Is Tivo Under DirecTV Attack?

DVR pioneer insists deal is secure

%%STORYIMAGE_RIGHT%% First Eddy Hartenstein, DirecTV Group vice chairman, resigned from the TiVo board of directors. Then last week, DirecTV announced that it had sold its 3.5 million shares of TiVo, saying the sale was in line with a policy of selling nonessential assets.

While a TiVo spokesperson said the current pact—under which DirecTV, the News Corp.-owned direct-broadcast-satellite operator distributes TiVo—remains intact, these recent developments can't help but raise further questions about the long-term viability of the arrangement and what TiVo's business model should be going forward as it pursues multiple revenue streams—its "Intel-inside" licensing efforts, its emerging Internet-based offerings and advertiser branding and data services—in its search for traction that will deliver scale and profits.

ESSENTIAL TO PROSPECTS

TiVo's prospects have taken on an increasingly tenuous pallor as a consequence of being unable to fully exploit for its own benefit an increasingly popular technological concept that it has pioneered. DirecTV is currently essential to those prospects—it supplies the majority of TiVo's subscribers. Only 68,000 of the 264,000 new subscribers added in the fourth quarter of 2004 came from TiVo itself. The rest were driven by DirecTV. TiVo has 1.6 million total subscribers, according to its fourth-quarter financial statement. Many industry observers are wondering whether News Corp.-controlled NDS Group might not replace TiVo. NDS is already a supplier of DVR technology to News Corp.'s myriad satellite operations globally and is believed to be angling for DirecTV's business.

In a published report, TiVo President Marty Yudkovitz acknowledged the bad timing of the DirecTV divestiture but insisted that "we are in heavy discussions to expand and extend the [DirecTV] relationship."

The sting from potentially losing the DirecTV connection would be mitigated if TiVo could convert on its "Intel inside"-type strategy of signing technology-licensing deals with cable operators, rolling out their next generation of set-top boxes with DVR. After faltering in its attempts to sell its stand-alone boxes through retail outlets, TiVo hired Yudkovitz, a former NBC executive, a year ago to lead that charge, thus far to no avail.

TURNS TO WEB

For example, Comcast, the largest cable company in the U.S., recently decided not to go with TiVo technology as the core of their nascent DVR offering. Now, TiVo says it will point its efforts toward the Internet as well with the goal of becoming "the entertainment centerpiece in the networked home."

It said its $12.95-a-month subscribers now have the ability to connect their home computer or network of home PCs to TiVo to download photos or music. The photos can be viewed on their TV screens.

The company is also slashing to half price the cost of a home's second TiVo box and plans to promote the fact that programming can transfer between TiVo-enabled TVs in the home. If someone is watching a show in the living room, they can continue watching it in the bedroom.

Another Internet-oriented new offering lets consumers schedule TiVo recordings from a Web site.

BRAND SERVICES

Beyond these efforts, Yudkovitz and his team are still trying to mine revenue streams as a facilitator of long-form brand messaging and as a provider of viewer research. Yudkovitz has scored some success convincing Madison Avenue that the TiVo platform is a compelling environment for brands to showcase themselves in ways they can't with traditional paid ads like the :30 commercial. Many entertainment brands as well as companies like Coca-Cola and some car companies have taken the bait.

%%PULLQUOTE_LEFT%% On the research end, TiVo last summer announced an audience-measurement service that offers advertisers and broadcasters moment-to-moment intelligence on viewing patterns within prime-time TV shows, and said it would sell customized reports with data culled from the viewing habits of its 703,000 subscribers.

Dubbed the TiVo Commercial Viewing Report, the quarterly subscription service was at the time being positioned as a complement rather than a competitor to the Nielsen service.

And then this past February, Nielsen struck a deal with TiVo to track digital video recorder use. The absence of audience measurement of the technology has led to much criticism of Nielsen by TV and advertising executives. TiVo and Nielsen said it would collect data on a permission basis, using an "opt-in" panel that allows users to volunteer to be monitored. The new service is to collect data on about 5,000 to 10,000 TiVo users. Second-by-second data on viewing patterns and trends will be provided.

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