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DirecTV sells TiVo stake, relations said to be strong

Tue, 06/08/2004 - 8:00pm
David B. Wilkerson

Copyright 2004 MarketWatch.com Inc., All Rights Reserved

June 8, 2004 Tuesday 6:09 AM

San Francisco (CBS.MW) — TiVo shares fell nearly 15 percent Tuesday after DirecTV sold its stake, worth more than 3 million shares, in the maker of software for digital video recorders.

Still, the sale does not signal a change in the companies' partnership, a DirecTV spokesman said.

Adams, Harkness & Hill analyst Steven Frankel cut his rating on TiVo shares to "market perform" from "buy," partly based on concerns that Rupert Murdoch-controlled DirecTV was gradually pulling away from TiVo. TiVo has become increasingly reliant on business derived from DirecTV.

San Jose-Calif.-based TiVo (TIVO) fell $1.09 to close at $6.41. DirecTV shares (DTV) lost 5 cents to $17.50.

The stock sale was worth about $24.1 million, according to DirecTV spokesman Bob Marsocci. It was merely "consistent with our strategy to sell some of our noncore holdings," he said. "Our relationship with TiVo is strong."

TiVo added 264,000 new subscribers in the first quarter, as opposed to 79,000 in the same quarter last year. Of those new customers, 196,000 were derived from DirecTV.

More than 1 million DirecTV subscribers have TiVo-equipped set-top boxes, and DirecTV expects to add another 1 million by the end of this year.

Since Murdoch's News Corp. (NWS) (NWS.A) took a controlling stake in the company last December, DirecTV has actively been working to focus all of its attention on its direct-broadcast satellite business.

On Tuesday it said it had sold its nearly 55 percent stake in Hughes Software Systems Limited, a provider of operational services to technology companies, for about $226 million.

In March, DirecTV sold its remaining shares in XM Satellite Radio (XMSR) to an undisclosed buyer for about $230 million.

Last week's resignation of Eddy Hartenstein, DirecTV's vice chairman, from TiVo's board, helped fuel speculation that DirecTV was severing ties with TiVo. This has alarmed investors, who realize that much of TiVo's momentum has come from its alliance with DirecTV.

Adams analyst Frankel notes that he had expected DirecTV's set-top business to migrate to News Corp.'s NDS, which also incorporates DVR technology in its boxes. Still, he said, "we had always assumed TiVo would maintain a close working relationship with DirecTV."

The digital video recorder, or DVR, has received an overwhelmingly positive consumer response because the technology allows TV viewers to pause, rewind, instantly replay or view playbacks of shows, as well as skip commercials, by recording broadcasts onto a computer hard drive, rather than on a videocassette or other comparable medium.

TiVo has shifted its strategy away from consumer retail sales to the incorporation of its technology into other devices, such as satellite set-top boxes and DVD players.

Increasingly, some observers have been hoping TiVo would also partner with a cable provider. "With a cable deal shifting from a 'nice to have' to a 'must have' in the minds of investors, and with rising uncertainty surrounding DirecTV, we are moving to the sidelines," added Frankel.

1997–2002 MarketWatch.com, Inc. All rights reserved. See details at http://custom.marketwatch.com/custom/docs/useragreement.asp.

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