Select your localized edition:

Close ×

More Ways to Connect

Discover one of our 28 local entrepreneurial communities »

Be the first to know as we launch in new countries and markets around the globe.

Interested in bringing MIT Technology Review to your local market?

MIT Technology ReviewMIT Technology Review - logo


Unsupported browser: Your browser does not meet modern web standards. See how it scores »

{ action.text }

A New Partnership in a Newly Troubling Market
While TiVo was nurturing its relationship with DirecTV, other companies in the business of television were making life harder for TiVo. Most worryingly, cable operators began to develop their own DVRs. In 2002, the first cable boxes with DVRs arrived, produced by set-top box makers Scientific-Atlanta and Motorola.

TiVo responded in April 2003 by hiring Marty Yudkovitz as president. Yudkovitz had been an executive vice president at NBC and seemed to have the experience necessary to understand the cable industry, having helped to build the CNBC and MSNBC channels, as well as the website. Yudkovitz’s tenure would be short lived, as he would leave the company in January 2005. But within weeks of his departure, the long-sought deal with Comcast was done. In March 2005, TiVo announced that it will develop software for Comcast’s DVR platform.

This time around, TiVo has relented on the issue of who owns the customer. It has agreed that Comcast will manage the relationship with consumers and will pay TiVo a monthly fee for each subscriber using one of Comcast’s DVRs. In turn, Comcast has agreed to market TiVo service to its 21 million subscribers, although fewer than half of them – 8.8 million – have digital cable, which is required to run TiVo on Comcast DVRs.

Beyond the matter of customer control, Comcast has another reason to like this deal. The company can use TiVo to entice current analog subscribers to upgrade to digital subscriptions, which cost between $10 and $15 more per month. What’s more, when Comcast converts a customer to digital, it can offer additional premium channels, as well as movies and sports programming on demand.

Being used to lure customers away from analog cable service could prove uncomfortable for TiVo, which currently markets its products to analog customers. As of July, TiVo was advising analog users – who represent 61 percent of all cable subscribers – to get the most from their existing cable packages. “You need more time, not more channels,” the company said on its website. (That admonition no longer appears on the site.)

The deal is a bit awkward for both parties, but it could help TiVo become what it has always wanted to be: a software provider. “The Comcast deal looks great on paper,” says Magna Global’s Wieser. But by waiting so long to partner, TiVo may have missed a golden opportunity. Offering its DVRs to Comcast customers in 2000 might have sparked greater demand for the devices. Instead, it was nearly two years before Time Warner Cable became the first cable company to deliver DVR service.

Still, the Comcast deal gives TiVo the chance to gain millions of new subscribers. It also improves the company’s chances of earning advertising revenues. From the beginning, TiVo expected that high-quality, long-form ads (which customers would choose to watch) would provide a substantial proportion of its revenues. While TiVo advertisers have included NBC, HBO, and Fox, as well as Coca-Cola, Chrysler, and Royal Caribbean, the company could not previously deliver the millions of viewers sought by advertisers. In an April 2005 SEC filing, TiVo stated that revenues from advertising, while increasing, were “not material.”

But if TiVo can continue to expand its audience, it will make sense as an ad platform, claims Wieser. “They are the clear leader in advertising” among DVRs, he says. TiVo is developing an ad management system that Comcast can deploy not only with TiVo’s DVRs but also with those made by Motorola and Scientific-Atlanta.

But while TiVo would love to increase revenues through ad sales, its success will ultimately hinge on its ability to differentiate itself in an increasingly crowded field. According to Magna Global, 2.3 million cable subscribers now use DVRs not developed by TiVo. The total DVR market is expected to grow by more than 260 percent 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 users. No company has yet been able to match TiVo’s recording features, such as the Season Pass, which records all episodes of a program, and the WishList, which finds 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 preserve its advantage, TiVo will need to not only offer a product with better features than its competitors’ but also do so in the midst of the transition from analog to digital television. This shift could prove dangerous for TiVo. Digital-cable providers may soon begin to compete with TiVo by creating DVR services that do not require programs to be downloaded onto cable boxes. According to Wieser, Time Warner Cable has tested a network DVR service that enables viewers to rewind, pause, and fast-forward television shows by storing copies of them on its servers.

Later this year, Time Warner Cable will test a modified version of the service called Startover, which will enable viewers who tune in late to a program to watch it from the beginning. Cable companies are pursuing networked DVRs because they are more cost effective than DVR cable boxes, which typically wear out after three years, Wieser says.

But TiVo’s woes don’t end with competitor DVRs from the cable industry, or with digital cable’s pursuit of robust, networked, non-TiVo software. The company may no longer be able to rely on DirecTV for subscription growth.

In April 2003, News Corporation purchased 68 percent of Hughes Electronics, the parent company of DirecTV. The following January, DirecTV announced that its next generation of DVRs would use software from a News Corporation company, NDS Group. DirecTV receivers with NDS DVR technology are set to ship this fall.

The new DirecTV DVR service will include unique features such as the ability to jump to a specific scene in a program, as well as to pay for any downloaded pay-per-view movies only when they are viewed, says Robert Mercer, DirecTV’s director of public relations. DirecTV will continue to sell DVRs with TiVo technology, says Mercer, “but our marketing efforts will focus on the new DirecTV boxes.”

0 comments about this story. Start the discussion »

Tagged: Business

Reprints and Permissions | Send feedback to the editor

From the Archives


Introducing MIT Technology Review Insider.

Already a Magazine subscriber?

You're automatically an Insider. It's easy to activate or upgrade your account.

Activate Your Account

Become an Insider

It's the new way to subscribe. Get even more of the tech news, research, and discoveries you crave.

Sign Up

Learn More

Find out why MIT Technology Review Insider is for you and explore your options.

Show Me