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

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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

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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