|Comcast customers will get to test TiVo side-by-side with the Comcast DVR system.
THE TRANSFORMING FORCE OF VIDEO-ON-DEMAND
4As Hears Comcast Chief's Report From the New Frontier
TiVo, the company that pioneered the digital video recorder concept, only to watch its sales momentum slip away, has long maintained that its proprietary service, unique features and well-known name can win customers. The Comcast deal now offers a direct test of that contention as consumers are offered the choice of a vanilla Comcast DVR service or a branded TiVo experience.
Wall Street surprised
Both companies jolted Wall Street and the media world earlier today with their unexpected announcement that Comcast was acquiring a license to use TiVo technology in its own set-top DVR boxes starting in 2006. The TiVo components will add proprietary functions to the Comcast system.
Comcast has 21.5 million subscribers and is a leading pioneer in the business of turning home TV sets into video library machines, enabling consumers to watch anything they want, anytime they want. The potential strength of consumer demand for DVR services is suggested by Comcast's video-on-demand movie service, which has delivered more than 80 million on-demand views in February alone. Comcast projects that in 2005 its customers will view on-demand programming more than 1 billion times. In effect, DVRs allow individual home users to create their own on-demand libraries of TV programming.
TiVo's brand equity
"The biggest single equity at TiVo is the brand," said Gartner/ G2 analyst Van Baker. "The problem had been access ... now they will have access to 20-some million Comcast subscribers -- and a chance to deliver their value proposition."
The TiVo-branded Comcast experience will include the Tivo propriety user interface, along with features such as WishList, which records every program based on a customer's list of actors, directors, teams or subject matter; and SeasonPass, which automatically records every episode of a selected program for the entire season.
TiVo does command superior customer loyalty, a fact that likely did not escape Comcast's notice. In the churn-burdened cable world, a 98% customer retention rate looks extremely attractive. And, Mr. Baker noted, it could pay off in other added revenues for Comcast. DirecTV subscribers who purchased the satellite company's TiVo offering also tended to buy more pay-per-view and VOD services overall, he said.
While financial terms of the deal were not disclosed, Reuters quoted a high-placed executive as pegging the value at $10 million to $30 million over seven years. It is believed the deal will be structured similarly to TiVo's deal with DirecTV. The satellite company sells TiVo to its customers and passes on a revenue percentage to TiVo. The DirecTV relationship will continue, and the TiVo/Comcast deal is not exclusive, leaving the door open for TiVo to make deals with other cable operators. The TiVo-branded service is expected to roll out in Comcast markets in mid- to late 2006.
Although only hinted at in the deal announcement, TiVo's advertising and customer-profiling capabilities also will likely come into play as TiVo builds a Comcast subscriber base. Once they get to a 10% to 20% of the DVR market, then "all the stuff they've been dreaming of becomes viable: targeted advertising, monitoring services, advertising substitution models," Mr. Baker said.
Founder to step down
The deal comes just months after TiVo's co-founder and chairman-CEO, Mike Ramsay, said he will step down when a replacement is found. TiVo board vice chairman Tom Rogers, former chairman at PriMedia and president of NBC Cable, was quoted, along with Mr. Ramsay, in the news announcement. Mr. Rogers said, "It is very important that TiVo has found a way to work with the nation's largest cable operator on a cooperative basis to develop a state-of-the-art TiVo Service, fully integrated with a cable set-top box, that will make TiVo available to millions of cable viewers."
TiVo and Mr. Ramsay had been criticized in the past for not cutting a deal with cable operators sooner; in fact, analysts said the company lost its technology time advantage by not making deals as early as 2001.