While brand name “producers” can make a few cents profit on their DVD burners based on their name and reputation, the people who actually assemble the units – BenQ, Lite-On, AOpen, MSI and a few others -- are only able to sell on the basis of price. But most of these Taiwanese producers saw the writing on the wall and were able to make their own DVD recorders (DVRs) and earn a little better margin.

The units without hard drives in them went nowhere so now all DVRs also have hard drives. Consumers, speaking with their credit cards, are saying the more drive capacity the better. In 2004, more than 15 million DVRs have been sold and over 70% contain a HD. While the units started out with 20GB drives, demand quickly dictated that people wanted 40-80GB drives and we're seeing a lot retail action for the 250-300GB HD-based units. HDs continue to be the backbone of most applications.

The great thing is that once people start using a DVR they stay with it. According to Forrester 60% of the people who have these devices use them all the time and (surprise) they skip 92% of the ads.

This entertainment server evolution hasn't gone unnoticed with the PC manufacturers and the first of the year we'll see PCs that look like DVRs with brains, huge memories (500+GB), network capabilities and more. The biggest challenge for these producers is understanding what CE manufacturers already know – you don't leave the unit run all the time (MS solution to the warm-up problem), it has to come on instantly (that means a Linux kernel) and it has to be whisper quiet.

The second challenge for the PC manufacturers will be to resist MS “influence” to ensure the system in the living room is really a PC first. Too many seem to forget that PCs have only penetrated about 50% of the homes and that number has remained relatively constant despite the ready availability of $200 - $300 “computers.”