20 Million DirecTV PVRs (and Nothing On)

June 16, 2005

Slate has an article up about Rupert Murduch trying to displace the video rental market by providing PVRs to 20 million DirecTV customers. (via PVRBlog)

Murdoch is attempting to revolutionize the world’s video-rental market (both VHS and DVD). Since its inception in the late 1970s, video renting has been an inefficient business. Indeed, on first hearing the business model, Warner Bros. titan Steve Ross asked incredulously, “Can we really expect millions of busy people to get in their car, drive to a store, pick out a movie, stand in line, fill out a rental agreement, pay a deposit, drive home, play it on their VCR and then, the next day, repeat the procedure in reverse to return it?” Even with improvements in swiping credit cards and mail-in schemes such as Netflix, renting remains a cumbersome affair.

Murdoch plans to digitally deliver movies and other programming from his satellites to home digital video recorders that would be the same quality, or higher (HDTV), than a DVD. Since there are not enough transponders on satellites to stream movies to individual subscribers on demand, Murdoch needs DVRs in every home to make his digital-delivery system work. With DVRs, the satellites can upload movies in the middle of the night in encrypted form onto subscribers’ hard discs without us having to do anything or even be aware of it. (One idea now under consideration at DirecTV is to provide these DVRs with an enormous 160-gigabyte recording capacity. The subscriber would only be told about 80 gigabytes, with the remaining 80 gigabytes reserved for encrypted movies.) Once the movies are placed on the DVRs, a customer “rents” them by clicking on his remote control.

A bold plan indeed, and it could probably play hell with the top ten rentals on the “recently arrived” rack at the local Blockbuster.

The problem is that 160 gig just isn’t that enormous.

Assuming that the content is encoded at a typical satellite-TV rate, it’s going to be hard fitting more than 20 or so movies in that “hidden” 80 gig stash.

Unfortunately, what this doesn’t let you take advantage of is “The Long Tail“.

“Long Tail” economics lets companies like Netflix take advantage of almost non-existent inventory costs (compared to brick and mortor stores, or even 80 gig of satellite-delivered VOD content) to make considerably more money on the vast selection of “seldom rented” titles they carry than the current most popular rentals.

As we teeter on the brink of seeing enough bandwidth to make internet delivery of movies practical, owning a big piece of the “top ten” rental market just might not be that great of a competitive position…