After pioneering the DVR and trick-play functions over a decade ago, TiVo eventually ran out of steam, until reinventing itself as a vendor of hybrid software for integrating broadband and broadcast services from 2008. This meant it was no longer confined to its own boxes but could enter partnerships with set-top box vendors as well as pay TV operators, both of which it has now done.
The decline in customers from a 2006 peak of 4.4 million continued at first, but appears to have bottomed out early in 2011 at around 2 million, bouncing back up later in the year to stand at 2.28 million by the end of its year on 31 January 2012.
This is entirely the result of its partnership with Virgin Media. The partnership struck in November 2009 involved Tivo developing the hybrid TV and broadband interactive interface, as well as the middleware, for Virgin Media's new premium set top box co-branded by both companies. Release of the box to customers began on a slow burn basis in December 2010, with rate of deployment ramping up through 2011 to exceed 3,000 a day by the end, by which time 435,000 customers had the box. This gain was greater than the 387,000 new subs for TiVo as a whole in 2011, and even in the last quarter the 270,000 new Virgin subs just exceeded the 260,000 additional aggregate cable subs. (TiVo's financial year runs to 31 January while the Virgin Media data pertains to the calendar year, but despite the slight offset, a fair comparison can still be made).
It was during TiVo's third quarter ending 31 October that the decline in customers finally came to a halt, and as a result the company also succeeded in ending a sequence of losses to declare a net income of $102.1 million on revenues of $238.2m, compared with a deficit of $84.5m on revenues of $219.6m a year before. However the main reason for the profit was successful conclusion of litigation with AT&T resulting in a windfall of $215m, after a period when each company had sued the other over alleged patent infringements relating to various DVR functions.
These figures are telling us that TiVo's traditional markets are still declining, but prospects are now much brighter because the new strategy is likely to pay even greater dividends during 2012. In Spain, TiVo has a similar arrangement to the Virgin Media one with that country's largest cable company ONO, but as installations only began in November 2011 it had only a small effect on the year-end figures.
TiVo also holds out high hopes for the US during 2012, as relationships with several leading operators kick in. Rollout with cable TV operator Charter has just started with deployment in the Fort Worth area, while Comcast is in a trial involving TiVo set top-boxes for purchase from retail stores, although with an option for onsite installation.
This follows a joint development to ensure that Comcast's own demand channels are available on this one particular version of the TiVo box as well as Internet content, which is not the case for general retail TiVo boxes. Then in December 2011 satellite operator DirecTV started offering Tivo boxes once again, although in this case initially just as DVRs without Internet streaming.
Another major aspect of TiVo's new hybrid strategy is its partnership with set top box vendors to port the middleware and interface software onto their hardware. On this front TiVo recently added Pace, the world's largest set top box vendor by volume, to existing agreements with Cisco and Samsung. This is slightly topsy turvy in that while the deal with Cisco, as well as Samsung, covers just Europe, the one with Pace, a UK based company, is confined to the US at present.
The other aspect of TiVo's new strategy that is gaining some traction, concerns audience research and measurement. TiVo believed that advertisers were craving much more efficient measurement of viewing for online services, and started by offering data gained from its own boxes.
But this was of limited value given that it was confined to TiVo's then rather limited and declining customer base, so TiVo has sought to license set-top box data from other services, with AT&T's Uverse among the first to agree. Whether this will drive growth for TiVo remains to be seen, but there is little doubt that the main two prongs of its strategy will bear fruit during 2012.
Copyright © 2012, Faultline
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