Changewave Research: Consumer Entertainment Devices

ChangeWave Research: Consumer Entertainment Devices

ChangeWave Research Report:

Hottest Home Entertainment Devices

The Latest on DVD-Rs, PVRs and Satellite Radio/TV/Internet

Abstract

During June we conducted a survey of Alliance members on leading audio-visual and infotainment products – including Digital Video Recorders, Personal Video Recorders, and Satellite Radio, TV and Internet services – to learn which offer the most promise for the remainder of 2003 and beyond. A total of 452 members participated.

Key Results

Digital Video Recorders (DVD-Rs). The percentage of respondents who currently own a DVD-R (19%) is equal to the percentage of respondents who say they intend to purchase a DVD-R this year (19%), indicating the technology is rapidly moving up the “S-curve” and entering the mass-market phase. The emphasis is beginning to shift from the computer to the living room.

Personal Video Recorders (PVRs). The percentage of current PVR owners (18%) and the percentage who intend to purchase a PVR this year (6%), combined with the preference of our respondents for the $299 price point (46%), tells us the product has entered the mass market and market acceptance is now based on price. PVR capability will undoubtedly spread as the device becomes incorporated into cable boxes, audio jukeboxes, DVD-Rs and other home entertainment devices.

TiVo-Like Services. In a previous ChangeWave Alliance survey, 39% of respondents said they subscribe to digital cable. In the current survey, the same percentage now say they’d consider a TiVo-like service from their cable company so they can better control their TV viewing. These and other findings suggest cable delivery of TiVo-like services could follow an adoption rate similar to digital cable.

Satellite Radio. The technology still appears to be in the early adopter phase of the market, based on the 3% ownership rate among respondents and the 9% who say they intend to purchase it this year. Interestingly, Sirius is gaining on rival XMSR.

Bottom Line: Of the products covered in this survey, DVD-Rs and PVRs have essentially entered the mass-market phase of their growth curves; Satellite Radio is still in the early adopter phase – but all three promise to be robust performers for the remainder of 2003 and beyond. In addition, the prospects appear bright for both mobile Satellite Television and Satellite Internet services.

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Table of Contents

Summary of Key Findings...... 3

Digital Video Recorder (DVD-R) Section...... 4

Personal Video Recorders (PVR) Section...... 5

Cable Section...... 6

Satellite Radio Section...... 7

Satellite TV Section...... 8

Satellite Internet Section...... 8

Summary and Analysis...... 9

ChangeWave Research Methodology...... 12

About ChangeWave Research...... 13

I. Summary of Key Findings

Overview

In April, 2003 we conducted an Alliance Home Entertainment survey focusing on the full range of products Alliance members intended to purchase this year. Of particular note was the degree of interest in Personal Video Recorders (PVRs), Digital Video Recorders (DVD-Rs) and value-added cable services.

During the first week of June 2003, we conducted a follow-up Alliance survey on leading audio-visual and infotainment products – including Digital Video Recorders, Personal Video Recorders, and Satellite Radio, TV and Internet services – to learn which offer the most promise for the remainder of 2003 and beyond. A total of 452 Alliance members participated.

The follow-up survey focused on sixproduct areas, and included a brief look into two relatively new technologies – mobile television and mobile broadband. The six areas are:

Digital Video Recorders (DVD-Rs)

Personal Video Recorders (PVRs)

Cable TV

Satellite Radio

Satellite TV

Satellite Internet

In examining the dynamics of these emerging technologies and products, we looked at ownership and purchasing patterns, price points, and user preferences.

As early adopters, ChangeWave Alliance members are very well suited to provide consumer preference data on new technology and product introductions in the marketplace. Below are the key findings regarding what’s in store for this year's hottest consumer electronics products.

(A) Digital Video Recorders (DVD-R) Section

(1) Question Asked: Do you currently own a Digital Video Recorder (DVD-R)?

Yes / 19%
No / 81%

Further Breakdown

Yes, as Part of an Entertainment System / 6%
Yes, as Part of a Computer System / 13%
No / 81%

Digital Video Recorder (DVD-R) Ownership. Nearly one-in-five (19%) respondents own a DVD-R today. Interestingly, among our Alliance early adopters, computer-based DVD-Rs outnumber home entertainment DVD-Rs by better than a 2-to-1 margin.

