Guest Blogger, Author at Zatz Not Funny!

TiVo By The Numbers, Part 4

Financial analysis isn’’t something I’m prepared to tackle publicly, so I’ve brought in some muscle for a multi-part series on TiVo’s numbers. Obviously this is speculative in nature and just one stockholder’s interpretation of the limited information TiVo chooses to disclose. Your mileage may vary. -DZ

As we listened to the 3Q earnings call from TiVo, we were struck by a number of statements made by TiVo’s management that seemed to be clues as to what we can expect from the company in the future. In this installment, we will look at some of these clues in light of the financial analysis we have just completed, and see what we can learn. But be advised: you are entering an area of higher speculation and greater interpretation than we have visited before.

Subsidize Less, Advertise More

We commented in Part 2 about the apparent reversal of position on hardware subsidy after working for so long to get the boxes to a zero-upfront model:

Following the holiday period, we will be evaluating the success generated by this kind of hardware pricing approach versus an approach where there is less rebate on hardware and a greater proportion dedicated to advertising the TiVo product. (Rogers)

We noted in Part 2 the advantages and disadvantages of an advertising approach versus a subsidy approach. One particularly important advantage to advertising was noted by Rogers:

Particularly given all the differentiation that we have now worked hard to accomplish, we really think that there is a credible basis to think about advertising benefiting TiVo and not just educating people about DVRs in general, where we would not necessarily see the benefit in TiVo sales of that increased advertising spend.

TiVo By the Numbers, Part 3

Financial analysis isn’t something I’m prepared to tackle publicly, so I’ve brought in some muscle for a multi-part series on TiVo’s numbers. Obviously this is speculative in nature and just one stockholder’s interpretation of the limited information TiVo chooses to disclose. Your mileage may vary. -DZ

In Part 1 and Part 2 we focused on TiVo’s biggest business: their subscription recording service. But TiVo has other irons in the fire, and to get a value for the company, we need to consider those items, as well. But first, we’ll finalize our look at subscribers.

In Part 1, we found that the NPV of TiVo’s current subscriber base (including a conservative estimate of the value of the DirecTiVo subscribers), but we have since discovered a flaw in our calculation of TiVo’s advertising revenue (which has also led us to some new insights – but we’ll get to those another day), which we have recomputed as an average $0.47 per month per subscriber for the past twelve months – less that we originally estimated. But we were also able to get a more accurate estimate of the cash flow of monthly and lifetime subscribers, and so we will use those numbers, too. These improvements have caused us to revise our estimate of the NPV of TiVo’s subscriber base to $407 million – somewhat higher than the $388 million we found before.

Lifetime Cash

Earlier, we hinted that there was a “hidden” value to the lifetime subscribers that we had not included. To understand this value, one needs to understand how TiVo accounts for lifetime subscriptions. When TiVo sold a lifetime subscription, they put an amount on the “cash” line of their balance sheet for the full amount of the subscription, and offset it with a “deferred revenue” liability of the same amount. The cash would then amortize over the expected lifetime of the subscription. TiVo picked 48 months as the lifetime of the subscription, so for a $299 lifetime subscription, that amounts to $6.23 per month. Then, each quarter, TiVo takes the appropriate amount of cash

TiVo By The Numbers, Part 2

In Part 1, we gave a value of TiVo’s existing subscriber base. But things are changing at TiVo: lifetime subscriptions are no longer available, and new subscribers can get free hardware, though they pay more in service fees. We need to know how this affects the value of new subscribers and how much TiVo should spend to acquire them.

To examine these issues, we will look at the Net Present Value (NPV) of subscribers, and the Return On Investment (ROI) in acquiring them (actually, instead of ROI, we’ll use MIRR, the Modified Internal Rate of Return). For the purposes of these calculations, we will use a 12% annual (1% per month) cash discount rate, as we did in Part 1. We will also use 12% as the finance rate for MIRR and 6% (0.5% per month) as the reinvestment rate (i.e., the return TiVo can obtain on short-term investments). As in Part 1, we will use 1% per month for subscriber churn, yielding an average sub life of 69 months. In this analysis, however, increasing the predicted churn rate will tend to reinforce our conclusions. Again, keep in mind that in this analysis, we are looking at value of bringing new subscribers on board, whereas in Part 1, we looked at the current value of existing subscribers.

TiVo By The Numbers, Part 1

Financial analysis isn’t something I’m prepared to tackle publicly, so I’ve brought in some muscle for a multi-part series on TiVo’s numbers. Obviously this is speculative in nature and just one stockholderâs interpretation of the limited information TiVo chooses to disclose. Your mileage may vary. -DZ

TiVo is an enigmatic company. While management peppers us with regular press releases hyping their latest deal or newest technology, it rarely provides the kind of information investors need to put a value on anything â- be it a new advertising relationship, distribution deal, or their own financial statements. This is the first article in a multi-part series in which we will engage in a bit of 8-K and 10-Q exegesis in an effort to understand what is really going on at TiVo. In this first installment, we will take a look at the value of TiVo’s subscribers (something CFO Steve Sordello specifically declined to do in the 3Q results call), and find some interesting details along the way.

