TiVo Targets the Mainstream

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TiVo executives say they believe the lower-cost unit could be a big catalyst for expanding TiVo's customer base beyond well-heeled consumers who are less price-sensitive than the mainstream. The company also hopes to slow defections among its 4.3 million subscribers as its relationship with satellite provider DirecTV (DTV) winds down. TiVo's most recent quarter highlighted the challenge. The company added 1,000 subscribers overall, but lost 103,000 DirecTV customers.

Advertisements and New Features

There is meaningful value in TiVo's intellectual property and brand name. Yet, says analyst Ralph Schackart at William Blair & Co., while "the new management team is making aggressive moves to position the company for growth, there has always been a struggle on how to monetize these strengths."

It's not for a lack of trying. The company has announced deals with advertisers to sell ad space at the end of recorded programming, and to substitute their commercials for the original spots within a program. It also has offered advertisers formal measurements of which commercials are watched.

TiVo-owned units, meanwhile, have been getting regular software makeovers to distinguish them from the basic DVR services offered by cable and other competitors. Among the latest features are a recommendation system in which celebrities offer their picks for TV shows, films and downloadable video. A unified "Swivel Search" lets customers sift through on-air and online content more easily. The latest addition came in late June, when TiVo made it possible to download content directly from Amazon.com's (AMZN) Unbox video service over a broadband Internet connection. Previously, consumers needed to download to a PC, then transfer the file to the TiVo box.

More Deals Needed

Yet, if TiVo hopes to remain an independent company, its future lies in signing more deals with cable and satellite providers to license its software. "Standalone is a smaller market that's getting smaller," says Mike Paxton, principal research analyst at In-Stat. "TiVo gets a modest thumbs-up on the pricing, but the significant growth opportunity will be licensing revenue as cable providers use the TiVo interface on their boxes."

More than a year after announcing a trial adding TiVo software to Comcast's higher-end set-top boxes, the two finally announced in late June that testing had been completed. That paves the way for August's initial rollout in the Boston area that's expected to reach all Comcast (CMCSA) markets by mid-2008. With the nation's largest cable operator welcoming the TiVo interface on its set-top boxes, Kaufman Brothers analyst Todd Mitchell on July 23 upgraded TiVo shares to "buy" and lifted his 12-month price target to $9 from $5. TiVo stock closed at $6.24 on July 23.

After nearly a decade of losses, that's just the kind of support that could help fast-forward TiVo's fortunes.

Edwards is a correspondent in BusinessWeek's Silicon Valley bureau.