TiVo off deathwatch with Comcast deal

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Since 1999, the digital video recording company has worked to build its brand share and gain technology acceptance to the tune of about three million extremely loyal customers. Yet, the history of TiVo as a consumer brand may come down to what happened in just minutes last week. That's when the digital video recording company announced a deal with Comcast to provide branded service to the nation's largest cable company.

Its fate appeared to change rapidly as analysts hailed the deal, the stock price jumped by more than 75%, and TiVo was promptly removed from "deathwatch" lists on the Web.

Thanks to the potential of Comcast's 21.5 million subscribers, and the suddenly re-opened door to further cable company deals, TiVo is now in a position to become a widely adopted consumer product with critical mass that would appeal to customers, partners, and even more importantly, advertisers.

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"It's a very important deal because Comcast is the largest multi-channel provider out there and they're marketing the hell out of advanced digital services," said TiVo vice chairman Tom Rogers, although he was quick to add that those who said TiVo couldn't survive without a cable deal are mistaken.

The company was criticized for its failure to link up with a cable operator for years. It does have a deal with satellite provider DirecTV, but that contract runs out in 2007, and DirecTV has begun to offer a video recording service owned by parent News Corp. as well. The Comcast deal also puts DirecTV in a position where it might want to rethink its deal, as it may now want to hang onto the TiVo relationship as an edge, or simply a me-too, in the cable versus satellite competition.

Within the collegial world of cable operators, where few companies compete directly, the deal is being regarded with interest.

Other cable companies privately seemed to approve of the deal, said industry insiders; however when contacted by reporters for comment, they pointed to their own efforts in offering digital video recorders and services.

A Time Warner spokesperson said, "We offer an in-house service with a pretty standard feature set. TiVo has some stuff that others don't, partly because it's proprietary. But we're working on enhancements to our DVR service." He added it hadn't had any recent talks with TiVo and "to date, we haven't felt the need to do anything like this."

more deals likely

Still, it's only a matter of time before TiVo makes similar deals with other cable companies, said many industry insiders. Even Mr. Rogers offered a tentative nod, saying, "We recognize that there was opportunity with others and now we hope to open those doors again."

"If something is working at Comcast, it quickly spreads to Cox and Time Warner and other cable companies," said Forrester Research analyst Josh Bernoff. "There's a lot of sharing of information in the cable industry because they're not competing. Once this is rolled out [in mid to late 2006], we'll all see how it works, and then they'll copy it."

Once the difficult task of building a custom TiVo system to run on Comcast's DVR boxes, which are manufactured by Motorola, is completed, it should be relatively easy to port the custom system to other providers that use Motorola technology, including Cox, Charter, Adelphia and Insight. Time Warner, the second largest cable company in the country, uses technology from Scientific Atlanta.

Although it might seem TiVo was pressed to make a deal to pull in new subscribers, its service does have appealing characteristics for cable operators, including loyal and affluent customers and proprietary software which includes specific features and interactive advertising. TiVo's 98% retention rate is enviable. The widely praised TiVo interface and TiVo-invented features would be expensive research and development layouts for some of the cash-beleaguered cable operators.

Several analysts likened the deal to Comcast's deals with premium content providers like HBO or Showtime.

"That's not a random analogy," Mr. Bernoff said. "Comcast could create the Comcast Movie Channel, but their customers also want HBO. That's why they carry it. In fact, Comcast is creating its own sports network, but it won't be dumping ESPN."

Still, the challenges for TiVo don't completely disappear. It still has to prove that its brand strength can drive subscriptions and advertising revenue, as well as wrestle with the possibility its deal with DirecTV could end in 2007.

"It's a great start and a lifesaver, but it's not the be-all end-all. Still, they can look at the future with some hope," said Philip Swann, president of TVpredictions.com. "This enables TiVo to go forward with confidence."

contributing: abbey klaassen

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