ByColin Dixon – IP Media Practice Manager
There has been much speculation over the fate of TiVo. The investment community frets over the failure of TiVo to close business with the big operators. The advertising folks fret about the TiVo’s lack of a large demographic footprint. The content community frets about the technology in general. The analysts pontificate over every missed deadline, every slip in subscriber growth, and each and every new product or service strategy TiVo announces.
With all this negativity and noise it’s very easy to lose sight of the fact that the TiVo has before it a wonderful opportunity.
The Background
It seems that finally TiVo is experiencing some good news. Last month it delivered the TiVo Series II dual tuner DVR, won an important patent infringement case against Echostar, and is seeking an injunction to stop Echostar from shipping an (infringing) two-tuner DVR.
Subscribers continue to grow at a healthy clip with year-over-year growth of 33% to 4.4 million, and TiVo continues to sign content and advertising deals to help differentiate its service from the competition. For example, the new Guru Guide service for TiVo subscribers will appeal to many who simply don’t have time to search program listings. And TiVo finally has a deal with a major cable operator, Comcast, to deliver a premium DVR service.
So, should all of this be cause for celebration in the Alameda halls of TiVo’s office? That would be ill-advised, for each bit of good news seems to be offset by even more bad news.
- The TiVo Series II dual-tuner DVR is late to market, well behind most of the competition, and does not support HD.
- TiVo’s patent victories over EchoStar are unlikely to be of any short-term benefit. TiVo is unlikely to be awarded an injunction and EchoStar has promised to appeal. While several years down the road TiVo may receive a favorable finding from the appellate courts, it offers little comfort to a company suffering serious short-term problems.
- While the fact that TiVo now has 4.4 millions subscribers is notable, the lion’s share of these subscribers is through DirecTV, who has introduced its own (non-TiVo) dual tuner PVR and ships TiVo only on the high-end HD models. As TDG predicted in 2004, DirecTV’s decision to go with NDS DVRs would put a lid on TiVo’s new subscriber growth in the short-term and deflate longer-term gains over the next two to three years.
- Finally, the agreement with Comcast is only for a premium service using the existing Comcast/TV Guide-branded HD DVR. The premium TiVo service will require an additional subscription on top of Comcast’s already hefty charges so it is doubtful a large proportion of Comcast subs will sign up.
All of this is not lost on TiVo shareholders, either. With the news that its losses ballooned back up to $10M in Q1 2006, investors voted with their feet and the stock fell 10% in a single day.
But investors should not be too hasty…
Is There Any Room for Optimism?
TiVo is custodian of three assets that give it more than a fighting chance in the confusing world of today’s media market.
First, TiVo is the brand behind the category itself. Although it runs the risk of losing control of the brand (how many of us TiVo something even when we have a different brand DVR?), being the name of a revolution in television puts TiVo in a truly enviable position.
Second, TiVo’s technology provides (arguably) the best user experience of any guide or PVR product on the market. It is intuitive but non-obtrusive, a quality beloved by their customers who border on the fanatical ? they truly love the service. Recently, TiVo ran a competition to select a TiVo ambassador, who had to recommend a bunch of friends for the service and then submit a video extolling the virtues of TiVo to win. To see how passionate, if not a little scary, people can be about the services check out the results at http://www.tivo.com/4.0.fan.asp. This sort of devotion extols envy in the eyes of competitors.
Third, service innovation is superb. TiVo continues to introduce new innovative services (such as the Guru Guide) to attract new users and guarantee it keeps the ones it already has.
In combination, these three assets provide reason for optimism. But that’s just the beginning. By adding a broadband connection to the TiVo series II boxes, a whole new world of possibilities has been opened to the TiVo subscriber. This connection is not just about remote programming of the DVR or even about being able to watch recorded shows from anywhere on a home network. The deal between TiVo and Brightcove to bring broadband content to the DVR is an indicator of the direction in which TiVo is moving.
The Way Ahead
The Diffusion Group has been discussing the emergence of hybrid operators for sometime. These operators deliver broadcast television by traditional means, such as satellite or terrestrial broadcast, and layer on additional services such as VOD and games through a broadband connection. BT Vision in the UK and AT&T Homezone in the US are examples of such services.
With the addition of the broadband connection to the series II boxes, TiVo has become a hybrid operator, though in a slightly different way than other operators by over-building a guide on cable, satellite or terrestrial television. By delivering TV content over a broadband connection, TiVo is fulfilling the same function as any traditional PayTV operator ? for a certain monthly fee, you receive access to a certain range of content. The only difference is this content arrives at your home via a broadband connection instead of a cable, satellite, or terrestrial TV network.
TiVo’s evolutionary path is moving it ever onward toward direct competition with the same service operators with which it is looking to partner, a position that puts TiVo in a bit of a pickle. On one hand, TiVo is looking to establish its own hybrid architecture and begin to offer on-demand and web services directly. On the other hand, it is looking to license its IP to other TV operators (such as Comcast). The folks at DirecTV already caught wind of this ?tension’ in TiVo’s strategy and decided to look elsewhere. If TiVo pushes the ?independent operator? vision too hard, it will likely see others turn away from the TiVo solution altogether. Then again, if TiVo relies exclusively on the promises of existing TV operators it may not be around to see widespread use of the very technology it helped create.
The Bottom Line
TiVo has the intellectual property to become a unique force among TV operators. To do so, however, it must position itself as a full-fledge TV services operator, not as an operator adjunct as it is today. TiVo must recognize that its success will be earned at the expense of operators such as DirecTV and Comcast, not in concert with them. Does the company have the will to embrace this destiny? Only time will tell. But one thing is for sure: TiVo’s subscribers will be cheering every step of the way. But the question is, will the investors?
For more information about The Diffusion Group, visit our website at http://www.thediffusiongroup.com/.
