Can TiVo Survive?

TiVo is the world’s first digital video recorder (DVR). It revolutionized the way we watch television by allowing a viewer to pause live television. Virtually replacing the VCR, the new technology was inviting to consumers because it puts the power in the palm of their hands. Users can digitally record their favorite shows, store them on a hard drive inside the device and watch them whenever they please. It allows the users to fast-forward through commercials, customize their content, and manage their entertainment by ones own specifications. TiVo first came on the scene at a Consumers Electronics Show in January of 1999. Originally intended by Jim Barton and Mike Ramsey of Silicon Graphics and Time Warner’s Full Service Network as a home networking device, the two changed direction when they began first public trials of the product in the San Francisco Bay Area. They had developed the idea to record digitized video on a hard disk. It was wildly successful forcing Ramsey to announce they would be shipping them to homes in March of that year, way ahead of schedule. Although TiVo was originally incorporated on August 4, 1997 as “Teleworld, INC,” after launching the DVR in March, the company renamed itself and made it’s Initial Public offering in September of 1999.

STRENGTHS:
TiVo has many strengths in the marketplace. It was the first one on the scene allowing it to cement it’s name as the leading provider of digitally recorded television. It has even created its own language. The word “tivo” becoming a verb used in many parts of speech. People would talk about how they had to “Tivo” something or they hadn’t “tivoed” this show yet or to not ruin the out come of a game because they were “tivoing” it. By doing so it further established it’s brand, much the same way we say “do you have a Kleenex” instead of tissue or I’m going to make a “XEROX” instead of a copy or “just google it” instead of “look it up.” The language around the device was designed that way. I suspect TiVo did not want it’s users to even know it was a DVR. It didn’t even market itself that way. A “digital video recorder” was too confusing a concept for a viewer. They wanted to establish themselves in the marketplace as something easy and fun and anybody could do it, not loaded with technological jargon.

TiVo built it’s empire of being very user friendly and fun. It seems like its idea was to make television viewing like being at an amusement park. It’s corny but it works. In the beginning when the system is starting up it plays this animated TiVo character, which is a television with two legs and an two antennae, running around in what looks like a Mouse Trap game until it finally lands on your screen in the top corner. It has a soundtrack. You can’t fast forward through it, so you are forced to watch it. The little guy is so cute and friendly you can’t take your eyes away from the screen. It’s like the Pillsbury Dough Boy for DVRs. This is all part of managing the brand and connecting the consumer with the product. Even the TiVo sounds are iconic. When Tivo switched over to the DirecTV version there were sound issues causing a firestorm on online chat boards and Tivo support was flooded with calls of how to get the sounds back. My friends and I, when we are watching a show and I want to fast forward, I don’t even say fast forward, I say “Buboop.” It in itself created its own subculture of television viewing. It became such a household name providing a bit of notoriety when people were spending endless amounts of time watching shows they Tivoed or even laughably admitting they had to “catch up” on their TiVo on the weekends. “Sex and the City” even had an episode where Miranda was having a relationship with her TiVo. This type of branding and technology made TiVo what it is today: an icon. An icon in technology.

Because it was first in the marketplace to develop this type of software it also holds the keys to many patented features, one of which, is the “trick play” allowing a user to pause live tv and even go back 30 minutes in time. It will also record 2 or 3 shows at a time. TiVo also created the Season Pass Manager, allowing you to create programs you want to record all the time when they are on. You can select first run or repeats for even the quality you want to record them at. TiVo created the Wish List, which allows you to record all shows according to search criteria. You can type in Brad Pitt and it records all movies with Brad Pitt.

