e.Digital Corporation (fka EDIG)

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OT-ReplayTV's Latest Is Sure Worth Watching
It has all the cool features that make a digital video recorder so much better than a VCR -- and now it's a whole lot cheaper
Talk to anyone who sells digital video recorders (DVR) and he or she will wax poetic about the "magic moment" -- that electric instant where a customer suddenly gets it. This is more than just a VCR. With DVRs, there's no more setting the timer. No more channel surfing. And best of all, no more commercials.

DVR maker SONICBlue (SBLU ) is hoping that consumers will have a collective magic moment this holiday season. And it just released the latest version of its ReplayTV. The major upgrade: a big price cut. The new ReplayTV 5000, which can record 40 hours of programming, starts at $249 -- far below previous prices, which reached as high as $1,999. Users also have to purchase a $9.95 monthly subscription or pay a one-time up-front, fee of $250 to receive electronic programming data.

Still sound like a lot? Then you obviously haven't had your "magic moment." I have. And I'm convinced that ReplayTV is the best new consumer-electronics around. It actually does change the way you watch TV -- letting you watch what you want, when you want. Just like a VCR -- only much easier.

CLICK OR DOUBLECLICK. Here's a rundown: First, like any DVR, ReplayTV is a hyperintelligent VCR. Instead of you looking up when, say, The Simpsons is on and setting the VCR's timer, on ReplayTV you simply thumb through the player's electronic program guide and click when you find a program you like. If you're really a Simpsons lover, click twice and the recorder will hunt for every airing of the show on every channel and automatically record it.

Or simply tell ReplayTV that you're a Julia Roberts fan, and it will search out any movies she stars in that happen to be on TV. You can also ask ReplayTV to record any movie that has won an Oscar for Best Picture or every National Basketball Assn. game featuring the New York Knicks.

Without a doubt, the best feature is commercial advance, ReplayTV's diplomatic name for never having to watch another advertisement. Sure, the commercials are recorded along with ER, but with the single push of a button, you can decide to skip them throughout the program replay. This, needless to say, has raised the ire of broadcast networks and cable channels who fear that their profits are at stake.

BIG DIFFERENTIATIOR. So until now, SONICBlue has been careful not to talk up commercial advance. Instead, it has positioned the feature as an opportunity for, say parents to record movies that run late at night (when commercials often hawk adult products or sex chat lines) and show them to their children minus the inappropriate ads. But as it ramps up for the Christmas selling season, SONICBlue's management has (finally) realized that commercial advance is a big differentiator. Unlike other DVRs, ReplayTV, in effect, turns every station into commercial-free HBO.

ReplayTV has a host of other advanced features. Owners with a broadband connection can share recorded programs over the Internet with as many as 15 friends. And if you have more than one ReplayTV (and a home network), you can easily watch what's recorded on the living room DVR from the one in your bedroom.

These features are very cool -- not to mention also very controversial. But they're not going to make many people run out and buy a ReplayTV. Remember, most of us still can't set the clock on our plain old analog VCRs. As Nikhil Balram, SONICBlue's vice-president for connected home products admits, most consumers aren't ready yet for ReplayTV's sophisticated features. "We're building a DVR for today and tomorrow," he says. "We don't charge extra for advanced features. They're just there to use when people are ready."

"TOUGH STORY." When U.S. consumers will be ready to embrace ReplayTV is an open question. Research firm Yankee Group projects that DVRs will make their way into 1.8 million U.S. homes by yearend and 19.1 million by the end of 2006. Compare that to the sizzling sales of DVD players, which have zoomed from zero in 1997 to 35 million today. That makes DVD players the most popular consumer-electronics product in history.

"DVRs are a tough story to tell," says Aditya Kishore, a Yankee Group digital entertainment analyst. "It does pretty much what a VCR does, so it's difficult to prove to a consumer that there's additional value."

SONICBlue has a limited time to get the message out. For one, it's being sued by a consortium of 27 broadcasters, cable companies, and all the major Hollywood studios, which complain that the ability to skip commercials and send recorded shows to friends is a copyright infringement (see BW Online 2/6/02, "ReplayTV Is Not Another Napster"). The suit is expected to go to court late next year. That gives SONICBlue at most two holiday shopping seasons to promote ReplayTV and increase market share.

LOSSES AND LAYOFFS. It also has to pump up profits -- and fast. SONICBlue has to pay back a $16.5 million line of credit early next year. An additional $174 million in long-term debt is due next October. At the end of its second quarter, SONICBlue was still bleeding red ink. Though revenues skyrocketed 80%, it lost $23.5 million on sales of $61.6 million. On Sept. 8, the company laid off 25% of its staff including its senior vice-president for sales and its chief technical officer.

Still, I'll be rooting for ReplayTV. With the machine now on the shelves at mega-retailer BestBuy (BBY ), millions of consumers have the chance to experience their own magic moment. After all, isn't magic what the holidays are all about?http://www.businessweek.com/technology/content/oct2002/tc20021021_1009.htm
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