TiVo-in-2002-Consumer-Behavior

9-502-062REV:JULY26,2002________________________________________________________________________________________________________________ProfessorLucWathieuandResearchAssociateMikeZogliopreparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2002PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.LUCWATHIEUTiVoin2002:ConsumerBehaviorItwasMarch2002,andTiVowasstillaliveandkicking.Launchedin1999asabundleofrevolutionaryfeaturesthateveryTVusershouldinstantlyembrace,TiVo(creatorofthepersonalvideorecorderorPVR)hadasurprisinglyslowstart(Exhibit1).Lackofawarenesswasfirstaccusedforthelacklustersales,butasthemarketingteamwasexploringwaystocreatethebuzz,theyrealizedthattherewasamoreprofoundproblemofdefiningandcommunicatingaclearunifyingandrelevantmeaningforTiVo.ThisproblembecameevenmorepressingassoftwareindustryleaderMicrosoftannouncedthelaunchofcompetingproductUltimateTV.TheideathatemergedwasthatTiVomightgrowstrongerandpre-emptcompetingproductsinthemindofconsumersifitwaspositionedasasmartandfriendlyservicethatcouldimprovetheirlifestyle.ThiswastheframeworkunderwhichmostofthemarketingdecisionsatTiVo(includingtheirpopulartelevisioncampaigns)weremadeinthelaterpartof2000and2001.Therewerenow380,000TiVosubscribers,withrecentquarterlygrowthratesof36%(latest),22%,and21%(seeExhibit1).Microsoft’sUltimateTVexperiment(availableonlytosatellitetelevisionsubscribersthroughproviderDirecTV)resultedinafailure;afteraccumulatinglessthan50,000subscribers,theUltimateTVunitofMicrosoftwasdisbanded.ReplayTV,anearlycompetitor,hadwithdrawnin2001beforere-enteringthemarketafewmonthslaterwithredesignedhigh-endPVRsandapromisetopursuethemassmarketwithmoreaffordableunitssoon.TiVo,introducedinitiallyinstandaloneblackboxesbrandedPhilipsandSony,wasnowavailablebundledwithsatellitetelevisionreceiverDirecTV(sharingthesameplatform)andwithaspecialmodelofAT&Tcablereceiver.Otherkeyeventsincludedtheintroductionofatwotunersystem(allowinguserstorecordaprogramwhilewatchingadifferentchannel)andtherecentlaunchofTiVo“Series2”(supportedbyDirecTV)whichallowedconsumerstocontrolandorganizenotonlytelevisioncontentbutalsodigitalmaterialsdownloadedfromtheinternet,theirvideocameras,andotheraudioequipment.DirecTV’scommitmenttoTiVonowincludedfinancialresponsibilityforcustomeracquisitioncosts.BestBuywasnowtheexclusiveretailerofTiVo.ThemonthlysubscriptionforownersofstandaloneTiVounitswasincreasedto$12.95permonth(vs.$9.99forDirecTVcustomers).Butnotallthenewswasgood.Thenumberofsubscriberswasstillmuchlowerthaninitiallyforecasted,andtheprofileofsubscribersremainedquitenarrow,raisingquestionsastowhetherTiVowouldeverhaveuniversalappeal.Penetrationintothebroaderconsumermarketwould127502-062TiVoin2002:ConsumerBehavior2determinewhetherTiVohadthepotentialtobecomeakeyplayerinthetelevisionbroadcastingindustry,challenging(oraddingvalueto)theconventionalvaluechaininvolvingnetworks,contentproviders,advertisersandserviceoperators(satelliteandcable).ThefailedlaunchofUltimateTVhadanegativesidetoit,inthatMicrosoftwouldnotcontributeanymoretothepromotionofthecategory(nowgenerallyreferredtoeitherasPVR(personalvideorecorder),orDVR(digitalvideorecorder))toconsumersandinvestors.EventhoughthecompanywasbackedbykeyplayersoftheentertainmentindustrysuchasAOL-TimeWarner,NBC,theDiscoveryNetworks,andDirecTV,TiVo’sfinancialsituationremainedasourceofanxiety(seeExhibit2).Generatingpositivecashflowwasthecompany’scurrentobjective,evenifthatmeantslowergrowth.BreakingThroughtheInertiaAsaresult,themarketingteam,headedbyBrodieKeast,SeniorVicePresidentandGeneralManager,MediaandServices,wasunderconsiderablepressureto(1)furtherunderstandthenatureofTiVo’sappealforpotentialandexistingcustomersand(2)encouragealltheotheractorsinvolved(advertisers,televisionnetworks,contentowners,andserviceoperators)toaccountforTiVo’srelevanceinthelifeoftelevisionconsumers.Keastexplained:Usershavechanged.Beyondtheearlyadopters,whoweremostlyyoungandmostlymen,wenowhaverelativelyaffluentconsumerswithafamily.Weseemtobeabletospeakdirectlytobusyfamilieswithyoungchildren.Theyareinvolvedtelevisionviewers,butatthesametimetheyarebusy,andTiVohelpsthemorganizetheirtimebetter.Nowwewouldliketoreachprospectsthataremoremainstream,whodon’tcurrentlyperceiveTVasaproblem.Despiteinertia,TiVocouldsignificantlyenhancetheirexperienceofnavigatingthroughabroadrangeofprograms.Whatweobservewithourcustomersisadeepemotionalresponse.Itismorethantechnology.Andwethinkthatitshouldbepossibletobreakthroughtheinertia,usingthatemotionalresponse.Wealsofeelthatthereissomekindofagapbetweenwhatcons