TiVo also prides itself as being the DVR that can go anywhere. TiVoToGo allows you to move recorded material to your home PC, laptop or mobile device. They have also partnered with Yahoo TV to allow you to record shows anywhere on the go. One of TiVos recent strength building moves was the partnership with NetFlix. This allows you to watch over 12,000 movies and TV episodes streamed to your box. You can also rent or buy movies with Amazon’s Video on Demand feature through your broadband-connected DVR. They have also partnered with Jaman, which has thousands of international and independent titles in it’s library and have also joined forces with Walt Disney Studios and CinemaNow for the latest rentals. TiVo has patented the Swivel Search which let’s its users look for programs to record by the process of association, a director directed this movie with this actor who produce this film who has another film coming out. It’s really neat. You can also look up movie times in your area by the director, actor, opening night, top box office and see what is playing around you. You can check show times and purchase tickets. If you are staying in, they recently partnered with Dominos to deliver pizza to your door.
TiVo has always been on the forefront of creating a way to manage your home entertainment. The system links to your music library on your PC or Mac and you can play out songs, download free music video and access Rhapsody. They also link to radio stations and podcasts. This has been a big weakness with other DVR systems, accessing and streaming music. TiVo has lead in all the DVR markets on this technology. In the same way they have lead with linking your photos and videos to your television. It will even let you link with online pictures on Photobucket and Picasa to view other peoples Web Albums. In a recent addition they have teamed up with One True Media Service to allow the user to create their own home movie. You can edit them and add music and then share the private channel code with family and friends and they can download the home movie to their DVR.

TiVo has a new video feature that allows you to view content provided by over 75 partners that are not on cable or satellite including the New York Times, CNET, The Onion and Vogue. The downloads are free and only available to TiVo users. TiVo has also partnered with YouTube to provide the best of the web video to your DVR. You can search the YouTube Channel or just look up todays favorites. TiVo Desktop software allows for hundreds of extra titles from internet feeds and even video podcasts. They are the only DVR that has Broadband connectability. The system is THX certified and also has an imbedded Kid-safe TV chip with TiVo KidZONE. Tivo also made a deal with Nero, a german based digital media company to enhance user experience on a PC. For those users who watch TV on their PC they now can pause and record live TV on it.
TiVo Suggestions is one of there biggest strengths because the device takes notes on what you record, don’t record, thumbs up or thumbs down and gives you suggestions based on that. TiVo is the only DVR that does this. Their remote is also unique in how it was designed and is user friendly for rating videos. TiVo is also quickly becoming an icon in audience research. TiVo has the ability to compile audience research like no other DVR system. They can essentially predict the future by telling the mass media about the past. Viewing patterns of the audience are essential to any advertiser. This is a huge strength for TiVo considering they are working with and develping StopWatch Ratings Services. A new rating system developed in 2007 based on DVR viewing. They have increased their sample size to 100,000 homes in the last year and are proving ratings that are 25 times more accurate. They have the ability to look at second by second viewing, enabling a rating for each specific commercial. It shows how fast a viewer fast-forwards through a commercial and viewing behavior. All of this is a great strength but also leaves a great deal of opportunity for the company. TiVo has established itself so far as the best overall software for manipulating video and managing content. Many have tried to emulate the TiVo formula but lack the software engineers. But competitors are hot on their tails.

WEAKNESSES:
Tivo is not a source. TiVo has to connect to two things in order to receive information and a picture. It either has to connect to a phone line or to an internet signal to receive information. It has to either connect to an antennae, cable box or satellite receiver in order to receive a picture. This has been a great weakness since it’s inception. It has forced TiVo to rely on other companies in order to provide their product. One such tumultuous relationship over time has been DirecTV, the leading satellite provider in the country, which may eventually lead to TiVo’s downfall of being a leader in DVR’s if it doesn’t nurture it’s current relationship. TiVo originally could connect with any incoming source but in 2000 it united with DirecTV to create DirecTiVo. It allowed subscribers to access all of DirecTV’s satellite channels and record them on a TiVo model integrated into a receiver. It was a great partnership until DirecTV cut ties with TiVo after News Corporation took a controlling share of the Satellite provider and switched their operating system to NDS, which by the way News Corp own a majority of. However, the partnership did not disintegrate completely, they still used each others customer support system and just last year they announced they would be distributing a new HD DIRECTV DVR with TiVo service, which comes out at the end of 2009. Many TiVo users are breathing a sigh of relief because the original HD units did not work very well. A weakness that comes from this is a loss of many customers. People that were linked to TiVo through DirecTV lost their relationship to TiVo because they didn’t switch satellite providers they just switched DVR’s. Theses weaknesses were caused by there relationship with DirecTV, a relationship they now know they need in order to continue doing business. Many have complained TiVo’s software integrated with other cable or satellite systems do not work as well. For instance, the original Comcast + TiVo relationship didn’t work as well but they are currently working to provide better integration and arrival in new markets.

