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August 16, 2005

TiVo Shareholders Still in Denial

The value of TiVo's shares declined over 6% in heavy trading last Thursday, after Reuters reported that DirecTV CEO Chase Carey had said that his company would cease marketing and promoting TiVo's DVR service as soon as it launches a DVR of its own later this year. I am surprised that there are still TiVo shareholders that did not know that this was inevitable.

DirecTV's "DirecTV with TiVo" service currently makes up around two thirds of TiVo's subscriber base. At the end of the first quarter, 2.1 million of TiVo's subscribers were "DirecTV with TiVo" customers, as were 247,000 of the 319,000 net new subscribers the company gained during the quarter.

DirecTV is planning to offer a high-capacity DVR, based on the XTV technology of its sister company, NDS. In addition, DirecTV plans to launch sometime next year an ultra-high-capacity version of the new box, which will be designed to enable the satellite TV provider to download a broad selection of encrypted movies and TV programming to its hard drive. This move helps mitigate part of the competitive disadvantage it faces from the VOD services offered by cable operators.

The new Sky Def Set Top Box replacing TiVo also has broadband connectivity.

TiVo appears to be conducting a two-pronged strategy to make up for the possible loss of the "DirecTV with TiVo" business.

On the one hand, it is pursuing deals with cable operators: in March, it announced that it had reached a non-exclusive deal with Comcast to integrate its service with the latter's DVR's. Time Warner Cable CEO, Glenn Britt, confirmed that his company is also in talks with TiVo.

My take back in March about the Comcast/TiVo numbers.

On the other hand, it appears to be hoping to increase the appeal of its "standalone" service, by, among other things, transforming it into a vehicle for the delivery of broadband programming. On this second point, Om Malik has an interesting question: why not just buy Akimbo?

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