(2) Question Asked: Do you plan on buying a DVD-R during the remainder of 2003?

Yes / 19%
No / 70%
Don't Know / 12%

Further Breakdown

Yes – For My Entertainment System / 8%
Yes – For My Computer System / 11%
No - I Don't Plan on Buying a DVD-R / 70%
Don't Know / 12%

DVD-R Shifting Toward Home Entertainment. One-in-five respondents (19%) say they plan to buy a DVD-R during the remainder of 2003. While a majority still says they will link it to their computer rather than their entertainment system, there is a clear shift occurring towards DVD-R entertainment usage (i.e., the living room). This may be in part due to the falling prices of units.

(3) Question Asked: Up to What Price are You Willing to Pay for a DVD-R?

$999 / 2%
$699 / 2%
$499 / 28%
$299 / 48%
Don't Know / 19%

Sweet Spot for DVD-R Prices. Among respondents who said they were planning to buy a DVD-R during the remainder of 2003, nearly half (48%%) say they are willing to purchase it if the price is $299 or less. Another 28% say they are willing to purchase it if the price is $499 or less.

(B) Personal Video Recorders (PVR) Section

(1) Question Asked: Do you currently own a Personal Video Recorder (PVR)?

Yes / 18%
No / 79%
Don't Know / 3%

Personal Video Recorder (PVR): A total of 18%of respondents say they own a Personal Video Recorder (PVR), which is essentiallya "tapeless" VCR with more features. PVRs record television shows digitally and save them to a hard drive. The digital recording technology means you control live TV, so you can walk away from the TV to do something else and pick it up later wherever you left off.

(2) Question Asked: Do you plan on buying a PVR during the remainder of 2003?

Yes / 6%
No / 79%
Don't Know / 16%

Further Breakdown

Yes - With a TiVo or TiVo-Type Service / 4%
Yes - With Just the Machine / 2%
No - I Don't Plan on Buying a PVR / 79%
Don't Know / 16%

Personal Video Recorders (PVRs) Ownership. A total of 6% of respondents plan to purchase a Personal Video Recorder this year, with two-thirds (4%) indicating they want it with a TiVo or TiVo-type service.

(3) Question Asked: Up to What Price Are you Willing to Pay for a PVR?

$999 / 4%
$699 / 8%
$499 / 29%
$299 / 46%
Don't Know / 12%

Price Points for PVR Users. Nearly one-half (46%) of respondents who said they were planning to buy a PVR during the remainder of 2003 placed the price ceiling at $299. Another 29% said they would be willing to pay up to $499.

In Sum. The percentage of current PVR owners (18%) and the percentage who intend to purchase a PVR this year (6%), combined with the preference of our respondents for the $299 price point (46%), tells us the product has entered the mass market and market acceptance is now based on price.

(1) Question Asked: Do you use cable TV with a set-top box?

Yes / 39%
No / 60%
Don't Know / 1%

Cable Users Do the Box-Step. Thirty-nine percent (39%) of respondents use cable TV with a set-top box.

(2) Question Asked: In your service area, do cable companies offer a set-top box containing either a DVD-R or a PVR?

Yes - Containing a DVD-R / 2%
Yes - Containing a PVR / 7%
No / 36%
Don't Know / 55%

Only 9% of respondents said their cable company provides a set-top box with either DVD-R or PVR capabilities.

We next wanted to know, if our respondents had an opportunity to use a PVR service with TiVo-like capability from their cable providers – would they?

(3) Question Asked: If offered in your service area, would you consider using your cable company as a supplier of a PVR service with TiVo-like capability?

Yes / 39%
No / 36%
Don't Know / 26%

Cable Providers Have Built-In Demand for TiVo-Like Services. An impressive 39% of respondents said they would consider using TiVo-like services from their cable provider if available.

(4) Question Asked: How much extra would you be willing to pay per month to your cable company for a PVR service with TiVo-like capability?

