TiVo (TIVO)

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See all Bulls Reasons Bulls: Reasons To Buy Deals with Comcast and Cox could help the company gain more subscribers 0% agree Deals with Comcast and Cox could help the company gain more subscribers TiVo's deals with Comcast and Cox, which together account for about 50% of the cable television market, could help the company gain a wider subscriber base in the future. View or Edit Reason 0 votes 0% agree First to market with strong brand recognition 0% agree First to market with strong brand recognition As the first company in the DVR industry, TiVo has an early lead in the market and strong brand recognition. View or Edit Reason 0 votes 0% agree Move to software based business model may lead to growth 0% agree Move to software based business model may lead to growth The move to a software-based business model, which will allow TiVo to reach customers that purchase third party DVR boxes, has the potential to expand TiVo's customer base significantly. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell TiVo's HD DVR system is significantly more expensive than competing HD DVRs 0% agree TiVo's HD DVR system is significantly more expensive than competing HD DVRs TiVo's HD DVR system is significantly more expensive than competing HD DVRs. Letting competitors pull ahead early in this segment of the market could be detrimental in the long run as HD service is expected to become the standard. View or Edit Reason 0 votes 0% agree Falling average revenue per subscription 0% agree Falling average revenue per subscription Continued rises in subscription acquisition costs and falling average revenue per subscription could lead to an unsustainable business in the future. View or Edit Reason 0 votes 0% agree Faces rising churn rate over the past 3 years 0% agree Faces rising churn rate over the past 3 years TiVo has seen rising churn rate for the past 3 years, meaning a larger percentage of customers are terminating their service each year. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion directv [Dismiss] [Done] See All Suggestions

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TiVo, Inc. (NASDAQ:TIVO) was the first company to create and market a digital video recorder (DVR) to the mainstream. Since its 1997 launch, TiVo has been a leader in the DVR industry, which it essentially created. However, TiVo has begun to see increasing competition on the hardware side of the industry, with more third party companies selling DVRs at lower prices, as well as with providers of a more stripped-down DVR service. TiVo has begun to shift its business model to put greater emphasis on the software and advertising side of the industry in order to take advantage of popular features of its subscription program.

[edit] Business Overview

Started in 1997, TiVo created the Digital Video Recorder (DVR) industry, transforming the way consumers watch television. After an initial purchase of DVR hardware, TiVo customers subscribe to a service allowing them to watch television programming on their own schedule and to avoid advertisements. TiVo currently has 4.4 million subscribers. Today, TiVo's main business continues to be the sale of its DVR hardware and software to consumers. TiVo also sells television ads and market research to advertisers and receives licensing fees for providing its TiVo service to third party companies' customers.

TiVo reports revenues from three sources: Services, Technology, and Hardware.

When the company first launched its DVR product, customers had to purchase TiVo's hardware in order to access its service. Since then, hardware suppliers have multiplied. With increasing competition on the hardware side of the business as well as consistent net losses on hardware (which for years had been heavily subsidized in order to build a customer base), TiVo has begun moving toward a software-based business model which allows it to provide its service on generic DVRs.

TiVo also sells market research conducted on its audiences audiences to advertisers, allowing advertisers to evaluate consumer demand and advertising campaign effectiveness.

TiVo software's ease of use and its unique features, such as the Season Pass, a feature that allows users to set their TiVo to record every episode of an entire season of a program while avoiding recording re-runs, are popular with customers. TiVo DVRs can also be connected to users' computers, allowing TiVo customers to play digital music and display picture files on their televisions.

In addition to providing subscriptions for customers with TiVo brand DVR units, TiVo also provides several subscription packages that do not require TiVo hardware. TiVo now offers its service through DIRECTV, and its software is compatible with third party DVRs. DIRECTV customers can subscribe to TiVo and run the TiVo user interface on DIRECTV DVRs. While subscriptions through TiVo hardware have historically been a bigger earner than those through DIRECTV subscriptions, recently, subscriptions through DIRECTV have fallen, while TiVo owned subscriptions have been on the rise.

TiVo is currently developing similar solutions for Comcast and Cox cable customers to use TiVo software on their cable boxes. The recent agreements with Comcast and Cox will allow TiVo to reach 50% of the country's cable subscribers through the two major cable players.