To find the value of a sub, we’ll need a few pieces of information: how long does a TiVo subscriber remain a subscriber, how much does he pay, how much advertising revenue does he produce? Note that through most of this discussion we are referring to “TiVo-owned” subscribers, and not considering TiVo’s DirecTV subs as they have an economy all their own.

TiVo’s churn hangs around in the 0.9% to 1.0% range, but let’s use 1.0% since it is the most recent number we have. To find the lifetime of the average subscriber, we want to know how many months go by before half of a given body of subscribers has churned away. That is, we need to solve the equation:

0.5 = (.99)^N

The result is that the average subscriber lasts about 69 months. (This is actually quite a spectacular result. Consider that DirecTVâs churn is 1.8%, giving them an average sub lifetime of only 38 months.)

TiVo v EchoStar Update, Part 2

While Davis Freeberg believes recent developments in the TiVo/Echostar patent infringement suit may indicate an imminent settlement, a ZNF secret agent has a different take. -DZ

The story so far
TiVo filed a patent infringement suit against Echostar covering most of Echostar’s DVRs. In April, a jury found that Echostar infringed TiVo’s patent on all the contested claims, that the patent was valid, and that the infringement was willful. The jury awarded TiVo about $73 million dollars in damages. Later the judge in the case increased the damages to about $88 million (for interest during the period of infringement and damages and interest from the time between the jury award and the final judgment). He also ordered an injunction, preventing Echostar from further use or sale of the infringing DVRs (i.e., Echostar had to turn off more than three million of their customer’s DVRs). Echostar appealed the verdict, and was given a stay of the injunction.

What just happened
Recently Echostar made a motion to the appeals court to extend the time, by 60 days, for them to file their so-called “Blue Brief” (i.e., the appellant’s primary brief to the court). The brief was due 10/23. It was an unusual request because appeals courts are notoriously unforgiving, and would likely reject such a request unless it was for a very good reason. Tivo responded to the motion, and Echostar replied to TiVo’s response.

Today, the motion was ruled moot (i.e., irrelevant), because the court issued this order:

ORDERED: Briefing schedule stayed. EchoStar to notify this court within 14 days of date of disposition of final postjudgment motion in dist ct.

What this means is that the entire appeal has been put on hold. Why? Because the court has determined that some aspect of the “final postjudgment motion” must be resolved before the case can proceed. (This issue was probably the reason that Echostar requested the delay, but the court, being no-nonsense, realized that 60 days was arbitrary, and simply said, “tell us when it has been resolved”.)

What is the issue?
The real question is what this “final postjudgment motion” is, and what does it contain that would put the appeal on hold? Not having the actual order from the court, we have to speculate. As I see it, there are two possibilities:

Sanyo Xacti VPC-HD1 Review

Guest review by Thaed, a tech enthusiast from Cleveland, Ohio.

Can a video camera be the greatest piece of technology available today? I can tell you this is the type of wonder that this device instills in me. It’s almost like I bought something from the future. It seems that sophisticated. The button on the right starts recording in HD (720p) and the button on the left takes 5 megapixel pictures. The switch in the middle zooms in and out. The zooming mechanism is the only moving part. The camera writes its data to an SD card. I bought a two GB version. The viewfinder is the clearest I’ve ever seen and the camera is light and fits perfectly in my hands. The combination of ease of use and portability make it easily the best video camera and digital camera I have. It is a first in so many categories. It’s the first digital video recorder that got the still camera part right. It’s the first HD camera I’ve ever used. It’s the first tapeless video camera I’ve had. It does things like allowing you to make panoramic pictures by sweeping the video or extracting decent stills from video. It has a long battery life and it will use the new four GB SD cards.

OCAP – Who’s Capping Whom?

Justin Thyme, industry insider and crackpot, provides anonymous analysis and commentary.

There’s been a lot of discussion and curiosity about the relevance of OCAP in being able to watch TV your way. I’ve attempted to put together the picture as I see it. I have no clear idea of a solution to the problem presented — all I’m doing is attempting to describe the situation. Although it has rather vast implications, the essential details are simple. How this struggle plays out affects consumer electronics manufacturers, such as TiVo, in profound ways.

Veiled Threat or Veiled Bride?

Justin Thyme, industry insider and crackpot, provides anonymous analysis and commentary.

Think broadcast flags on steroids. Thats what the MPAA has in mind by embedding a digital information stream directly inside the images you watch on television. The motivation of the MPAA is to place the same sort of broadcast flag mechanism as CGMS-A in a location that requires no special procedures or equipment of the video distributors to enable. Here’s how we bypass this trivial protection and why such weak protections are our friend, not our enemy.

Veil Technologies is mentioned as a specific technology provider to accomplish this task in a MPAA draft resolution being circulated. If the draft becomes law, then consumers will be confront Veiled video within 12 months of its passage. Making devices to bypass Veil could land you in jail for 5 years for a first offence.