TiVo Skips Past the DVR - Levi Shapiro

TiVo disrupted the TV industry when it invented the Digital Video Recorder (DVR) in 1997. Now that40% of US Households have a DVR (Magna Global), the company should be swimming in riches. Instead, TiVo's DVR business is in free-fall, bleeding money in 10 of the last 11 years with more than half of its subscriber base abandoning the service in the last three years. Last month, the company was given a fresh start, courtesy of a $500 million legal settlement with DISH Network. Tom Rogers, TiVo CEO, shares his perspective about the future of television, why Nielsen has it all wrong and his plans for spending half a billion dollars.

"TV began as a very social medium. Now it has devolved into a solo, isolated activity. The user experience is not commensurate with the technologies available and has fallen behind other platforms. TV is still the principal media experience but there is a lot of great content that you can't get from the Set Top Box. We are helping Pay TV operators bring over 7 million pieces of content, including music, online video, pictures, etc from the internet right to your TV set".

TiVo's opportunity is clear- there are 160 million set top boxes in the US, almost none of which support Advanced Television features. For example, internet radio provider Pandora surpassed 100 million subscribers last month while Over the top (OTT) video service Netflix grew to over 26 million subscribers as 176 million Americans viewed online video last month (Nielsen). Facebook also continued to absorb a greater proportion of online media consumption (see below). Unfortunately, none of these experiences are accessible from most Pay TV set top boxes, explaining the rapid growth of devices like Roku, Boxee and Apple TV. "The world of mobile phones, tablets and internet has put power in the hands of consumers. That did not happen with television.The Pay TV ecosystem missed the boat with the social experience. TiVo's new products help operators bring TV back to the center of the media world".

TiVo is adopting a sue 'em and woo 'emstrategy. While litigation continues with Microsoft, Verizon and AT&T, the focus is on selling software to the operators. "We make hardware solely to effectuate deployment. Our technology is not hardware dependent. Or you can build our software into someone else's hardware- we don't care".

Not being a hardware player helped TiVo win its first deal with a cable operator, replacing Motorola. "We don't make money on the hardware but will provide it for cable companies to reach their audience. As a result, we have the ability to be a cost-effective alternative for cable companies".

Rogers is adamant that advanced television requires better audience measurement. TiVo is taking the fight directly to Nielsen. "The current system has not kept pace with advertiser needs", says Rogers. As the former President of NBC's cable operations, he calls TiVo's second-by-second StopWatch ratings service "long overdue. Nielsen does not adequately differentiate between when an ad is being watched and when a show is being watched. When you have a high percentage of people skipping the ad, Nielsen really doesn't provide an accurate view. TiVo can help determine what ads work, where they work, and when."

TiVo launched its own real-time, minute-by-minute audience measurement service called StopWatch. To help marketers and agencies understand the service, earlier this year the company launched a free site, ScoreCard, to assess campaign effectiveness, viewer retention and performance relative to other brands.

The burning question for shareholders and technology start-ups alike is how will TiVo spend the $500 million? Don't expect a dividend. "We are more inclined toward a buyback," says Rogers. This would also help offset dilution from a recent convertible bond offering. "TiVo is interested in acquisitions. However, we are seeing great organic growth for our TiVo Premiere products". In the slow-moving world of Pay TV technology providers, the DISH settlement will enable TiVo to skip past the DVR era.

Levi Shapiro is a Partner at TMT Strategic Advisors, a research and strategy firm focusing on the technology, media and telecom sectors. He can be reached at levi@tmtstrat.com or via twitter: @levshapiro

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