TiVo’s Billion: Spending their jackpot in a day.

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During their ten year history, TiVo’s obituary has been written more times than I’ve sat through an entire commercial, yet no matter how steep the climb, TiVo has continued to defy critics and skeptics alike by chugging along.

Even though the financial wiz kids over at Engadget, still have TiVo on their “death watch”, I’m beginning to see a much different picture. With 6 quarters of EBITA profitability now under their belt, $200 million in cash (minus the zero in debt on their balance sheet), and partnerships with a significant portion of the DVR market waiting to be implemented and rolled out, it’s no surprise that TiVo has gone from being a small cap child with plenty of dissenters, to an emerging mid cap teenager looking to establish a legacy.

The last ten years may have been characterized by one rumor after another of who TiVo was going to be acquired by next, but the next ten years will be a much different chapter for the little DVR that could. At the risk of counting my chickens before they hatch (I’m a TiVo shareholder), I wanted to kick off the next ten years of innovation by highlighting a few companies that TiVo could use to transition themselves from a niche DVR provider to a diversified corporate conglomerate. Of course there’s no guarantee that TiVo will even get the billion dollars that they are asking for, but it’s fun to spend imaginary money.

SlingTiVo – When Sling first introduced place shifting to the DVR community, TiVo choose not to implement the functionality directly into their software. My guess is that they were concerned that a feature enjoyed by the fringe, could spark a lawsuit with the media giants, who’ve had their business model disrupted by TiVo’s fast fowarding powers.

Holding off on introducing place shifting may have been the right choice when the technology was still young, but internet video has changed a lot since Sling was founded. While the legality of placeshifting still hasn’t been affirmed by the courts, even Sony is selling a placeshifting device to their customers. With placeshifting starting to reach a more mainstream audience, now is the time for TiVo to introduce this capability to their customers.

Potential Target = Echostar (Ticker: SATS) – Without the ability to manufactuer DVRs for Dish customers, Echostar may find that their business isn’t worth all that much. With a market cap of $1.31 billion, TiVo could offer an olive branch to Dish, in exchange for the Echostar/DVR side of the business. Frankly, I’d rather see them bankrupt Dish and buyout the satellite business in a vulture sale, but the poetic justice alone makes this one worth consideration.

TiVo Extender – Over the years, TiVo customers have loved the service so much that many of them have purchased multiple units. TiVo charges an extra fee to add an additional DVR, but doesn’t really make much of a profit because they are forced to subsidize the hardware purchase with smaller multi-room viewing fees.

Instead of trying to get their customers to buy multiple DVRs, TiVo should instead allow the first DVR to act like a server and then have extender devices inexpensively tap into the main DVR signal. This would allow TiVo to sell hardware at a profit and give away multi-room viewing to their customers. With companies like AT&T making a big deal about their muti-room capabilities, TiVo could use an extender strategy to undercut them in pricing.

Potential Target = Roku – Netflix may have put Roku on the map, but the company is headed for greatness on their own. We don’t know a lot about their valuation, but if you consider that they’ve only raised $6 million in VC backing, I think that it’d be easy for TiVo to pick them up for less than $50 million. Not only would the other TiVo video services compliment Roku subscribers, but it would be an easy and cost effective way to solve the multi-room limitations.

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6 thoughts on “TiVo’s Billion: Spending their jackpot in a day.”

  1. I’m pretty sure TiVo’s content with their tortoise pace. It’s the gadget freaks and investors who are frustrated. Not to mention they appear beholden to the content industry, premium television providers, and advertisers – so I doubt many of these would happen and I’m not so sure us television-viewing civilians are TiVo’s customers at this point. They’ll probably just continue to hoard all the cash DISH gives them. Basically, they’re in need some new blood to innovate. The current crew thinks they have all the answers, yet they continue to bleed customers. The renewed DirecTiVo dealio and hardware (now slated for early 2010) is huge, but boring, and will keep them going indefinitely.

    Not sure anyone could pick up Roku for just $50 million. Sounds like the product is flying off the shelves, without actually having a brick & mortar presence. I’m just bummed they’ve abandoned their streaming audio solution.

  2. If they’re just determind to put all their eggs in on proprietary hardware basket ( which is a mistake IMHO )…

    Let’s see some hardware I’d actually want, like a TiVo mobile phone. High end touchscreen, constructed with those premium materials that made the RAZR feel so good in the hand. They could modify Android to have that great TiVo look and feel ( and sound! ) that their STBs have.

    Doubles as remote control for TiVo box while your in the same room – manage the box remotely too.

  3. I’d like to the the next generation TiVo (Series IV), combine the best features of the Series 3 (OLED display, THX) and tru2way/SDV capabilities. Also, allow the use of any external hard drives, not just WD My DVR drives.

  4. @Zatz – I don’t think that TiVo wants to move at a tortoise pace, I think that they’ve been constrained by their need to conserve capital. Businesses typically go through stages from the startup to the ultimate maturation process. TiVo is at a point now where they’ll need to invest their profits into more growth. They can do that internally through R&D or they can take a shortcut and buy somebody else’s business. Once TiVo feels a little bit more comfortable with the core business, I bet we see them start to get more aggressive with the innovation.

    I’ve no doubt that Roku is doing well, but it will take a few more years before they’ll be worth more than $50 million. I bet that they are making a profit, but they’re probably razor thin at this point. Plus, there are many other box companies that may or may not fail. All you have to do is look in your closet and you can see how risky Roku’s business model is.

    @Todd A mobile phone would be brilliant. TiVo could make it ridiculously easy to sync your content to it. They already price their DVR using the cell phone model. How about Virgin Mobile for $250 million?

  5. sorry, but I have to say Tivo strikes me as a company far more interested in extracting money through salaries than in finding more profits. Their product has gone through one refresh in 10 years? come on.

  6. The full article on Davis’ site is a good skim read; probably didn’t need to elaborate on each point and stuck with bullet points. The first thing I would do would be to revamp the box and give it enough horsepower to really have a snappy interface and video processing capabilities. Watching the Xbox 360 interface is just how I expect an online / interactive interface to work. Without it, you will never really “wow’ the masses like apple did with the iPhone.

    Assuming that issue resolved, if I were TiVo CEO, I’d buy, or integrate with similar functionality, the Popcorn hour media center. I’d then use that platform to leverage the extender concept for playback. I might even open up the extender playback concept to 3rd parties so Xbox360 users could stream from the Tivo, etc… The Roku idea is OK but I don’t think you have to buy them to get the silly little Roku box. I would buy Netflix and I’d take a serious look at Sonos.

    My goal would be to create the equivalent of a Tivo / Sonos / Kaleidescape utopia via a subscription model. This would essentially create a hybrid of the 3 best implementations of DVR, Wireless MultiRoom Audio, DVD Video Library that integrates Popcorn hour like functionality as well so that users can playback their own local videos both on the main device and on Extender Devices. If this isn’t the grand slam strategy than I’m at a loss. This would be my goal as CEO and I wouldn’t sleep until we got there.

    While all these other ideas are ‘plausible’ I’d say they are too far off course to be pragmatic. Tivo is still in a race for the STB leadership and they need to give people a reason to buy the box. Regardless, I still think Tivo gets acquired by Real, Apple or Microsoft.

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