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The Tivo Drama Plays On

TiVo, long the idea-leader in the digital video recorder space, may soon find itself a footnote in the history of technology.
February 6, 2005

The producers of VH1’s program Best Week Ever won’t be calling on Tivo headquarters anytime soon. As far as weeks go, these last few were probably some of the worst for the Alviso, California-based firm. In the span of roughly two weeks, the CEO and president resigned, and the company’s stock price fell almost 20 percent.

Those sensing the company’s demise ratcheted up their critiques.

“Who will buy Tivo for scrap?” asked Kevin Werbach, a tech analyst and professor at Wharton, on his blog.

From a purely financial perspective, it’s premature to write an actual obituary for the company. In the most recent quarter, the company still had $88.5 million in cash on hand, with $7.3 million in debt.

But on Friday, the company acknowledged that its most recent quarter – one that saw a major ad campaign aimed at boosting its subscriber numbers during the holiday season – didn’t exactly set the world on fire.

Faithful hoped that the $50 million, holiday media blitz and the unit’s $99 price tag would vault the company into the pantheon of must-have gifts in November and December. Instead, the company reaffirmed its previous guidance for between 200,000 and 275,000 new subscribers, which many found to be a great disappointment.

Tivo investors, perhaps fearing far worse, actually drove the stock up on the news, perhaps used to the company reporting bad news, and fearful that the company would do far worse than it had previously forecast.

Maybe the soft bigotry of low expectations isn’t such a bad thing after all.

Even analysts who believe the company has a shot to survive offer figures that aren’t exactly inspiring.

“The perception out there is that Tivo is going from 100 to 0,” says Daniel Ernst, an analyst with Hudson Square Research. “I wouldn’t write them off just yet.”

Ernst points to his projection of Tivo’s “20 basis point” growth in the fourth quarter, which means the company went from 39.2 percent of the market to 39.4 percent.

Not exactly the rocket-like projection expected from a $50 million marketing initiative.

Others who have faith in the technology but not necessarily TiVo have a much harsher view of TiVo’s future.

“In the grand scheme of things, if Tivo went away, so what?” asks Michael Paxton, an analyst with InStat/MDR. “Other companies picked up on the technology and other program guides exist that are just as capable and there are better business models out there.”

Of course, Tivo doesn’t have to “go away” to go away. In other words, with its incredible shrinking market capcurrently at $313 millionit becomes a juicier and juicier target for acquisition.

If that’s true, the question then becomes: who will buy them?

One name that’s been batted about for at least two years is Apple, which recently upped its push into the home entertainment space with its emphasis on media (audio, video, photo) management software and more recently the iPod. That maps with Tivo’s recent efforts to become an all-digital media hub. Apple could combine Tivo’s software with its own to make photo and video viewing and music listening on the television a seamless experience. Both company’s products inspire fanaticism among the minority who use them.

While Apple seems a good fit for the company, another industry often mentioned as a possible suitor, in fact, does not. Many observers have mentioned cable companies as potential buyers, and with Tivo’s recent multimedia pushes, that possibly grows more distant.

,Here’s why: First, most major cable companies are already offering their own DVR products with their digital cable plans. Second, Tivo’s aggressive moves into multimedia management and TivoToGo make the product more like a computer than a souped-up VCR.

“Tivo is a $100 PC,” says Ernst. As such, the support issues and costs surrounding the device would be problematic for cable companies. “Cable companies don’t know the difference between a JPEG and an MPEG and they don’t want to know.”

Still, with Tivo’s recent stock price troubles, the company held a 20 percent off sale for any businesses interested in purchasing it. The company isn’t in its last throes by any financial measure, but expect a lot of speculation on the company’s future in 2005.

The drama may be more entertaining than any program it can record.

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