Post by dkennedy on Dec 8, 2005 7:32:38 GMT -5
Trying Times for TiVo
December 7, 2005
By Will Swarts, Smart Money Magazine
THE PIONEER OF digital video recorders might be losing its grip on couch potatoes' loyalties as DVR technology becomes commoditized and deep-pocketed competitors vie for subscribers.
TiVo wowed television viewers by making it possible to skip commercials and to pause, rewind and then speed up programs as they're being broadcast. It's the closest the average TV watcher can get to time travel. When the Alviso, Calif., company went public in September 1999, shares nearly doubled their $16.75 offering price in the first day of trading. The stock peaked near $80 in early 2000.
If only investors could hit rewind. Six years after its auspicious market debut, shares trade under $6 and the company finds itself squeezed between heavyweight rivals offering cheaper services and upstarts sporting superior technologies. Cable providers are pitching their own digital recording technology in their set-top boxes to their millions of existing customers, while smaller, tech-focused outfits want to upstage TiVo's user-friendly interface, which the company has relied on as a selling point.
Making matters worse, earlier this year satellite broadcaster DirecTV Group, a major source of business for TiVo, introduced its own competing DVR. The move further eroded TiVo's once dominant position and offered more proof that being first — and arguably best — can be a fleeting advantage. Remember Betamax?
TiVo reported a fiscal third-quarter loss last week of $14.2 million, or 17 cents a share, on revenues of $49.6 million. While the red ink wasn't as bad as the 23-cent loss that Wall Street had feared, the results weren't exactly emblematic of a company that's supposedly leading a TV-watching revolution. Management said it expected to lose between $17 million and $22 million, or 21 cents to 27 cents a share, for the fiscal fourth quarter ending Jan. 30.
After the earnings were announced on Nov. 29, Chief Executive Tom Rogers told analysts that the company would work to make TiVo's service stand out while developing partnerships that would improve the long-term outlook. Shares have climbed 9.8% since the narrower-than-expected loss was reported, but the stock price is still down 3% year-to-date. Rogers said the company could eventually grow to 36 million to 40 million subscribers, from about four million today.
"Critical to our thinking is how we are viewing the television market," Rogers said. "We understand that one size doesn't fit all in terms of how people watch television, and how they bring it into their homes."
With about a 33% market share, TiVo is rolling out new initiatives to keep current users happy and attract new ones. Among other things, the company plans to allow subscribers to download programs into their Apple Computer video iPods.
Cable companies appear best positioned to capture a large proportion of the households that add DVRs to their home entertainment lineup. According to Forrester Research, an independent technology and market research company in Cambridge, Mass., about 42 million households will have the devices by 2010. Pricing will probably be a big factor. TiVo charges between $50 and $150 for the actual recorder hardware and $12.95 a month for its service. Cablevision, Time Warner and Comcast charge around $10 a month for their own branded service. The set-top boxes, built by Motorola and Scientific-Atlanta, are often provided by cable companies free of charge to subscribers.
Not that TiVo is taking the competition lying down. The company signed a deal in March with Comcast to market TiVo services to Comcast's 21 million cable subscribers starting in the second half of 2006. The companies plan to split the revenues. Meanwhile, Comcast continues to offer its own DVR service, which leaves many analysts skeptical about the potential for converting current users over to TiVo.
"It's an interesting call for Comcast, because they will need to convince their own customers that the DVR they have is inferior, and that they need to upgrade and pay a premium for TiVo," says Steven Frankel, an analyst at Adams Harkness, a Boston-based boutique investment bank. "In all likelihood, TiVo will fail to cross the chasm and get mainstream adoption. They invented the category and lead in innovation, but at the end of the day, I don't think it's the technology that will wind up on top in the marketplace." (Frankel doesn't own shares of TiVo; Adams Harkness doesn't have an investment-banking relationship with the company.)
Even TiVo's technological edge is in jeopardy as smaller outfits such as Digital Deck and Digeo, both privately held, develop recording technology and user interfaces that may strip away the last vestiges of TiVo's appeal. Tech giants Intel and Cisco Systems are also entering the fray.
"I think where TiVo used to have an advantage, it's going away quickly," says April Horace, an analyst at Hoefer & Arnett, a San Francisco-based boutique investment bank, who is known for her tough assessments of the company. "It's nothing personal against Tivo — I'm just looking at a competitive landscape where the other players have much deeper pockets." (Horace doesn't own shares of TiVo; Hoefer & Arnett doesn't have an investment-banking relationship with the company.)
According to Rob Enderle, a technology analyst at Enderle Group, an independent consulting and research firm in San Jose, Calif., TiVo is falling behind the technology curve. He points to limitations in TiVo units, such as the inability to record two programs at the same time and the absence of high-definition recording capability, as evidence. TiVo will introduce an HDTV-capable unit soon, but Enderle says the company faces relentless pressure from rivals large and small that can only be countered by constant technology upgrades and more advantageous partnerships. TiVo officials didn't return phone calls seeking comment.
"To make it, you really need to look at where high-end content is being consumed in the home market," Enderle says. "Now it's mostly through a set-top box, and TiVo isn't in that box. People are already asking what you need the secondary piece of hardware for." (Enderle doesn't own shares of TiVo; Enderle Group doesn't do investment banking.)
Enderle points to Cisco as perhaps the biggest threat to TiVo. The network-equipment maker is poised to enter the home-entertainment market with its $6.9 billion acquisition of Scientific-Atlanta, announced Nov. 18. It's a big strategy shift for the Silicon Valley powerhouse, but Enderle thinks the combination of software and networking capability could yield the next revolution in home entertainment. The deal is expected to close by the spring.
"If it were me, that's where I would go," Enderle says. "There are a number of dynamics going forward here that will shortly reform the home electronics world."
