Comcast is transitioning from in-home, set-top-box-based DVRs to a network DVR (nDVR) service, with the second generation of its Xfinity software platform, X2. X2's nDVR service will also include targeted ad insertion during playback. X2 also significantly improves the content discovery experience over that of the original X1 platform.
The X2 platform will debut in late 2013, probably alongside the XG5 second-generation, headless multimedia home gateway (MHG) and Xi3 IP thin client set-top boxes (STBs). Extant XG1 MHGs will be upgraded to the X2 platform as well.
Content owners are generally hostile towards both home-based and network DVR services, as the services threaten current revenue models including advertising and DVD/Blu-ray sales. Home-based DVR services are broadly protected by the Sony v. Universal Studios "Betamax" fair use ruling. In the US the Carton Network vs. Cablevision decision extends "fair use" protection only to those "multiple-copy" nDVR services that save a separate copy of each recording for each home and serve it only to that physical household. This limitation leaves several opportunities for nDVR services to create value if a mutually-beneficial arrangement can be reached with content owners.
Agreement-enabled opportunities for nDVR services include substantially lower storage costs of single-copy nDVR compared to multiple-copy nDVR, inexpensive streaming of recordings to devices outside of the home, and an overall blurring of the lines between DVR services and comprehensive VoD services. However, content owners have so far been unwilling to agree to these services. Comcast's unique ownership of NBC-Universal, a large content house, should allow it to forge internal pricing and rules that enable its nDVR service to benefit both its content and cable divisions. Comcast can then exhibit the success of these business arrangements to its other content partners and the other cable companies that buy content from NBC-Universal, potentially making these innovations standard practice in the industry.
Even without agreement from content owners, nDVR services present other opportunities. Targeted ad insertion during playback, where the ads cannot be skipped, creates a new revenue stream for operators. Cable operators often serve more price sensitive customers than IPTV and satellite operators, and as such DVR penetration in cable is half what it is in IPTV and satellite. Ad-funded nDVRs could be of strategic importance to cable operators, enabling them to grow DVR service uptake accross their more price sensitive customer-base. Network DVR also enables other new revenue models, including impulse purchases of additional recording space and pay-by-usage.
In home-based DVRs, the hard disk drive is the primary point of failure, and the need to replace them results in costly service calls and customer dissatisfaction. Also, as hard disks grow beyond what most families can fill, nDVR services become more cost-efficient in comparison. A centralized data center does not need to maintain nearly as much empty overhead space as a future-proof one-drive-per-home topology does. Also, hard disk drive (HDD) storage density can advance 40 per cent in a year, purchasing storage just-in-time further reduces costs. While HDD densities have been growing slowly since 2011, IHS is forecasting that HDD density increases will resume in 2015, based primarily on heat-assisted magnetic recording (HAMR) technology.
A broad-based move of cable and FTTH-based IPTV operators to nDVR could happen over time, but because of bandwidth limitations satellite and DSL-based IPTV operators will need to retain storage in the home for the foreseeable future. With cable comprising just one third of pay TV DVR shipments, a broad industry move towards nDVR would have limited impact on STB industry value over the forecast period.