[edit] Operating Metrics

[edit] Average Revenue Per Subscription (ARPU)

TiVo's average revenue per subscription (often abbreviated as ARPU, for average revenue per unit) has fallen in recent years. Part of this can be attributed to increased competition in the DVR market.

[edit] Churn and Subscription Acquisition Cost (SAC)

A company's churn rate is the percentage of customers who cancel their service over a given period of time. Subscription acquisition cost (SAC) is the amount of money TiVo spends for each additional customer they add. Generally these costs are in the form of marketing and product development. Recently, TiVo has seen rises in both churn rates and SACs.

[edit] Trends & Forces

[edit] Average Revenue Per Subscription (ARPU)

TiVo's average revenue per subscription (often abbreviated as ARPU, for average revenue per unit) has fallen in recent years. Part of this can be attributed to increased competition in the DVR market.

[edit] Churn and Subscription Acquisition Cost (SAC)

In a relatively young market, such as the DVR market, the initial customer base is made up of "early adopters". These customers buy the product or service early in its lifetime and generally need little convincing to do so. As the product grows, the target market shifts away from early adopters toward a more mainstream market. The cost of gaining additional customers increases with the need for greater marketing spending to lure more customers.

This trend currently can be seen in the DVR market with the rise in TiVo's Subscription acquisition cost (SAC) over the past three years. Subscription acquisition cost (SAC) is the amount of money TiVo spends for each additional customer they add. Generally these costs are in the form of marketing and product development.

Over the same period, TiVo's churn rate (the percentage of service terminations over a given period) has also been on the rise, making the need to gain new customers greater. At the same time that subscriber acquisition costs have been rising, TiVo has also seen falling ARPUs over the past two years. This means that each new customer is less lucrative than the last yet more expensive to get.

TiVo's churn rates are lower than those of its competitors, while its SAC is less than that of DirecTV yet more than that of Echostar. While competitor's churn rates and SAC have been nearly constant over the last three years, TiVo has seen rises in both churn rates and SACs.

[edit] Legislation and Legal Challenges

The protection of intellectual property rights is a serious business concern for TiVo, as many patents covering interactive television technologies have been issued to other parties but not yet commercialized. TiVo has been threatened by many lawsuits; with its core service dependent on proprietary technology that may be claimed by others, a successful lawsuit against TiVo could be very harmful to the company's ability to continue its operations.

TiVo has also enforced intellectual property rights against others. In the most significant case to date, Echostar was found guilty of infringing on a TiVo patent, while TiVo was awarded nearly $90 million and Echostar was ordered to discontinue the production of its DVR service.

[edit] The DVR Effect

The introduction of the DVR by TiVo greatly changed the way many people view television and advertisements. The more that DVRs penetrate the home TV market and the more that consumers gain the ability to fast forward through television ads, the more significant DVR advertising is poised to be. TiVo already has advertising deals with Comcast, Cox, and DIRECTV for advertising on both TiVo DVRs and third party, TiVo-enabled DVRs. As Comcast and Cox help TiVo reach more subscribers, advertisements may become a key business driver for the company.

[edit] Competition

[edit] DVR Services

TiVo competes with major cable and satellite providers who are now offering DVR services to their subscribers. Satellite companies Echostar and DIRECTV both offer standard- and high-definition DVR services to their clients, although DIRECTV also offers the TiVo interface and software.

TiVo also competes with companies that market standard- and high-definition DVR systems to standard cable subscribers, such as Motorola, Time Warner Cable, and Cisco. The software that runs on these DVR systems comes from a number of different companies, including TV Guide, Microsoft, Aptiv, Digital, and Diego. Competition with these providers is likely to heighten when TiVo begins offering its software to Comcast and Cox customers.

[edit] DVR Hardware

TiVo competes with manufacturers of both stand-alone DVR systems and hard drive equipped DVD recorders. These systems are produced by a large number of consumer electronic companies, including RCA and Toshiba. Due to the increasing consumer demand for DVR service more companies are expected to begin incorporating DVR technology into their products in the near future. As a result it is likely that the DVR hardware landscape may become even more competitive. TiVo also competes with companies that produce personal computers with DVR software. Dell and Hewlett Packard already provide PCs running Microsoft DVR software, and it is likely that more producers will follow suit in the future in an attempt to gain a share of this growing market.

[edit] References