Home' Technology Review : September 2005 Contents 36
T is a made-
for-TV drama---and a good
one. Few corporate histo-
ries better illustrate the fact
that companies can make
groundbreaking products but fail to make
money. In its eight years, TiVo has strug-
gled with a fundamental weakness: to
build its customer base, it has had to cede
its customer relationships to its partners.
That aw has made TiVo vulnerable to
the vicissitudes of the fast-changing mar-
ket for broadcast media.
That wasn't supposed to be the way the
story went. After the company for med in
1997, its then president, Mike Ramsay,
claimed that TiVo "is changing the para-
digm of television." TiVo gives subscrib-
ers the ability to save television programs
to digital video recorders (DVRs) for later
viewing. It also does other clever things,
such as recommending shows to subscrib-
ers based on their viewing behavior.
By the summer of 2000, despite slower-
than-anticipated retail and Internet sales,
TiVo seemed to have the cable and media
relationships in place to sell millions of its
DVRs. Cox Communications, NBC, Dis-
ney, and CBS had all invested in the com-
pany, and satellite broadcaster DirecTV
and cable company Comcast had agreed to
distribute TiVo DVRs to their customers.
Skip ahead to 2005. The company is
still losing money, and the partner that is
fueling most of its growth---DirecTV---will
soon promote a ser vice that will compete
with TiVo. What happened?
Going It Alone
When it started in 1997, TiVo (whose of-
cers declined to be interviewed for this
story) saw an opportunity to make the ex-
perience of watching TV as controllable
and personal as the experience of using a
PC. This was possible largely because of
the rapid improvement of storage tech-
nology: hard drives that could record
hours of video were becoming a ordable.
Also, advances in data compression algo-
rithms made it possible to capture video
streams in real time.
TiVo's product was a VCR-sized box
that could continually capture an incom-
ing television signal, enabling users to
pause and rewind live broadcasts. The
box allowed users to schedule recording
in advance by selecting programs from an
on-screen guide and could even record all
upcoming episodes of a given show.
TiVo's user interface for managing re-
corded programs set it apart from early
competitor ReplayTV, which now has less
than one-third of TiVo's market share.
"People who got a TiVo were extremely
pleased with it," says Josh Berno , an ana-
lyst with Forrester Research.
Word of mouth helped to increase TiVo
subscriptions by 86 percent between 1999
and 2000, but according to Berno , that
may have been in spite of TiVo's market-
ing strategy. In 2000, when the edgling
company had revenue of $3.6 million, it
spent more than $150 million on advertis-
ing and sales and ran a television ad that
featured network television executives be-
ing thrown out windows. "This angered
the networks with whom TiVo was trying
to partner but did not help consumers un-
derstand what the TiVo did," says Berno .
TiVo had a hard time convincing con-
sumers that they should pay $9.95 per
month---after purchasing the recording
device---to watch content that they were al-
ready receiving anyway, adds Adi Kishore,
a senior analyst with the Yankee Group.
Weak sales of TiVo boxes surprised many.
In 2000, For rester Research forecast that
by 2005, 53 million homes would have
DVRs. According to analysis rm Magna
Global, just 1.2 million DVR subscriptions
were sold in the rst quarter of 2005.
In 1999 and 2000, despite its small au-
dience, TiVo signed up several network
partners and advertisers---including NBC,
HBO, Starz Encore, and Showtime---to of-
fer interactive, enhanced programming
and advertising through TiVo boxes. But
this didn't do much to move the needle. By
the end of 2000, TiVo had fewer than
150,000 subscribers. It needed another
way to get customers.
The Initial Search for Partnerships
In July 2000, Comcast agreed to a trial in
which it o ered TiVo boxes to its subscrib-
ers in Cherry Hill, NJ. TiVo was hoping
that the trial would lead to a deal in which
Comcast would integrate TiVo software
into its set-top boxes. But Comcast balked.
According to Kishore, the main reason for
the impasse was that TiVo wanted direct
access to viewers, which Comcast was un-
willing to concede. This access, TiVo
knew, was of enormous value: through its
DVRs, TiVo gathers data about viewing
habits---such as whether viewers skip over
a given ad or watch it repeatedly---and sells
that information to advertisers. But with-
out the kind of demographic details that
TiVo collects from its direct customers, its
The Starving Actor
THE CASE: Since TiVo launched in 1997, it has been
consistently applauded. The company name is used by
consumers as a verb (to "TiVo" a show is to record it for later
viewing), and customer satisfaction is off the charts. But TiVo
has never generated a profit nor come close to winning the
number of customers it originally expected. The company is
now on the brink of profitability---but is also highly vulnerable.
FY 2005 revenues: $172 million
Number of subscribers: 3.3 million
© 2005 TIVO INC. ALL RIGHTS RESERVED
Links Archive August 2005 October 2005 Navigation Previous Page Next Page