December 7, 2005
By Will Swarts, Smart Money Magazine
THE PIONEER OF digital video recorders might be losing its grip on couch potatoes' loyalties as DVR technology becomes commoditized and deep-pocketed competitors vie for subscribers.
TiVo wowed television viewers by making it possible to skip commercials and to pause, rewind and then speed up programs as they're being broadcast. It's the closest the average TV watcher can get to time travel. When the Alviso, Calif., company went public in September 1999, shares nearly doubled their $16.75 offering price in the first day of trading. The stock peaked near $80 in early 2000.
If only investors could hit rewind. Six years after its auspicious market debut, shares trade under $6 and the company finds itself squeezed between heavyweight rivals offering cheaper services and upstarts sporting superior technologies. Cable providers are pitching their own digital recording technology in their set-top boxes to their millions of existing customers, while smaller, tech-focused outfits want to upstage TiVo's user-friendly interface, which the company has relied on as a selling point.
Making matters worse, earlier this year satellite broadcaster DirecTV Group, a major source of business for TiVo, introduced its own competing DVR. The move further eroded TiVo's once dominant position and offered more proof that being first — and arguably best — can be a fleeting advantage. Remember Betamax?
TiVo reported a fiscal third-quarter loss last week of $14.2 million, or 17 cents a share, on revenues of $49.6 million. While the red ink wasn't as bad as the 23-cent loss that Wall Street had feared, the results weren't exactly emblematic of a company that's supposedly leading a TV-watching revolution. Management said it expected to lose between $17 million and $22 million, or 21 cents to 27 cents a share, for the fiscal fourth quarter ending Jan. 30.
After the earnings were announced on Nov. 29, Chief Executive Tom Rogers told analysts that the company would work to make TiVo's service stand out while developing partnerships that would improve the long-term outlook. Shares have climbed 9.8% since the narrower-than-expected loss was reported, but the stock price is still down 3% year-to-date. Rogers said the company could eventually grow to 36 million to 40 million subscribers, from about four million today.
"Critical to our thinking is how we are viewing the television market," Rogers said. "We understand that one size doesn't fit all in terms of how people watch television, and how they bring it into their homes."
With about a 33% market share, TiVo is rolling out new initiatives to keep current users happy and attract new ones. Among other things, the company plans to allow subscribers to download programs into their Apple Computer video iPods.
Cable companies appear best positioned to capture a large proportion of the households that add DVRs to their home entertainment lineup. According to Forrester Research, an independent technology and market research company in Cambridge, Mass., about 42 million households will have the devices by 2010. Pricing will probably be a big factor. TiVo charges between $50 and $150 for the actual recorder hardware and $12.95 a month for its service. Cablevision, Time Warner and Comcast charge around $10 a month for their own branded service. The set-top boxes, built by Motorola and Scientific-Atlanta, are often provided by cable companies free of charge to subscribers.
Not that TiVo is taking the competition lying down. The company signed a deal in March with Comcast to market TiVo services to Comcast's 21 million cable subscribers starting in the second half of 2006. The companies plan to split the revenues. Meanwhile, Comcast continues to offer its own DVR service, which leaves many analysts skeptical about the potential for converting current users over to TiVo.
"It's an interesting call for Comcast, because they will need to convince their own customers that the DVR they have is inferior, and that they need to upgrade and pay a premium for TiVo," says Steven Frankel, an analyst at Adams Harkness, a Boston-based boutique investment bank. "In all likelihood, TiVo will fail to cross the chasm and get mainstream adoption. They invented the category and lead in innovation, but at the end of the day, I don't think it's the technology that will wind up on top in the marketplace." (Frankel doesn't own shares of TiVo; Adams Harkness doesn't have an investment-banking relationship with the company.)
Even TiVo's technological edge is in jeopardy as smaller outfits such as Digital Deck and Digeo, both privately held, develop recording technology and user interfaces that may strip away the last vestiges of TiVo's appeal. Tech giants Intel and Cisco Systems are also entering the fray.
"I think where TiVo used to have an advantage, it's going away quickly," says April Horace, an analyst at Hoefer & Arnett, a San Francisco-based boutique investment bank, who is known for her tough assessments of the company. "It's nothing personal against Tivo — I'm just looking at a competitive landscape where the other players have much deeper pockets." (Horace doesn't own shares of TiVo; Hoefer & Arnett doesn't have an investment-banking relationship with the company.)
According to Rob Enderle, a technology analyst at Enderle Group, an independent consulting and research firm in San Jose, Calif., TiVo is falling behind the technology curve. He points to limitations in TiVo units, such as the inability to record two programs at the same time and the absence of high-definition recording capability, as evidence. TiVo will introduce an HDTV-capable unit soon, but Enderle says the company faces relentless pressure from rivals large and small that can only be countered by constant technology upgrades and more advantageous partnerships. TiVo officials didn't return phone calls seeking comment.
"To make it, you really need to look at where high-end content is being consumed in the home market," Enderle says. "Now it's mostly through a set-top box, and TiVo isn't in that box. People are already asking what you need the secondary piece of hardware for." (Enderle doesn't own shares of TiVo; Enderle Group doesn't do investment banking.)
Enderle points to Cisco as perhaps the biggest threat to TiVo. The network-equipment maker is poised to enter the home-entertainment market with its $6.9 billion acquisition of Scientific-Atlanta, announced Nov. 18. It's a big strategy shift for the Silicon Valley powerhouse, but Enderle thinks the combination of software and networking capability could yield the next revolution in home entertainment. The deal is expected to close by the spring.
"If it were me, that's where I would go," Enderle says. "There are a number of dynamics going forward here that will shortly reform the home electronics world."
