Industry

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, 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.

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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

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 –- 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 DirecTV’s churn is 1.8%, giving them an average sub lifetime of only 38 months.)

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