TiVo shares rise 7.5% after jury rules in its favor against EchoStar's DVRs

Tue, 04/18/2006 - 7:27am

Copyright 2006 Gannett Company, Inc.
All Rights Reserved
April 18, 2006 Tuesday
By David Lieberman
From Lexis Nexis

NEW YORK -- TiVo investors hit the thumbs-up button on Monday, the first trading day after a Marshall, Texas, jury ruled that EchoStar's digital video recorders (DVRs) violate a key TiVo patent.

TiVo shares hit a two-year high of $8.65, up 7.5%, after the U.S. District Court panel upheld TiVo's method for pausing live TV shows. That process enables users to simultaneously play back, fast-forward through, or rewind part of a program while another part is being recorded.

The verdict, along with DirecTV's agreement last week to continue serving its TiVo customers until 2010, follows years of growing gloom about TiVo's ability to compete. Satellite and cable operators are vigorously promoting their own DVRs and other technologies that enable customers to watch shows whenever they want.

"Do we still have challenges? Sure," CEO Tom Rogers says. But the verdict "changes the perception of TiVo. We're not just a brand and a user interface."

Several analysts seemed to breathe a sigh of relief.

The verdict "removed from TiVo the risk of irrelevancy," says Harris Nesbitt analyst Leland Westerfield, who raised his stock price target to $13 from $9. "If TiVo had lost this case, it would have been dust in the wind. No profits and no patent portfolio is a weak position" to be in.

Citigroup's Tony Wible is even more bullish, raising his target to $15 from $9. Although TiVo already has a licensing deal with Comcast, he says the DVR pioneer could generate an additional $260 million a year in cash flow, and boost its equity value by as much as $961 million, if other operators agree to pay TiVo as much as $2 per DVR a month.

"If TiVo gets 20% to 25% of the (cable DVR) subscribers, they get a large cash annuity stream," Wible says.

But the case isn't over yet. The judge still must decide whether to grant TiVo's request for an injunction that would bar EchoStar from selling its DVRs while it appeals the verdict.

EchoStar also says that the U.S. Patent Office "is in the process of re-examining TiVo's patent, having determined there is a substantial question concerning the validity of the patent."

EchoStar has a countersuit against TiVo, although Rogers says, "It's not something we're losing sleep over."

It's unclear how much pressure cable operators will feel from the verdict. Sara Stutzenstein of Scientific Atlanta, a major cable equipment provider, says its DVRs "are not affected by the outcome" of the case, but she declined to say why.

In addition, TiVo's patents don't seem to cover Cablevision Systems' planned "network DVR" -- which other operators are eyeing. It enables digital cable service subscribers to use their existing set-top boxes to get a DVR-like service but with shows recorded on a server outside the home.


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