The Tivo Killer
By Erick Schonfeld

(Business 2.0) – Remember copycats? Now they're known as "fast followers." Whatever you call the practice, it can be a quick path to riches. Take EchoStar, the nation's second-largest satellite TV provider. Barely nine months after TiVo introduced the world to digital video recorders, EchoStar rolled out its knockoff for subscribers. Five years later it's closing in on TiVo as the biggest U.S. seller of DVRs, adding an estimated 800,000 new DVR customers in 2004 alone. That brings its total to 2 million—still 800,000 fewer than TiVo's, but far more than any other cable or satellite provider.

Even fast followers are followed, of course, and now every other cable and satellite company offers its own DVR. So what gives EchoStar the edge? The company undercuts its rivals on price: Last year it started giving away its set-top boxes for free—TiVo's entry-level model costs $99—and fixed the monthly fee for its DVR service at $5, or $8 less than TiVo's. Those measures helped EchoStar gain on satellite leader DirecTV (which is TiVo's biggest partner, though it's expected to introduce its own DVR this year) and siphon customers away from cable companies like Comcast, which not only charge more but have been slow to roll out DVR services.

For EchoStar, the benefits of price chopping have far outweighed the costs. DVR customers generate more revenue than non-DVR subscribers, and they're less likely to jump to another service. Nothing proves the point better than the bottom line: On the strength of its DVR push, EchoStar's profits in its most recent quarter tripled to $102 million. Follow that. — ERICK SCHONFELD