Viasat Broadcasting hopes its personal video recorder (PVR) offering in the Nordic region will help it compete more effectively in the direct-to-home market. But the company admits it may take time for the PVR offering to catch on with its subscriber base.

Viasat announced at the end of June it had signed a deal with Pace Micro Technology to launch PVR services in the Nordic region, where Viasat competes head-to-head with direct-to-home provider Canal Digital.

Viasat will pattern its PVR business model after BSkyB, charging customers for the set-top box as well as a monthly fee for the service, said Hans-Holger Albrecht, president and CEO of Modern Times Group, which own Viasat. “When you look at the research, it is the high set-top box fee that is more of a barrier in the market,” he added. “In order to make it a viable business case, it needs to be a monthly subscription model. Once the service is established, you can look to bring extra services using push technology.”

Viasat ended the first quarter this year with nearly 700,000 subscribers, growing its subscriber base by nearly 60,000. Canal Digital added more than 70,000 subscribers in the same period, bringing its total customer base to 851,000. Viasat hopes its PVR service will help close the gap throughout the next 12 months.

Viasat selected Pace’s TDS460 set-top box for its PVR service. The system will be able to record two programs at the same time and perhaps more significantly, will carry a 160- gigabyte hard drive that can store about 80 hours of content. To put that into context, BSkyB’s standard PVR box is only 40 gigabytes.

Marketing Challenge

One of the constraints on PVR services is figuring out the best way to market the offering, industry officials said.

It has taken BSkyB a great deal of time to reach 10 percent penetration with its Sky+ service despite heavy marketing campaigns in recent years. At the end of March, BSkyB has about 800,000 subscribers for its Sky+ service out of a total subscriber base of close to 8 million. BSkyB launched the Sky+ service in September 2001.

“It is new and it will take time to build awareness,” Albrecht said. “Our messaging will not be based around the technology. We don’t think people buy technology. They buy content and you wrap it up with the new technology coming from Viasat and, over time, you push that more and more.”

Viasat will try and capitalize on the lessons learned from BSkyB’s PVR experience, Albrecht added. “It will take a certain amount of time before you get a decent number of subs,” he said. “What we learned from the Sky experience is if you just try to sell the technology as Sky+ did in the beginning, that is tough. It is about word of mouth. You see that with other consumer electronic products such as [Apple’s] iPod. We will have a different marketing strategy to Sky and we will have a very patient and cautious approach.”

Neil Gaydon, worldwide marketing and sales director at Pace said, “PVR is a difficult technology to sell to customers who have not experienced it. So rollout is slower than you think it should be. As you talk to most people, they don’t understand the concept of PVR and the first reaction is ‘I have got a VCR, why would I want a PVR?’ So, I think the big challenge for operators who are launching PVR is generating effective marketing and creating awareness among consumers about what this technology means for them.”

If the work-of-mouth strategy works, there will be a number of benefits for Viasat, Albrecht said. “For existing customers, they are likely to be happier customers because this is an important innovation,” he added. “It improves the content and we are seen by customers as an innovator in terms of new technology. It goes hand-in-hand with other services such as Dolby Surround, and the technology is changing rapidly. There are new ways in how people consume content, so we are ahead of the curve in that respect.”

PVR Not A Sure Thing

Daniel Ek, a media equity analyst at Carnegie is unsure what effect launching PVR will make in terms of the operator’s drive for subscribers in the region.

“They have said they are very positive for PVR, and they think they will get a boost in the net subscriber intake from the launch of PVR,” Ek said. “But I am not sure how much of an impact it will have in terms of subscriber intake for them.”

Ek believes Boxer, a Swedish-based digital terrestrial television operator, puts Viasat under even more pressure than Canal Digital.

“The simplicity of Boxer is one of its key strengths,” Ek said. “It is the only platform, excluding the cable universe, able to offer both TV3 and Channel 5, two of the most popular commercial channels. Viasat only has TV3 and Canal Digital only has Channel 5. Boxer has been outgrowing both Viasat and Canal Digital in Sweden.”

Benefit For Pace

Viasat’s launch of PVR services is a huge boost for Pace. The set-top box supplier has signed a number of deals recently with operators such as Comcast in the United States and the Viasat deal is further evidence of increasing importance PVRs will play in the pay-TV market.

While operators are still trying to come up with the right marketing message, Pace is already looking at the next phase of set-top box deals with the high-definition (HD) PVR, likely to be one of the company’s key focuses throughout the next year or so.

Viasat also could look to launch HDTV services in the region throughout the next 12 months, Albrecht said. “HDTV may have an impact on certain people in regards to sports and movies. That is more an improvement of the current quality of people using existing services. However, the PVR is really changing the way people are using television. So, therefore we would not push HD as strongly in the market. However, we are ready to do HD.”

Gaydon believes it will be at least two years before the operator sees high volumes in HD PVRs. “Operators we are talking to are putting in a minimum of 160 gigabytes for an HD box,” he said. “A number of operators are gearing up for the World Cup in 2006 to launch their HD service. We are working with Premiere, for instance, to develop an MPEG-4 HD box in this time span.”

The success of HD, however, is going to be based on the equation of the price of the panel, the amount of content that is available and the roll out of the set-top boxes, Gaydon said. “I think realistically that high volumes for HD will probably be in 2007 to 2008, but that is not to say there will not be an initial burst of enthusiasm from early adopters,” he said.

In terms of developing new boxes, Gaydon believes multi-room functionality will become a really important factor. “From a technology standpoint it is about getting to market with MPEG-4 HD and finding customers for our multiroom PVR solution and our mobile PVR2Go.”

–Mark Holmes

(Daniel Ek, Carnegie, Daniel.ek@carnegie.se; Julia Ruane, Pace, Julia.ruane@pacemicro.com; Carl Eliasson, Shared Value for Viasat,Celiasson@sharedvalue.net)