$5 monthly / 38%
$10 monthly / 45%
$20 monthly / 7%
$30 monthly / 1%
Don't Know / 9%

The Price is Right for TiVo-Like Services.Among those who said they would consider using their cable company as a supplier of TiVo-like capabilities, more than one-half (53%) said they would be willing to pay $10 or more to their cable provider for TiVo-like capabilities, a clear signal that ready demand exists for this service.

(D) Satellite Radio Section

(1) Question Asked: Do you currently have a subscription to Satellite Radio for your own car or home?

Yes / 3%
No / 96%

Further Breakdown

Yes - For My Car / 1%
Yes - For My Home / 1%
Yes - Both / 1%
No Subscription for Satellite Radio / 96%

(2) Question Asked: Do you plan on purchasing a Satellite Radio subscription during the remainder of 2003?

Yes / 9%
No / 82%
Don't Know / 10%

Satellite Radio Still on First Leg of the S-Curve. While only 3% of respondents currently have a subscription to Satellite Radio – a sure sign the technology is still in the early adopter phase of the market – 9% of non-owners do say they intend to buy a Satellite Radio subscription this year.

Further Breakdown

Yes - For My Car / 5%
Yes - For My Home / 1%
Yes - Both / 3%
No - I Don't Plan on Buying a Satellite Radio Subscription / 82%
Don't Know / 10%

(3) Question Asked: Which Subscription Service Do You Currently Have or Plan to Have?

XMSR / 49%
Sirius / 36%
Don't Know / 15%

XM Satellite Radio Tops the Charts. Market leader XMSR holds a 49% to 36% lead over Sirius among respondents who either currently subscribe or plan to subscribe. However, compared to an earlier Alliance survey, Sirius is gaining on rival XMSR.

(E) Satellite TV Section

(1) Question Asked: Direct TV and DishNet are now being offered to consumers via mobile satellite systems for SUVs, RVs and Boats. It won't be long before a portable Satellite TV Set hits the market that is similar to the XM Satellite Radio boom box.

Assuming a portable Satellite TV set/subscription is rolled out at an affordable rate, how appealing would this technology be to you and your family?

Very Appealing / 12%
Somewhat Appealing / 38%
Not Appealing / 43%
Don't Know / 7%

TV Going Mobile. A surprising 50% of respondents said an "affordable" portable Satellite TV set/subscription would be either "very" (12%) or "somewhat" (38%) appealing. This is the first time we have asked this survey question of the Alliance, and the results suggests solid prospects for such a service.

(F) Satellite Internet Section

(1) Question Asked: Finally, let's say you could have unlimited use of a mobile, 24 hr. a day / 7 day a wk., high speed (256K+) Satellite Internet service, that worked from Hawaii to Bermuda and across the whole North American continent.

How significant would an affordable Satellite Internet service of this type be to you personally?

Very Significant (A Killer Application – It Would Alter the Way I Use the Internet & Communicate) / 28%
Somewhat Significant (It Would Be Nice to Have - But Wouldn't Alter the Way I Use the Internet & Communicate) / 50%
Not Significant (I Have No Interest in Such a Service) / 19%
Don't Know / 3%

Satellite Internet, the Next Killer App? More than one-quarter (28%) of respondents said that a “24/7 Satellite Internet Service” would be a “Very Significant Killer Application” that would alter the way they use the Internet and communicate. Another 50% of our Alliance early adopters say such a service would be "somewhat significant."

(2) Question Asked: How much would you be willing to pay monthly for such a mobile Satellite Internet service?

$150 per month / 1%
$100 per month / 6%
$50 per month / 32%
$25 per month / 20%
$10 per month / 8%
Wouldn't Pay for Such a Service / 11%
Don't Know / 22%

Price Points for Satellite Internet. Two-in-five respondents (39%) would be willing to pay $50 per month or more for a mobile Satellite Internet service. Seven percent (7%) would pay $100 or more. An additional 20% say they would pay $25 per month.

