The case for the free cord cutter DVR
Tivo’s new over the air (OTA) only DVR, the Tivo Roamio OTA, is a test of both the market – and pricing. Tivo’s aggressively priced it at $49 – over $100 less than any other Tivo product, and $150-200 less than competing cord-cutter products like Tablo or SimpleTV.
Tivo testing the market with a limited production run sold only in Best Buy, inspired by the success of Aereo (before the Supreme Court shut them down).
As someone who is in the process of cutting the cord, I’ve developed a lot of firsthand experience with these products – and the mindset of the consumer. Though I don’t have the clickstream data at Tivo or these other companies, I know the behavior. Price is a critical factor in the psychographic of this market – more so than most markets, which makes pricing very interesting here.
Let’s make this about me (this is a blog, right?). It all started with my cable provider’s call answering software suggesting I upgrade my cable modem. I realized that I had spent $500 over the course of 4 years “renting” something I could buy on eBay for $50. So I fixed that.
They then botched the upgrade to their new and improved DVR several times (4 to be precise). Now, their DVR is probably worse than the industry leader (Tivo, of course). But it’s free up front. On the 5th attempt, they somehow put the $50 up front “installation” charge back into the equation. And that was the last straw. I was done.
There’s a reason why the cable industry has pushed the “Triple play” so hard: it’s $100/month more than just internet. Wow. Get rid of that, add in a Netflix or Amazon Prime account, mooch HBO off a friend’s sister’s ex-roommate’s third cousin and pat yourself on the back: you just got a $1,500 to $2,000 pre-tax raise.
There’s one catch: sports, football in particular. The thing is, there’s this thing called network television… they invented it mid-last century, and it’s FREE. Just get an antenna (for as little as $9). And… it works!
So phone – check. TV – check. Sports – check. But wait – I can’t rewind football? I need a DVR. And hey, it makes financial sense: one season of Gotham costs $39.99 on Amazon but it’s free to record on the OTA Fox channel.
The thing about DVRs are that they cost money to make. And the thing about cord cutters is that they are cheap. I might have a $1000 TV and $1500 stereo but I’ll be damned if I pay $8/month to rent a cable modem. That kind of mentality. So what’s the winning pricing strategy for a DVR maker?
Tivo seems to be onto something. By charging $49 up front (trivial) – less than a used cable modem on eBay – I feel ok with a $15/month charge for their service.
The new entrants should be worried. Simple TV and Tablo are too expensive up front (even though they have admirably low monthly fees). Sure, $200 one time is a great deal versus $100/month savings. But by breaking the DVR and iPad streaming into 2 different products (that add up to $200 if you buy both) Tivo gets my business.
Why this should be free + subscription
We’re very excited to see how this plays out. Could the winning strategy be to give away the DVR, but charge a higher monthly fee that includes the program guide (which I don’t think most people value) and device streaming (which I think they do value – viz, Slingbox)?
And this is only more interesting when you think about who gets which fee (retailers get a big chunk of the up front fee, while the DVR maker usually gets most of the the subscription fee).
Hopefully someone will run the experiment.