TiVo faces uncertainty after DirecTV cuts ties
Copyright 2004 Reed Elsevier Inc.
When TiVo prexy Marty Yudkowitz gathered reps from the advertising industry and Hollywood in May in Santa Monica, he proudly touted his company's value to marketers.
"I think TiVo's value to TV advertising may end up being, ironically, the biggest impact that TiVo brings to the TV industry overall," he told the gathered group.
While the point of the event was to draw advertising dollars, the message spoke volumes: The company that pioneered digital video recording is no longer selling itself primarily as a DVR provider.
Instead, as it faces the impending loss of its highly profitable partnership with DirecTV and increasing competition via generic offerings from cable providers, TiVo's positioning itself to marketers and the public as a premium media company, worthy of the extra cost. It's a risky strategy, but seems to be the only option left in TiVo's arsenal.
"TiVo is trying to sell itself as a consumer-focused provider of premium services because they're losing DirecTV and haven't been able to find a deal with a cable company," says William Kidd, managing director of Vintage Research. "But at the end of the day, most consumers are simply going to think of the DVR as something you get from your cable or satellite provider."
While the company insists it continues to talk to cable providers, Yudkowitz admitted in May that talks have been "more complex and time-consuming than we hoped." In the meantime, cable providers have started offering their own DVR services through set-top box manufacturers Scientific-Atlanta and Motorola.
So TiVo has turned to its retail business, selling its own boxes at stores like Circuit City and Best Buy. The company announced in March a $50 million subscriber acquisition plan it says will double its number of subs and bring the company to sustainable profitability by 2006.
First stages of the investment haven't born much fruit, though. In the quarter ending April 30, about 75 percent of its new subscribers — 196,000 out of 264,000 — came through partner DirecTV. And in the current quarter, virtually all of TiVo's net subscriber growth is expected to come from DirecTV, while sales of TiVo boxes at retail are projected to stay largely unchanged.
That's news not just because the company's share of the $4.99-per-month TiVo/DirecTV subscribers pay is far less than the $12.95 per month its charges its own subscribers. More importantly, it's all but assured TiVo will start getting significantly fewer DirecTV subscribers by the end of the year, when the satcaster is expected to start offering a generic DVR technology from NDS, a sister company under News Corp., to its subscribers.
The two companies' contract calls for DirecTV to offer TiVo through 2007, but once the NDS offering launches, most subscribers will likely opt for the cheaper alternative.
Satcaster has already indicated that it's not a big believer in TiVo's future. DirecTV sold its 4 percent stake in the DVR company on June 7, several days after its vice chairman, Eddie Hartenstein, left TiVo's board, sending TiVo stock tumbling 15 percent.
One of TiVo's responses has been to promote its premium services that can generate additional revenue on top of the regular subscription fee. On the day the DirecTV divestment news came out, company leaked word that it's working on plans to deliver video and audio content to its box via the Net. Plans are so preliminary, though, that no specific details or timing have been mentioned.
What it's now offering are options such as digital photos and music that can be accessed by users with home networks and broadband Internet access.
Company has also slashed prices on its boxes, with the lowest-price TiVo hardware now just $129.
For the average TV viewer, though, these changes won't make a big difference. The price cut leaves the cheapest TiVo box costing $129 more than DVR hardware from a cable or sat provider, and home networking is still largely used only by tech heads.
TiVo can thus either aim to survive on premium revenue from ads to its base of loyal subscribers, which currently totals about 1.6 million, or by pulling off the Hail Mary of a deal with a major cable provider.
Some observers have suggested TiVo may make a good acquisition target, although Kidd discounts the logic of such a deal, given how little TiVo's brand name now means. Instead, he notes, TiVo may strike back against generic DVRs by suing them for patent infringement, as it has already done to satcaster EchoStar.
It's not the friendliest of options, but it might be the only way for TiVo to prove that being the first mover in the DVR market still matters.