Digital video recording (DVR) will be a core feature of Microsoft's reference design for Media Center (formerly known as Freestyle) PCs. DVR, which allows users to record and play back TV programs from a hard drive, is also being considered for a successor to the Xbox gaming console. Microsoft's continuing interest in DVR could increase demand for large hard drives and TV tuner cards, and might eventually impact the TV industry by making it easy for users to bypass advertising. It also means that competitors such as TiVo and ReplayTV will continue to face competition from Microsoft, despite lackluster sales of the company's first DVR product, UltimateTV.

DVR to Drive Freestyle Sales

In Jan. 2002, Microsoft announced the Freestyle PC, a reference design for an entertainment-oriented PC that will be built by OEM partners, including Hewlett-Packard, NEC, and Samsung. Early information about Freestyle focused primarily on two features: remote-control hardware designed by Microsoft and Philips Electronics; and a new user interface, provided via an updated version of Windows XP, that makes it easier to use a PC with a standard-size monitor and remote control from 10 feet away.

The company has since revealed that all Media Center PCs (the official name for Freestyle) will feature built-in DVR technology. According to Product Manager Jodie Cadieux, the operating system update will only be available on new PCs, and these PCs will come standard with a TV tuner card and a hard drive large enough to enable program recording and pausing. Exact specifications for the Media Center PC have not been revealed, but ReplayTV offers DVR devices with between 40GB and 320GB of storage, allowing users to store between 40 and 320 hours of programming using MPEG 2 encoding.

Internet-connected Media Center PCs will periodically download seven days of program listings based on a user's location, at no cost and with no user intervention. This could put pressure on DVR pioneers TiVo, which charges US$13 a month for its program listing service, and ReplayTV, which charges a one-time activation fee of US$250 for its service. According to Cadieux, the user interface for selecting, recording, and playing back programs is derived from UltimateTV's interface.

(For background about UltimateTV and its status, see "TV Division Changes Signal New Realism About Market" on page 18 of the Mar. 2002 Update.)

DVR Considered for Xbox

Microsoft is also considering adding DVR capabilities to Xbox, creating a multipurpose home gaming and DVR console, which the company believes it could sell for a profit.

Several media reports claim that a team of Microsoft engineers has been working since late 2001 on a successor to Xbox (code-named Freon) featuring DVR capabilities. According to these reports, the product could be released as early as the holiday season in 2003, and it will retail for around US$500. Although Microsoft has not confirmed any such plans, the hardware engineers from UltimateTV moved to the Xbox team in early 2002, and Bill Gates, Microsoft’s chief software architect, has spoken about the possibility of adding DVR capabilities to Xbox. (See "Bill Gates on the Future of Xbox" on page 18 of the July 2002 Update.)

The move could shore up the Xbox group's finances. If Microsoft can get US$500 for an Xbox simply by doubling or trebling the size of the hard drive and adding software already developed for UltimateTV, the company would make a healthy profit on each sale of the product, instead of losing more than US$100 per unit as it does with the first-generation Xbox console today.

More information about Media Center is at www.microsoft.com/windows/ehome/.

The Xbox site is www.xbox.com.

Information on UltimateTV and its DVR features is at www.ultimatetv.com.