Other customers who stayed with DirecTV were allowed to keep their DirecTivo’s but when they upgraded they upgraded to a DirecTV DVR with no relation to TiVo. In the process the customers got a taste of the competition and it proved fruitful for DirecTV resulting in many upgrades of their platform. Upgrades people liked over the old TiVo model. TiVo was slow to make these adjustments and is still lagging behind in some improvements. For instance, when a viewer is watching a show or game and they don’t want to know the ending. In the TiVo model when you switch from the main page to the guide it shows you the channel you are currently watching. The problem with this is, if for instance you were TiVoing Tiger Woods at the Masters Golf tournament and you are watching the recorded version and he is on the 12th hole. If at that moment you would like to see what else is on TV and you switch to the guide you may catch Tiger holding the trophy in real time. It’s a flaw in the system. In other DVR models the guide takes you to a different page. There is no video behind the guide.

Another weakness is TiVo does not have as many channel options. In the DirecTV model you can choose a news feed or a sports feed or a specific event feed. This allows the user to watch 8 channels at a time. In television, networks often have a “switch pool” at sporting events. It’s what you would watch say on USA when you are watching the US Open for Tennis. They are watching and commentating on one central “more important” match but switching every so often between courts to show you other matches that are going on. In the sports feed it allows you to pick your content. So you can actually watch the other courts and monitor all the courts if you want at time. Or on gameday if you wanted to watch 8 different college football games at a time. They do this with news also. You can watch CNBC, FOX, Bloomberg, CNN, MSNBC, C-SPAN, FOX-Biz, ABC, CBS all at the same time. With your remote you channel up and down for the sound you want to listen to.

People have also complained that TiVo is slower. There is a longer lag time between gaining information. They have said the new system out next year will fix that. Also when you are fast forwarding through shows there is only three speeds as opposed to four, although a particular strength for a while was TiVo’s ability to jump through programs which now other DVRs have added.

A weakness with the original models was the price. They were very expensive to begin with but have since come down. There are other DVR’s out there that are more competitive in price that you aren’t charged for. For instance, if you are using TiVo service but you have and HD satellite you will be charged for the HD satellite and then you will be charged for Tivo and their HD service. Another problem is hardware. Many of these receivers that are also DVR’s are just one box. With a TiVo you have to buy and maintain one more piece of hardware, if you aren’t integrating into say a DirecTiVo. DirecTV, Comcast, Dish Network or Time Warner/Cox Cable will give you free hardware that runs their software. These are all problems TiVo has with not being a source. Tivo also has to live on a phone line or an internet connection, these other devices do not.

OPPORTUNITIES:
TiVo has many opportunities to improve itself which it is doing on a day to day basis as I mentioned earlier TiVo has great software engineers, marketers, developers which makes them a force to be reckoned with. TiVo’s partnership with NetFlix to download movies directly to your TiVo box will help grown their movie library and they can compete with video on demand services. When you click on the NetFlix icon on the Now Playing screen it brings you to a list of movies from there you pick a title and stream the movie to your TiVo box. In time I suspect you will be able to buy these movies and store them somewhere on a separate hard drive. You can also access your Amazon account for Video on Demand and buy movies. You can connect your Amazon account to access Paypal to pay for the movie. I’m sure in the future you will just be billed directly to your TiVo account if they can work out some agreement where they take a share of the profits. TiVo is trying to compete with VOD (video on Demand) offered by DishNetwork and DirecTV and other cable companies. The obstacles remain which titles or database you are pulling from. NetFlix does not have all the licensing agreements with all the studio and therefore cannot provide all the movies but in time they are building their library and this looks to be promising relationship. When downloading movies there are always bandwidth issues and you do have to have an internet connection. It also means more hardware that you will have to probably buy from TiVo. They may make more money off of hardware then movies. TiVo has also made a great deal of money off of rebates, people that buy hardware and do not cash in on their rebates.

