In a classic "It’s not you, it’s me, but we can still be friends" move, satellite television provider DirecTV is launching a major pre-holidays advertising campaign promoting its own digital video recorder (DVR) system to new and existing subscribers. The move is a direct blow to DVR pioneer TiVo, whose partnership with DirecTV put TiVo DVR units into the homes of more than 2 million DirecTV subscribers.
DirecTV’s DVR system features now-standard DVR capabilities (ability to pause and rewind live TV, record one show while watching another, easy scheduling and retrieval of recordings, integrated program guide, etc.) with up to 100 hours of recording capacity. Software for DirecTV’s new system is provided by NDS, a division of Rupert Murdoch’s News Corporation. Not surprisingly, News Corp. also owns a controlling interest in DirecTV.
DirecTV’s DVR service will be priced at $5.99 per month—the same fee it currently charges for TiVo service—and will be available later this month. A high-definition version of the DVR service is scheduled to be introduced in mid-2006.
DirecTV’s partnership with TiVo runs through 2007. Under DirecTV’s new direction, however, DirecTV will continue to offer TiVo units and support existing TiVo-using subscribers on its service, but will not promote or market TiVo DVRs as part of DirecTV’s service offerings.
DirecTV’s move is seen both as a method of cost-cutting and a re-alignment to more closely conform to News Corp. chair Rupert Murdoch’s preferred business strategies. By cutting TiVo out of the revenue loop, DirecTV would no longer have to pay per-customer licensing fees to TiVo for every new DVR customer it signs up. TiVo is currently estimated to pull in about $2.6 million per month from DirecTV subscribers. The move also lines up News Corp.-controlled DirecTV more closely with NDS, which match’s Murdoch’s long-standing business strategy of having his companies supply and bolster each other as much as possible. News Corp. companies typically charge themselves substantially lower fees for goods and services than they charge third parties for the same functions or products.
In terms of strategy, DirecTV’s move is not without risk. Although the revenue benefits of cutting TiVo out of the equation are obvious, as a satellite television provider, DirecTV has a finer line to walk than cable and telephone providers, who can offer data, voice, and (in some cases) wireless service in addition to television. To compete effectively as a television service, DirecTV has to be perceived in the market has having distinct advantages over other providers, who are increasingly offering DVRs to their customers. Ditching the company which pioneered DVRs in the consumer market—and whose products set the standards for interface, ease of use, and innovating advertising revenue—may not be the best way to define DirecTV as a best-of-class service.