Services such as Sky+ and PILOTIME show strong initial appeal among early adopters. The digital video recorder (DVR) is set to play a central role in the on-demand service strategies of most digital pay-TV operators. DVR service offers a wide range of value-added functions that will appeal to the needs of most digital TV consumers--not only replacing the VCR as the preferred means for recording broadcast TV, but also promising a cost-effective alternative to true video-on-demand (VoD).

According to the Yankee Group report, On-Demand TV, Part 2: Operators Must Move Fast to Add DVR to Their Digital Proposition, operator-provided DVR service faces numerous challenges, most significantly marketing and consumer education and competition from standalone retail DVR and DVD-R units. However, as equipment prices continue to fall and platform operators increase their marketing push, consumer adoption of DVR service is increasing. The DVR's TV orientation makes it a clear contender as the home entertainment hub of the future.

"DVR services will be more widely and frequently used by digital TV subscribers than regular VoD offerings that are limited to the less ubiquitous cable and broadband platforms," says Jonathan Doran, Yankee Group Broadband & Media Europe senior analyst. "However, DVR service will become more of a value-added product enhancement than a significant additional revenue stream. Although services such as Sky+ and PILOTIME have shown a strong initial appeal among early adopters, many users will be deterred by high subscription fees. Price cuts for STBs and services will be crucial in driving DVR services into the mass market, particularly as the retail market for standalone devices gains pace."