Home' Technology Review : September 2005 Contents 38
fore Time Warner Cable became the rst
cable company to deliver DVR service.
Still, the Comcast deal gives TiVo the
chance to gain millions of new subscrib-
ers. It also improves the company's
chances of earning advertising revenues.
From the beginning, TiVo expected that
high-quality, long-form ads (which cus-
tomers would choose to watch) would
provide a substantial proportion of its
revenues. While TiVo advertisers have in-
cluded NBC, HBO, and Fox, as well as
Coca-Cola, Chrysler, and Royal Carib-
bean, the company could not previously
deliver the millions of viewers sought by
advertisers. In an April 2005 SEC ling,
TiVo stated that revenues from advertis-
ing, while increasing, were "not material."
But if TiVo can continue to expand its
audience, it will make sense as an ad plat-
form, claims Wieser. "They are the clear
leader in advertising" among DVRs, he
says. TiVo is developing an ad manage-
ment system that Comcast can deploy not
only with TiVo's DVRs but also with those
made by Motorola and Scienti c-Atlanta.
But while TiVo would love to increase
revenues through ad sales, its success will
ultimately hinge on its ability to di erenti-
ate itself in an increasingly crowded eld.
According to Magna Global, 2.3 million
cable subscribers now use DVRs not de-
veloped by TiVo. The total DVR market is
expected to grow by more than 260 per-
cent between the beginning of 2004 and
the end of 2005, to nearly 12 million units.
TiVo has reason to think that it can grab
a good share of any new group of DVR us-
ers. No company has yet been able to match
TiVo's recording features, such as the Sea-
son Pass, which records all episodes of a
program, and the WishList, which nds
all programs featuring a particular actor or
director. Nor has anyone designed a more
user-friendly interface. TiVo also has some
good old-fashioned legal defense of its
market: it has received 85 domestic and
foreign patents, including several related
to unique aspects of its user interface. It has
another 117 patents pending.
To preser ve its advantage, TiVo will
need to not only o er a product
with better features
than its competitors'
but also do so in the
midst of the transi-
tion from analog to
digital television. This shift could prove
dangerous for TiVo. Digital-cable provid-
ers may soon begin to compete with TiVo
by creating DVR ser vices that do not re-
quire programs to be downloaded onto
cable boxes. According to Wieser, Time
War ner Cable has tested a network DVR
ser vice that enables viewers to rewind,
pause, and fast-for ward television shows
by storing copies of them on its servers.
Later this year, Time Warner Cable
will test a modi ed version of the service
called Startover, which will enable view-
ers who tune in late to a program to watch
it from the beginning. Cable companies
are pursuing networked DVRs because
they are more cost e ective than DVR
cable boxes, which typically wear out af-
ter three years, Wieser says.
But TiVo's woes don't end with com-
petitor DVRs from the cable industry, or
with digital cable's pursuit of robust, net-
worked, non-TiVo software. The com-
pany may no longer be able to rely on
DirecTV for subscription growth.
In April 2003, News Corporation pur-
chased 68 percent of Hughes Electronics,
the parent company of DirecTV. The fol-
lowing January, DirecTV announced that
its next generation of DVRs would use soft-
ware from a News Corporation company,
NDS Group. DirecTV receivers with NDS
DVR technology are set to ship this fall.
The new DirecTV DVR ser vice will in-
clude unique features such as the ability to
jump to a speci c scene in a program, as
well as to pay for any down-
movies only when
they are viewed,
says Robert Mercer,
of public relations. DirecTV will continue
to sell DVRs with TiVo technology, says
Mercer, "but our marketing e orts will
focus on the new DirecTV boxes."
Opportunities beyond TV?
In June, TiVo installed Tom Rogers, for-
mer president of NBC Cable, as its presi-
dent and CEO. Rogers has been on TiVo's
board since 1999 and oversaw NBC's in-
vestment in the company. In a press re-
lease, he laid out two priorities for TiVo: to
broaden its reach through its distribution
channels, and to improve advertising reve-
nues. Shortly after Rogers took over, TiVo
launched software that allows subscribers
to use their TiVo remote controls to re-
quest, while watching an ad, that infor ma-
tion from the advertiser be sent to them.
Perhaps sensing that its partnerships
may not be enough to ensure pro tability,
TiVo is beginning to look beyond televi-
sion. This year the company signed sev-
eral licensing agreements that will allow
Internet content to be stored on its DVRs.
In January, it announced the creation of
Tahiti, a software platform that will pro-
vide tools for developers to create applica-
tions for sharing content such as music
and videos between PCs and TiVo DVRs.
TiVo has also updated its DVR to en-
able content to be transferred to portable
video players. The company has licensed
this TiVoToGo software to chip maker
AMD, digital-media software company
Sonic Solutions, and Microsoft, to enable
video playback on devices using Micro-
soft's Portable Media Center, on Pocket
PCs, and on smart phones.
Licensing its technology to third par-
ties "is the best business model for TiVo,"
believes the Yankee Group's Kishore. The
TiVo brand, which is so well regarded be-
cause of the user-friendly TiVo interface,
could ser ve to di erentiate consumer elec-
tronics devices that control multimedia
content. Such arrangements would allow
TiVo to avoid the hardware business and
focus on creating innovative software.
TiVo is on the cusp of pro tability. In
the rst quarter of 2005 it narrowed its
losses to less than $1 million and upped
its subscriber base by 10 percent, to 3.3
million. This represents a year-over-year
doubling of its subscriber base. These are
good signs. Stay tuned. John Gartner
Watching TiVo's Performance
Increased subscription and service revenues
coupled with a decreased reliance on hardware
sales have helped TiVo's market showing this
year---but the stock continues to underperform.
SOURCE: REVERE RESEARCH
2000 2001 2002 2003 2004 2005
TiVo S&P 500
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