Case 6 - TiVo

Company Overview
TiVo founders Jim Barton and Michael Ramsay left Silicon Graphics in 1997 and the two dynamic entrepreneurs decided they would reinvent how people can watch television. TiVo was a ground-breaking invention that allowed viewers to control what they watched, when they watched it. Fourteen months after the launch of TiVo, they had 42000 subscribers with a rate of 14000 new subscribers per quarter. With 102 million TV-watching households in the US, this was about a 0.04% penetration rate. This revolutionary system allowed consumers to be fully in control of their media consumption- something never offered before.

TiVo to Consumers
To TiVo consumers, the ability to control what they wanted when they wanted was a revolutionary way to watch TV. TiVo held many distinct features that made the television experience unique to their consumers. The electronic program guide (EPG) was the user’s interface with the device that let them find out which shows to watch. EPG allowed access to previews for shows that could be scheduled for recording, a video magazine, a set of network showcases, and an on-screen TV guide.

Another popular feature was the season pass that allowed users to specify their favourite show so that TiVo would automatically record all the episodes. Consumers also had the option to thumbs up or thumbs down certain shows so subsequently, TiVo could suggest TV programs that may interest them, further enhancing the individual personalization of the system. Up to 62% of TiVo owners watched more TV with this service.

A huge factor that facilitated its adoption within consumers was the ability to control TV at their fingertips. Consumers were in control of whether they wanted to pause or rewind what they were watching, even when it was Live TV. The ability to also fast forward through commercials was appealing. The concept of being able to adjust TV around consumers’ schedules rather than the other way around was also a huge selling factor. TiVo is perfect for those with busy schedules who couldn’t catch their favourite 6pm show were now able to record it and watch whenever it best suits them. It was also good for those with lots of family members, as TiVo’s ability to record shows helps to avoid clashes between conflicting TV show times.

On the other hand, there are certain factors that make adoption difficult. A major problem with the digital video recorder category is that its many functions are not as easy to explain as it is to experience. TiVo requires extensive explanations along with an in-store explanation in order for a consumer to fully understand its functions. Ultimately, the sale of a TiVo box was dependent on the quality of the salesperson, and with a 50% turnover rate in consumer electronics stores, training efforts were ineffective. Furthermore, the issue of privacy is another reason why consumers may be hesitant to adopt TiVo. The idea of having each show you watch tracked and stored in memory for future use may make consumers feel uncomfortable and deter them from adopting the program.

TiVo to Networkers, Advertisers, Cable/Satellite Companies TiVo allows consumers to create their own TV lineup; as a result, networkers who are aggregating shows become almost obsolete. There is no value in “must-see TV on Tuesday nights” because TiVo viewers can now simply record it and watch whenever they please. Commercial space suddenly all is valued the same; there is no longer “peak hours” that the networkers can leverage. As well, many shows are promoted depending on the time they air. A new show may be scheduled to play immediately after a popular one in hopes that viewers will continue watching the new show and give it a chance. With the introduction of TiVo, this promotional tactic also becomes unusable.

The number of diminishing rules affects advertisers as well. Using conventional viewer panel data to predict audience size and characteristics as a function of the airing time of a commercial became impossible. With the new option to skip over commercials, this put advertising agencies that sold media space in a tough position. If viewers were simply going to skip over commercials, companies would be more likely to shift their advertising expenses to different mediums. From a different perspective, TiVo also offers many opportunities. What these companies want TiVo to be is a new tool to help them track and predict the TV audience’s patterns. Because TiVo tracks which shows were being watched and how many people were planning to record a particular show, this in turn helps advertisers gain a better understanding of their market. Advertisers can use this information to more accurately target the right market with the most effective commercials. For networkers, this also helps increase regular network viewership and loyalty since the season pass guarantees that viewers will not miss any episodes of their favourite show.

