A periodic roundup of relevant news… DirecTV HR20 DVR implements home media features via Intel Viiv: DBSTalk TiVo settles gift card shenanigans for up to $120k: Davis Freeberg BluOnyx WiFi & Bluetooth enabled portable drive coming soon: WebTVHub Peerflix modifies DVD-swapping model: TechCrunch …and acquires online barter patent: eHomeUpgrade
TiVo’s been ramping up advertising recently (as they said they would), via partners and going it alone. Due to a few requests I went ahead and captured, trimmed, and published the latest television and radio ads. I’ve caught the radio ads on the local talk station (WTOP in DC) late afternoons, while the television ads seem to air on a few second tier stations (like E!, where I grabbed it) later in the evenings.
“TiVo Caroling”
[audio:tivo-caroling.mp3]Click the play button above.
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.
I watch a lot of sports on my TiVo, but the best sport to watch on TiVo has to be football. By fast forwarding the dead spots in between plays I can turn a 3+ hour game into about 45 minutes. Frankly, I think that the NFL could sell these shorter games online under a highlight blitz package or something, but I don’t mind giving my TiVo remote a good work out if it means that I don’t have to sit through the advertisements or replays unless I want to see them.
What is a bit annoying about this method of watching sports though, is constantly going in and out of conversations about the game. At one moment John Madden is telling you that “the only yardstick for success our society has is being a champion,” the next he’s telling you that “the road to Easy Street goes through the sewer.” After going in and out of this for 45 minutes you feel like you’re going to go a bit crazy from the broken conversation.
I’ve pretty much just accepted the fragmented conversations as being the price I pay for having the luxury of being able to watch a game so quickly, but the Consumerist points to a hack that actually allows me to take the announcers out of sports programming.
Today’s Woot is a Microsoft portable media player (PMP) for under $135. True, it’s a fake brand (Enza Dream’eo? Could there be a worse name?) and the unit may die at any moment — but 20GB with a roomy 3.5″ screen at about half the price of an iPod is a decent deal… as long … Read more
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
PVRBlog: Here’s the rumor: Apple will be licensing TiVo patented technology for iTV. Last summer TiVo was hiring Mac programmers, but I figured that was just for TiVo Desktop support. People won’t pay a couple hundred bucks just to have a device that plays iTunes Store purchases on their TV — it has to do … Read more
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.