Other opportunities for TiVo in the future could be completely pulling away from a satellite or cable provider and pull video and information directly from the internet much like we see with such programs as Pandora or Hulu where you are only connected to the internet and listening to radio. They have the YouTube channels and NetFlix but it’s not everything that is on Television.

TiVo also has great opportunities in mobile technologies. They have recently partnered with RIM (research in motion). This originally was a partnership to bring access to your TiVo device to your mobile phone in terms of programming a show to record or looking up program information, or transferring recordings to your phone, but they are now researching and developing a way to bring that content directly to your device. I believe this is the future of television it will all be on the internet much like what TiVo is doing with Nero. If you have an internet connection you will be able to watch LIVE TV from anywhere including your mobile phone and even record on your mobile phone. The storage space has just not been developed. The screen is small and not as inviting but in time they will make bigger screens that fold out and hopefully TiVo will be working on software to integrate into these screens.

I believe they should work to put a player on the iPhone immediately. There is not a TiVo application and you can’t watch LIVE TV. You can stream from YouTube on the iPhone but if there was an application to move video you recorded on your TiVo to your iPhone that would be a step in the right direction. AppleTV looks to be a big commetitor in this department and may get there before they do on the mobile device.

TiVo’s biggest Strength as well as opportunity is research and development. Like NetFlix, they hold an incredible amount of information on the television viewing public. They know what shows you watch, when you watch, how long you watch, and by establishing their own internal rating system with the thumbs up and thumbs down remote they are gaining invaluable information of what you like and what you don’t like. Other DVRs are not doing this. TiVo picks programs for you based on what you program it for you to like. It’s learning. With every click forward or backward, it’s learning. TiVo has the opportunity to be the Nielsens of the future. They can sell all this information to advertisers for a lot of money. Also, if they work with Netflix and combine databases the possibilities are endless. They may get out of the DVR business altogether and do audience research.

Tivo has already started playing around with advertising on the screen and in between ads. Comcast does some of this on its guide page but TiVo has a new version where there is an ad that pops up when you are fast forwarding. A display ad or banner. There is a great opportunity to develop software that does this sort of subliminal advertising. This may also be why DirecTV has kept their relationship open with TiVo. The advertising possibilities as well as the software engineering that is not being done any place else. Investors are holding on with these prospects.

THREATS:
DirecTV is nipping at their heels. As soon as they figure out technology and figure out advertising they may leave them. They are also Beta testing new software for music and photosharing on the DVR which TiVo was known for and also a reason DirecTV has kept them close. Dish Network Corp was creeping up on them but then TiVo sued their manufacturer EchoStar Holding Company for patent infringement. They were awarded $104 Million dollars. Dish Network has still developed the technology they just have to tweek it a bit and they will be back in business. Dish and Direct tried to merge at one point but were not allowed by the FEC due to monopoly concern but future talks of mergers are still possible with other companies, which is a treat to TiVo. The biggest former competitor for TiVo was ReplayTV but because they quit producing DVRs they have little share in the market. They developed a software that skips commercials but they were then sued by advertisers and it bankrupted their company. TiVo has to be very careful not to disrupt the television industry too much otherwise it will come to the same fate.

