Copyright 2004 Reed Elsevier Inc.

November 23, 2004, Tuesday

Daily Variety

TiVo once again experienced strong subscriber growth last quarter thanks to its DirecTV partnership, but saw its own sub count grow more modestly and at the price of sharply higher marketing expenses.

Digital video recorder company exceeded its guidance for DirecTV subs, which came in at 316,000, well above its prediction of 240,000 to 280,000. But TiVo-owned subscriptions, in which consumers buy a set-top box at retail, only reached the low end of TiVo's guidance, totaling 103,000 in a quarter that was predicted to add 100,000 to 120,000.

Total subscribers reached 2.3 million.

TiVo receives only a portion of a $4.99 monthly fee for DirecTV-TiVo subscribers, while it sells a set-top box worth $99 or more and charges $12.95 per month to its own subscribers.

Revenue was up 25 percent to $28.4 million for the quarter ended Oct. 31, while net losses shot up more than 250 percent to $26.4 million compared with a year ago.

With DirecTV preparing to start offering its own DVR service via News Corp. corporate sibling NDS, TiVo is investing significantly in marketing to add its own subs. Its current $50 million promotional campaign increased its marketing costs during the quarter by 150 percent to $14.2 million.

Reaching only the low end of its guidance for its own subscribers, despite that heavy investment, was a disappointment to TiVo, although continued growth from DirecTV helped cushion the blow.

TiVo chief exec Mike Ramsay said reported delays in the rollout of a generic DVR for DirecTV powered by NDS until later in 2005 would help his company in the short run, but he's looking to better differentiate TiVo as a premium service to fight off the increasing number of generic competitors integrated into cable or satellite company boxes.

"We feel we should be focusing our standalone business on differentiation and new capabilities," he stated.

This includes TiVo-powered DVR/DVD recorders, technology that allows users to transfer recorded TV shows to computers and an upcoming partnership with Netflix that will let subscribers download movies onto a TiVo box.

Exec said his company is also exploring integrating digital cable cards into TiVo boxes that would let the digital video recorder also operate as a cable box.

As it enters the holiday season, TiVo is looking to continue to increase costs and accelerate the addition of subscribers. Company's guidance calls for it to add 575,000 to 700,000 subs in the current quarter, with 200,000 to 275,000 of those TiVo-owned and 375,000 to 425,000 with DirecTV. That could bring its total subs to 3 million by Jan. 31.

Revenue is expected to grow to between $32.8 million and $33.8 million, while operating losses would hit $33 million to $36 million. Operating loss last quarter was $26 million.

TiVo stock was down 2 percent Monday at $5.88 before earnings were announced.