Thursday, August 23, 2007

Not Optimistic for Tivo

Disclosure: I’m a long, long time Tivo user. I do not hold any shares of TIVO (long or short). I don’t use Tivo much these days but am considering the $299 TiVo HD product.

The primary reason I am not optimistic is this chart:

Click to enlarge

The drop off since late ’05 is primarily due to DirectTV dumping Tivo. That plus Tivo hasn’t been able to sell many boxes on their own. In the most recent reported quarter (new data will be available in about 1 week) Tivo’s net new “Tivo owned” subscribers was a measly 1000. It’s pitiful. The new boxes might help with HD lovers, but Tivo already has boxes (non HD) that are cheaper.

The current business model just seems doomed. You have to buy a box AND buy the program guide, and most cable companies will rent you a box with a program guide for cheaper than Tivo will sell you the program guide. The hardware may be inferior, but it’s FREE.

Om Malik’s NewTeeVee had a post about how one out of five homes now have DVRs, but mostly they are not Tivo, and in the comments section, I learned that Tivo’s prospects might not be all that bad. I wasn’t previously aware that a judge had awarded an $88 million judgment to Tivo in a case against Echostar. Echostar is appealing and oral arguments in the appeal are set for 10/4/07.

Still, when your business’ best revenue source is apparently based on lawsuits or the licensing of intellectual property that will likely come from other companies if Echostar loses its appeal, it’s just not that interesting of a business.

I can’t believe the Tivo technology (at least the software) and brand won’t survive somehow, but I don’t see it happening as a stand-alone business. Someone has to buy them. The current market cap is ~$600 million. That’s practically a rounding error for the likes of GOOG.

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