News Corp NDS has developed a DVR that has Peer to Peer content and the ability to share content around the home. This is the direction I think the market is going, where you can game as well as record and share all your files. TiVo has yet to develop these gaming technologies but DirecTV is Beta Testing some software. This is a huge threat to TiVo. TiVo’s numbers are also dropping as of October 2008, TiVo had 3.45 million subscribers compared to 4.36 Million in January of 2006. This means there is more competition and people are using other DVRs. TiVo has also been lowering their prices and offering more deals on the HD receivers. According to Businessweek.com they also had a higher churn rate that was worrying analysts.

COX is extremely competitive and offers there machine for free. They are also steadily catching up in Hi-def channels which was originally a concern with cable. The cable companies can compete with satellite DVRs when they have as many channel and you can watch 3 or 4 at a time which you cannot do with TiVo. Apple TV is also putting a lot of pressure on their content, you can rent HD movies, buy HD TV shows, listen to iTune and watch podcasts or show off your photos, this is much like TiVo except it doesn’t record LIVE TV. But the more and more they add to Apple TV the more and more of a threat it becomes. It’s also user friendly and Mac users naturally gravitate toward it where TiVo wasn’t as Mac friendly at first.

CONCLUSION:
Today Tivo has rebounded closing at $6.67 up from $4.43 about two weeks ago. The stock hasn’t performed this well since the beginning of November. It could be that we are going into Christmas and TiVo’s 3rd quarter reports were better than expected. This year, TiVo has recorded profitability for the third quarter of 2008. There service and technology revenues were $51.7 million, compared with $58.3 million for the same period last year. If you look at their adjusted EBITADA it was $95.3 million which included the $87.8 million of money that came from the EchoStar battle, this figure is down about $22 Million dollars from last year. According to their annual report they had a net income of $100.6 million but excluding the EchoStar case they would have posted a net loss of 0.9 million. There is another hearing in January of 2009 to determine more damages beyond those rewarded in October. Overall it looks like a very healthy balance sheet with current assets more than double what they were last year. Their Cash Flow at the end of the period was $189 Million. It’s interesting to note also that their research and development is $16.5 Million out of their budget. Tom Rogers, the

President and CEO of TiVo said this in a press release:
"This was another solid quarter for TiVo, our fifth straight of Adjusted EBITDA profitability and we are well on our way to delivering our first Adjusted EBITDA positive year. Our strong balance sheet, consisting of over $200 million in cash and short term investments and no debt, along with our continued solid financial performance and the progress we have made on our strategic content and distribution relationships, positions us well for the future. “

TiVo has a strong hold in the market and doesn’t look like it is going anywhere soon. It is also important to note that during these tough financial times people are more likely to stay in rather than going out. Home entertainment hasn’t seen a huge leap this last quarter but maybe in 2009 heading into deep dark depression people will be spending less of fancy dinners and movies and travel and more on Video on Demand. Only time will tell.

Also, in this rough economic time more and more traditional media outlets are feeling the weight. They are losing advertising revenue streams and profitability is down. The New Media and new technologies are pulling ahead and TiVo might just be leading the way to the eventual collapse of the medium (television), the machine that helped put it on the map. Charlie Warner spoke in our class the other day about “Disruptive technologies” referencing Clayton M. Christensen’s The Innovator’s Dilemma, I believe TiVo is one of those disruptive technologies. The idea was not to ruin the marketplace for advertising on television or to put cable or satellite or local television out of business but that is where it is heading. TiVo is a perfect example of listening to the audience which is why conventional media needs to have their ears perked up.

BIBLIOGRAPHY:
www.tivo.com
www.directv.com
www.comcast.com
www.cox.com
http://www.gizmolovers.com/2008/09/03/tivo-and-directv-reunited-and-it-feels-so-good/
http://www.pvrwire.com/
www.apple.com
http://investor.tivo.com/secfiling.cfm?filingID=1193125-07-81563
http://www.zibb.com/article/4451990/TiVo+Reports+Record+Profitability+for+the+Third+Quarter+Ended+October
http://www.businessweek.com/ap/financialnews/D94MKM0G0.htm