Suddenly, It's Fast Forward at TiVo


By Cliff Edwards TiVo goes mainstream. That's the upshot of a deal announced Mar. 15 that puts TiVo's (TIVO) pioneering digital video recording service into Comcast (CMSA) cable set-top boxes. TiVo will serve as Comcast's primary supplier for digital video recording technology.

Hence, by the middle of next year, Comcast's 21.5 million customers will get access to TiVo's much-loved features, including the capability to record entire seasons of shows like The Sopranos and The Apprentice at the touch of a button. Digital cable customers who opt for the TiVo service will see TiVo's software downloaded to their existing cable boxes, avoiding a costly and time-consuming replacement process. They will likely pay an extra fee to receive the TiVo service, but the cable giant hasn't detailed pricing.

INTERACTIVE ADS. The deal undoubtedly saves the money-losing TiVo from extinction. The Alviso (Calif.) company's future looked bleak after its only partner, DirecTV (DTV), announced in January it would begin marketing a competing digital recording device from NDS Group (NNDS). While TiVo would still continue to produce and service its combination satellite-video recorder boxes through early 2007, it was widely believed TiVo's revenues would suffer as more DirecTV customers opted for the cheaper NDS service. TiVo's stock had fallen sharply, but in Mar. 15 trading, it soared to $6.70 by the closing bell, a gain of 75% on the day.

Hudson Square Research analyst Daniel Ernst estimates that, in light of the Comcast deal, TiVo will see at least $30 million added to its coffers within the first year of the seven-year contract. That money likely will go toward investment in additional marketing of its stand-alone boxes, which will offer features not available on the cable boxes, including Internet technology to conduct searches and buy movie tickets.

TiVo's fledgling interactive advertising service also will get a boost after Comcast agreed to allow the feature on its boxes. The company that revolutionized TV viewing in 1999 by letting viewers zip through commercials aims to sell advertisers such as Procter & Gamble (PG) "billboard" space that pops up as couch potatoes fast-forward through commercials.

FUTURE IN FOCUS. Those customers who opt in can purchase products, get more information, and participate in surveys, while advertisers can better track and target potential customers. TiVo Chairman Michael Ramsay says he expects revenue from that service to grow quickly in coming years, as TiVo's installed base soars from its current 3.2 million customers. "This deal puts a lot of wind back into their sails," Ernst says.

And with TiVo's signing of the nation's largest cable provider, other deals with cable operators are likely, since the industry typically moves in lockstep. TiVo also will gain greater negotiating power with consumer-electronics manufacturers like Samsung, Sony (SNE), and LG, which will be rolling out cable-ready TV and set-top boxes with digital recording features next year. What's more, with TiVo's star taking on new luster, it probably will sign up additional retailer partners like Wal-Mart (WMT), which had been reluctant to push TiVo amid concern it had no future, Ernst says.

The Comcast deal means vindication for Ramsay, who over the past five years has held out for a cable deal that favors TiVo, despite heavy prodding from Wall Street and skepticism about the company's prospects. Ramsay argued that TiVo survive even without a cable deal, since it gets most of its revenue from $12.95-a-month subscriptions for its stand-alone boxes sold at retail outlets such as Best Buy (BBY).

"INDUSTRY SUPPLIER." While financial terms of the Comcast deal were undisclosed, analysts speculated that TiVo will receive a onetime fee from Comcast to develop the software download and receive a cut of monthly subscriptions that average about $10. In turn, analysts expect Comcast to get a share of the revenues from TiVo's ad service.

Ramsay, in an interview with BusinessWeek Online, says the alliance benefits both sides. "The future potential and the domino effect can be enormous," he says. "The industry is looking for a leader in DVR...[and] this deal is putting TiVo in the position where we can be the industry supplier of that technology across the board."

It's a reversal for Comcast execs, who for years argued that TiVo's service catered mostly to "fringe elements" in TV viewership. Until now, Comcast and other cable providers have been aggressively rolling out digital video recording software created by their set-top box suppliers, including Motorola (MOT) and Scientific-Atlanta (SFA), as they moved to compete with digital video recorder offerings from satellite providers DirecTV and Echostar's (DISH) Dish Network.

BIG MILESTONE. Comcast CEO Brian Roberts also had said repeatedly that customers were more interested in the company's On Demand service of downloadable programming. Perhaps the decision to use TiVo's service acknowledges the difficulty Comcast and other cable providers have had in getting enough free content from Hollywood for On Demand to keep customers happy. As is, the service offers just a few prime-time shows.

While the deal doesn't completely steer TiVo out of danger, it more than likely will shift the tiny company into fast-forward mode for the first time in its history. Edwards is a correspondent in BusinessWeek's Silicon Valley bureau


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