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The Initial Search for Partnerships

In July 2000, Comcast agreed to a trial in which it offered TiVo boxes to its subscribers 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 unwilling 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 without the kind of demographic details that TiVo collects from its direct customers, its data isn’t as enticing. TiVo wanted to own the subscriptions and simply give Comcast a percentage of the subscriber revenue. But Comcast wouldn’t budge, says Kishore.

In April 2001, when the initial trial with Comcast had failed to lead to a larger deal, TiVo decided to reduce the amount of cash it was burning through. The company laid off approximately 25 percent of its staff, which allowed it to avoid seeking additional funding.

TiVo’s next hope for a cable deal was dashed by a cruel twist of fate. In November 2001, ATT Broadband agreed to offer TiVo DVRs to its customers in New England, Colorado, and Silicon Valley, but within a few weeks, Comcast acquired the cable provider and its 14 million customers, killing the deal.

Without a cable partnership, TiVo felt it had to continue selling DVRs through retail channels – which it didn’t really want to do. The company prospectus filed with the SEC before TiVo went public in the fall of 1999 stated that “our current plan is to stop selling personal video recorders.” The company had hoped to make its money by selling its software to cable and satellite companies.

TiVo still sells its DVRs at stores like Best Buy, Circuit City, and Costco, and via its website. According to research firm Magna Global, between the end of 2001 and the first half of 2005, TiVo subscriptions recruited by this means increased from 235,000 to more than 1.1 million.

But while TiVo initially failed to gain a cable partner, it succeeded, in 2000, in partnering with DirecTV. In fact, the majority of TiVo’s subscriptions to date have come from this relationship. Of the satellite broadcast giant’s 14.4 million customers, more than two million use TiVo.

The deal went through for a couple of reasons. First, when TiVo began talks with DirecTV, the satellite provider already had a DVR service through its partnership with Microsoft’s UltimateTV, according to Brian Wieser, vice president of Magna Global. That gave DirecTV more leverage when it insisted on controlling TiVo’s relationship with subscribers. “I’m not sure [TiVo] would have agreed to the same deal at the same price” if it weren’t for the presence of an entrenched competitor, Wieser says.

The deal was also made simpler by a technological difference between cable and satellite. It has been easier, says Wieser, for satellite broadcasters to roll out new technologies such as the DVR because they can make software changes in a central location. Cable operators have different equipment in different areas, so they have to deploy technology gradually.

TiVo’s partnership with DirecTV has been fruitful. Since the end of 2001, subscriptions to TiVo’s service through DirecTV have increased from 230,000 to 2.1 million, and represent more than half of all DVR subscriptions through satellite services. But as we will see, DirecTV may soon cease to offer TiVo significant growth.

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