TiVo vs Competitors ReplayTV is a top competitor with a device similar to TiVo, with recording capacities and quality settings similar to TiVo. They had a few key distinct features; ReplayTV did not have thumbs up and thumbs down buttons, but they had “Quickskip”. Quickskip would time-shift the recorded program by 30 seconds, allowing consumers to conveniently skip over commericials which were usually approximately 30 seconds in length. It is priced $200 more than the TiVo black box, however there is no monthly service fee. Salespeople may be more inclined to sell this product because the higher price of the box offers them more commission.

Another competitor is Microsoft’s UltimateTV. UltimateTV has a much higher brand leverage in comparison to TiVo and ReplayTV because it is directly linked to Microsoft as well as the leading satellite television provider, DirecTV. It also offered more features on top of what TiVo did, such as allowing TV viewers to send e-mail and surf the internet on their TV screen, watching/recording two shows simultaneously, recording pay-per-view movies, 30 second skip, and fast-forwarding up to 300 times the speed. However, because of these additional features, UltimateTV may be weaker in the pricing area compared to TiVo and ReplayTV.

Partnerships Recommendation DirecTV has approached TiVo, intrigued with their concept of personal television, and there is currently opportunity for DirecTV to become an equity partner. By partnering with DirecTV, this makes TiVo too similar to Microsoft’s ReplayTV; consumers will end up deciding between DirecTV-Microsoft and DirecTV-TiVo. Microsoft has a more established and recognized brand, so consumers will likely turn to them. Rather than partnering with DirecTV, TiVo should look into partnering with AOL. They will contribute heavily to increasing brand awareness as well as their leveraging capabilities. With a strong partnership with Sony, Phillips, as well as AOL, this will serve as a strong competitive advantage when convincing potential buyers to get TiVo over other similar products.

Pricing Recommendation Pricing TiVo at $999 is risky and ineffective, especially as a new product with nothing to compare it to. It’s unlikely that consumers will pay such a high price for a product they have little understanding and awareness of. Thus, the price should be reduced to $399 as indicated and the 14 hour box should be discontinued. TiVo could take advantage of giving away leftover units in inventory, using them as a marketing opportunity to generate more awareness and interest in the product. The disadvantage to lowering the price of the box would include decreased profits, and less variability in their products. There may be consumers interested in the TiVo but want a cheaper alternative with less recording hours. Discontinuing the 14 hour box may be unfavourable to certain consumers.

Awareness Recommendation An idea in the works is a controversial TV ad where burly men throw out a TV network’s chief programmer out a window. This advertisement is sure to raise eyebrows, however, CBS and likely other television networks will refuse to air this ad because of its demeaning undertone. The TV ad should still be considered, as it is a critical tool for increasing brand awareness as well as help to set TiVo apart from its competitors. They should go with one of the alternate TV advertisements, such as the Cop commercial. Along with bringing up the feature of creating your own TV network, the ad could also show the cop pausing and rewinding his shows to showcase even more TiVo features. TV advertisements are a great way to raise awareness and interest in TiVo’s products.

Focus group research shows that even early adopters of products require at least seven points of exposure for an awareness of TiVo to transition into an actual purchase. TiVo can use print ads to highlight these points of exposure in order to secure early adopters as customers, as well as TiVo.com to go even further into the product explanation. Using these three mediums, TiVo is sure to raise curiosity and promote their brand identity.

Conclusion
To optimise TiVo’s new product introduction, they should partner with AOL because they can leverage customers to buy their product. Attaching their name to a big name such as AOL places TiVo on equal ground with Microsoft’s DirecTV, and gives more credibility to their product. Lowering prices from $999 to $399 will allow them to compete with their competitors by providing quality service at a lower price. This low pricing will likely garner more subscribers. Lastly, TiVo should air non-risky yet entertaining commercials that will showcase TiVo’s main unique features. In-depth product explanations can be displayed through print ads as well as on their company website. This way, consumers can be educated prior to entering the electronics store and sales don’t have to be fully dependent on the quality of the salesperson. This also would eliminate salesperson bias when they try and sell the more expensive product for the sake of their own commission. By implementing these tactics, TiVo gains better brand awareness and consumers will be able to clearly see why TiVo is a better option compared to other competitors.