Results for "Digital Television Outlook" were decidedly more mixed, which may reflect the lingering questions about DTV-cable compatibility, the efficacy of the transmission system, and broadcasters' business plans for the digital spectrum. Asked when DTV receivers would be in 25% of U.S. households, 33% of respondents said by 2002, 28% said 2003, 29% said 2005 and 10% said 2010. Twenty-six percent of respondents believe that a majority of cable subscribers will receive DTV programming by 2002, 25% said by 2003, 35% said by 2005 and 14% said by 2010.

The only question that came close to producing a consensus: "What is the main obstacle to the rapid deployment of DTV?" Fifty percent of respondents believe equipment costs are the biggest negative, even though DTV receiver prices for 2000 are significantly lower than for the first models introduced in 1998. Broadcasters' deployment costs pose the biggest hurdle, according to 23%. While 12% cited technology problems, only 7% said a dearth of DTV-suitable content was the delay.