Summary and Analysis

For 25 years, VHS videocassettes dominated the video rental business. Now, only six years after its introduction, the DVD has supplanted the ubiquitous plastic box – e.g., during the second week in June, for the first time, DVD rentals outpaced videos rentals.

Since their launch in 1997, DVDs – which offer crisper digital pictures, clearer sound and are longer lasting – have steadily made gains against the older, video technology. Similarly, many of the new technologies and products covered in this survey appear ready to heat up the home entertainment environment during the remainder of 2003 and beyond -- by offering a wider range of features, better value, and more freedom and flexibility.

(A)Digital Video Recorders (DVD-Rs)

Nearly one-in-five (19%) respondents own a DVD-R today.

Computer-based DVD-Rs outnumber home entertainment DVD-Rs by better than a 2-to-1 margin.

Nineteen percent (19%) of respondents plan to buy a DVD-R during the balance of 2003; among these buyers, 42% will combine it with their entertainment system while 58% will link it to their computer.

Forty-eight percent (48%) of respondents said $299 was the price point where they would buy.

DVD-Rs Rapid Acceptance. These findings reflect both the increased desire of consumers to use DVD-Rs in the entertainment area and the falling prices of units. The percentage of respondents who currently own a DVD-R (19%) is equal to the percentage who say they intend to purchase DVD-Rs this year (19%), indicating the technology is rapidly moving up the “S-curve” and entering the mass-market phase. Looking ahead, while a majority still says they will link it to their computer rather than their entertainment system, there is a clear shift occurring towards DVD-R entertainment usage (i.e., the living room).

(B)Personal Video Recorders (PVRs)

Eighteen percent (18%) of respondents own a PVR, and another 6% plan to purchase one this year.

Almost half (46%) of respondents said they would buy a PVR at the $299 price point.

PVRs Go Mass Market. The percentage of current PVR owners (18%) and the percentage who intend to purchase a PVR this year (6%), combined with the preference of our respondents for the $299 price point (46%), tells us the product has entered the mass market and market acceptance is now based on price. PVR capability will undoubtedly spread as the device becomes incorporated into cable boxes, audio jukeboxes, DVD-Rs and other home entertainment devices.

(C)TiVo-Like Services

TiVo-like services will be bought by two-thirds of the new purchasers of PVRs this year, representing 4% of all respondents.
An impressive 39% of respondents also said they would consider using TiVo-like services from their cable provider if available.
More than one-half (53%) of our respondents said they would be willing to pay $10 or more to their cable provider for TiVo-like capability, a clear signal that ready demand exists for this service.

Cable Companies Well-Positioned For TiVo Battle. In a previous ChangeWave Alliance survey, 39% of respondents said they subscribe to digital cable. In the current survey, the same percentage now say they’d consider TiVo-like services from their cable company. These findings suggest cable delivery of TiVo-like services could follow an adoption rate similar to digital cable if offered for $10-$15.

TiVo itself currently charges $12.95 per month.

(D) Satellite Radio

Satellite Radio Broadcasts 2003 Growth. The technology still appears to be in the early adopter phase of the market, based on the 3% ownership rate among respondents and the 9% who say they intend to purchase it this year. Interestingly, compared to an earlier survey Sirius is gaining on rival XMSR.

(E) Mobile Satellite TV and Satellite Internet Service

Beam Up, Tune In. The desire for Mobile Satellite Television was higher than we anticipated. A surprising 50% of respondents said an "affordable" portable Satellite TV set/subscription would be either "Very" (12%) or "Somewhat" (38%) appealing.

Another 28% of respondents said that a “24/7Satellite Internet Service” would be a “Very Significant Killer Application” that would alter the way they use the Internet and communicate. And 50% of our Alliance early adopters say such a service would be "Somewhat Significant." This is the first time we have asked these survey questions of the Alliance, and the results suggest solid prospects for both types of services.

II. ChangeWave Research Methodology

This report presents the findings of the latest ChangeWave Alliance survey on consumer entertainment devices, conducted June 4 - 9, 2003. A total of 452 Alliance members participated.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (58%) have advanced degrees (e.g., Master’s or Ph.D.) and 94% have at least a four-year bachelor’s degree.