TiVo's success breeds new competition and products
Reuters Posted online: Monday, February 21, 2005 at 1338 hours IST
New York, February 21: TiVo Inc's days as the coolest TV technology on the block may be over, as the pioneer of digital video recorders begins to look more and more like an acquisition target as bigger electronics players start moving onto its patch.
The changes ahead could chill some consumers as they wait for the arrival of new products. A similar change occurred in 2003 when DVR (digital video recorder) maker ReplayTV saw its commercial-skipping feature was unplugged after it was acquired by Japan's D&M Holdings Inc.
Tivo brought DVR technology into the mainstream of consumer products. Recently it hit three million subscribers for its fee-based service, which lets users pause live TV, skip ads and record dozens of hours of shows. Now bigger electronics rivals, seeing its success, are expected to bite into TiVo's prospects, and as a result, its revenue and chances at turning a profit anytime soon.
"It is increasingly difficult to see how TiVo survives as a stand-alone company," said Vintage Research analyst William Kidd.
Sean Badding, president of the consulting firm Carmel Group said that rival DVR makers like NDS Group Plc, which is controlled by News Corp, and Scientific-Atlanta, will in the next 6 months debut a new generation of boxes that could exceed TiVo's technology.
"They are encroaching on TiVo's market share, onto TiVo's turf. Every day that passes ... it gives cable operators less reason to move to a TiVo," Badding said.
But don't tell that to Comcast Corp subscribers in Silicon Valley, who have suffered through snags in its recent rollout of DVRs made by Motorola. According to reports, about 1 in every hundred of the set-top boxes freezes while recording their favorite television shows.
FOCUS ON FORECAST
So far this year, several glancing blows have battered down TiVo's stock by 40 per cent. They include the planned exit of key executives -- including CEO Michael Ramsay -- and evidence that its most important partner, DirecTV Group Inc, may phase TiVo out as its top supplier of digital video recorders.
Undeterred, TiVo recently turned up the heat on its rivals with "Tivotogo," which lets users move recorded shows to a laptop or handheld computer, by hooking the machine into a home computer network. Tivo has also invited legions of software writers to build cool applications for TiVo.
Like Apple Computer's iPod digital music player, TiVo is still the big name in the burgeoning DVR market, which is expected to grow to about 31 million in 2008 from 8 million in 2005, according to The Carmel Group.
But its hopes for keeping pace rely on its ability to convince consumers to keep buying its boxes, starting at about $100, install and configure them themselves, and then pay a monthly fee. By contrast, with cable or satellite DVRs, the "cable guy" comes, connects those wires and plugs, and an hour later hands you a remote control and says "you're good to go." The service costs far less than TiVo's and is included in the cable bill.
Still, for its $13 monthly fee, TiVo offers far more control over digital media in the home, particularly those with high-speed Internet connections. Snapshots taken with a digital camera can be viewed on a TiVo screen, and you can program its TV guide to automatically record, for example, every Denzel Washington film or TV show that is broadcast.
Tivo, trying to keep its cutting-edge lead, will be unveiling still more ways to grow its subscriber list, possibly when it discloses its earnings next month. It will either continue to subsidize, via rebates, the price of TiVo models sold at retail or perhaps announce a new distribution partner.
TiVo is also still talking to cable and telecoms companies about new distribution channels that will grow TiVo's subscribers, sources close to the company say. The lack of such a deal has helped drive its stock down to 1-1/2 year lows at just under $4, analysts said.
With its base of loyal users, Forrester analyst Josh Bernoff said, "They could stop building new devices, cut back on their marketing expenses and settle with being a company with just a few million subscribers." But that probably wouldn't please investors much.
ACQUISITION TARGET
While TiVo's Ramsay has insisted that no sale is in the works, speculation continues regarding who might buy the Alviso, California, company, now valued at about $300 million.
Potential suitors might include consumer electronics device makers, such as Sony Corp, or media conglomerates looking to beef up their DVR offering, such as John Malone's Liberty Corp, which has a track record of buying interactive TV technology companies.
"(In light of its recent acquisitions), maybe Comcast wants some of TiVo's intellectual property as well," said analyst April Horace of Janco Partners.
TiVo's boardroom decision should not affect its current subscribers in the near term. But experts say the concern lies more in those who choose not to seek out TiVo, should their cable or satellite company give them a DVR.
"If a customer has some kind of DVR capability, it is good enough for them -- they will not know the difference," said Sean Badding of Carmel Group. With so many products heading into the marketplace a lot more of them will have it soon.
