Even as digital video recorders become more popular as a service offering from cable and telecom service providers, they may be facing a limited future, one leading analyst is saying.

Brahm Eiley, analyst at Convergence Consulting, a Toronto-based firm that has been studying technology and cable-telco-satellite competition for the last 10 years, believes the cable industry is preparing to pull back on some of the DVR capabilities--namely, the fast-forward button--that threaten to undermine the advertising revenue that sustains content creation today. That conclusion comes in two reports issued this week by Convergence--"The Battle for the North American Couch Potato: New Challenges and Opportunities in the Content Market" and "The Battle for the North American Couch Potato: Bundling, Internet, TV, Telephone."

At the current run rate, half of all U.S. houses will have DVRs by the end of 2010, Eiley said. And if the ability to time-shift viewing of TV shows is accompanied by the practice of fast-forwarding through commercials, then advertisers are not likely to continue shelling out the $71 billion in advertising revenue that the U.S. television industry generated last year, he said.

“Time Warner Cable is testing this network-based DVR,” Eiley said. “At the same time, Time Warner and Comcast are testing movies released to video on demand on the same date they are released to DVD, in a couple of markets. We think they will be willing to pay the studios a higher cut of the video-on-demand revenue in order to get movies earlier in the release cycle.”

Television shows could also move into VoD soon after they were aired, Eiley said. At the same time cable companies would offer the enhanced VoD capability, however, they would eliminate customers’ ability to fast-forward in order to avoid seeing ads. Consumers would have many more VoD options and could still time-shift their viewing.

“Something has to give,” he said. Without advertising revenue to support content creation, television would become much more expensive to consumers through higher cable rates. “It’s unrealistic to think that consumers could make up all that lost advertising revenue.”

Conversely, if some video service providers continue to offer DVRs that can skip ads, they might find content becoming much more expensive, Eiley said. That becomes an issue in the ongoing telco-cable wars because AT&T and Verizon are counting on their multiple room DVR capabilities to win consumers’ hearts over cable offerings with a single-room DVR or satellite plans with a two-room DVR.

And while Eiley admits he is speculating as the cable company plans, he points to deals such as the recent Disney-Comcast agreement, which was more comprehensive and covered movies and broadcast content.

“It will come down to a deal for better pricing on content with the big TV companies, especially cable companies, and at the same time we will see movement away from the DVR and a move toward this network kind of DVR, that doesn’t include a fast-forward button,” he said. “The satellite companies might pull back from DVR as well.”

Eiley admitted that might open the door for consumer electronics makers or companies such as TiVO to step in and give consumers something to which they have already grown accustomed.

As broadcasters have moved their content onto the Internet, allowing shows to be downloaded, they have seen an increase in online ad revenue, but it is unlikely to replace broadcast advertising revenues, he said.