The TiVo acquisition that never was by John Patrick Pullen @FortuneMagazine December 3, 2014, 12:19 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons It’s the kind of quote that you’d see in the papers on a regular basis. “We believe it is likely that the [sic] TiVo will be bought out within 24 months,” said Albert Fried & Company analyst Rich Tullo in an April 2012 story published by Benzinga, an investor news website. Yet today, 32 months later, TiVo TIVO still stands on its own—just as it did after Apple was rumored to buy the digital video recording company in 2005; after DISH Network and DirecTV were alleged to buy them in 2010; and after Google, Microsoft, and Rovi were named as potential suitors in 2011. And though 2014 is a time when billion-dollar buyouts seemingly happen every quarter and the connected television market is one of the few platforms still up for grabs, TiVo is still, improbably, the one that got away. “There are always going to be rumors,” says Tullo, commenting on his earlier remarks. “I try not to traffic on rumors. I try to look at the analysis, see if a company would be attractive in the M&A market, and leave it at that.” To wit, Tullo says his belief that TiVo would sell in 2012 had almost everything to do with a stock price in the $8 range and little to do with background noise. For years, that noise was deafening—and defining—for what some argue is the best television experience on the market. According to Randy Komisar, a founding director who was on TiVo’s board from 1998 to 2010, the acquisition rumors were real. Though he won’t identify TiVo’s suitors, he describes them as companies in the set-top box, over-the-top, and broadcast spaces. “There was always interest, but never at a price that we felt was appropriate for the shareholders,” Komisar says. Founded when there was was nothing other than linear programming on television, TiVo and its DVR technology served as a bridge in the 2000s to the on-demand and streaming world we live in today. “That period of time was critical for value creation,” says Komisar, who claims to have “done a lot of soul-searching on that company.” Still, there’s a question that haunts him. “Why didn’t it create more enterprise value while successfully challenging such a huge market?” he asks. There are three reasons, as best he can figure. First, multi-service operators putting their own DVRs in consumers’ living rooms caused TiVo’s user base to shrink. Secondly, because TiVo was reliant on cable operators to support their boxes, the company was hamstrung in attracting new users through marketing and advertising. If they showed their product to be superior, or explained how it was a cheaper alternative to bundled DVRs, they risked offending their cable company partners. And thirdly, the cable company DVRs violated TiVo’s patents, the company alleged, presenting a series of do-or-die cases it would have to repeatedly win in court—and it did that later rather than sooner, Komisar says. “Fundamentally, we should have sued earlier on the intellectual property,” he concedes. These issues also scared off potential buyers. Resume or restart? Last June, TiVo landed on the fairer side of a $490 million settlement between itself and Cisco, Motorola, and Time Warner Cable, effectively ending years of litigation and leaving the company, in all, $1.6 billion richer after going seven-for-seven in defense of its “time warp” patent. Though the company finished with stockpiles of its competitors’ cash, its retail consumer base had been ravaged in the interim, with large multi-service operators providing the majority of in-home DVRs across the U.S. Still, long before the legal dust had settled, TiVo’s question of how to best move forward had already been decided. It was clear that shrinking retail sales weren’t going to rebound and lift TiVo’s numbers, which dropped from 4.3 million total subscribers in early 2007 to 1.9 million in mid-2011. The best road ahead for the company was to revisit a path that had nearly broken the company the decade before: partner with cable companies. Essentially, TiVo had to time-warp itself back to its state before the lawsuits began and press “play.” But television viewing habits had already begun to gravitate toward streaming video. TiVo would have to follow suit. “The design goal that we strive for is to be able to say, ‘Whatever content you can watch on your television, you’ve got to be able to get on your other screens,'” says Naveen Chopra, TiVo’s chief financial officer. That perspective—and a key feature in TiVo’s Roamio boxes, which can stream anything on a person’s television to their mobile device—is much more in line with today’s consumers than the company’s original value proposition of simply being able to skip past commercials. It’s also something that most cable operators either could not or did not want to develop. So TiVo targeted mid-tier U.S. operators for partnerships and built relationships with other television providers outside its home country. In August 2009, the U.S. cable company RCN tapped TiVo to supply DVR services to its subscribers. Three months later, Virgin Media partnered with the company to develop its next-generation television platform. “Outside the U.S.,” Chopra says, “you don’t have this dynamic where the Comcasts, DirecTVs, and Verizons of the world try to build a lot of these capabilities in-house.” In all, though TiVo’s retail subscriber count is now down to 937,000 as of August 2014 (compared to 1.7 million in early 2007), its total subscriber base now approaches 5 million total users—a boom that can be credited to cable companies from Sweden to New Zealand placing TiVo-powered boxes in their subscriber’s homes. Europe alone boasts 2.5 million TiVo users. In the last two years, the company has added more than 1 million subscribers. Reviving the TiVo acquisition rumor mill With cable beginning to unbundle and unravel in the U.S., no one knows how the future will play out. A prophecy of the late Apple CEO Steve Jobs was that he “cracked the code” on television, but the world has yet to see an Apple television or radically rethought Apple TV box. HBO said it plans to roll out an unbundled over-the-top offering, but it remains unclear what strings will be attached. Everyone from Amazon to Microsoft is getting into the set-top box fray (the new Fire TV and the ever-evolving Xbox, respectively), but no streaming device has proven dominant. Each addition to the category seems to be another accessory to the undead technology that is linear programming. Should the warming trend of cord-cutting reach a boil, TiVo already has a product on the market ready to leverage it: its Roamio OTA, a $49 DVR (that requires a $15 per month subscription) that can record broadcast programming and provide access to major streaming services. Roamio OTA isn’t a cable-killer per se—but if cable happens to die from natural causes, it could teach television viewers how to love again. At the very least, it’s an option beyond the arranged marriage that viewers must endure with local cable monopolies. The device might be aimed at cord-cutters, but it’s ideal for cord-nevers—specifically under-35 viewers, which are a coveted but harder-to-capture audience. “They’re TiVoing and DVRing at best, and at worst for the industry, they’re simply going to streaming,” Komisar says. “The new audience is much less inclined to buy television through cable or view broadcasts in real-time—so over-the-top is not a small idea.” With cable deals in place worldwide and a device that can circumvent the cord domestically, TiVo’s outlook appears healthier, its future brighter. Which prompts an old question all over again: Is the company once again open to being acquired? Its official response is that while it is focused on executing its business plan, it considers all opportunities that can drive value for its shareholders. To that end, it has used $650 million of its courtroom spoils to buy back stock, reducing outstanding shares and driving up price—at least theoretically. Since its first buyback efforts began in August 2011, the price of the company’s shares has risen 21 percent, but $350 million of its repurchase program was only announced in August. Looking back, Tullo gives TiVo’s turnaround a grade of “A-plus” and grades its stock performance as a “B.” “It’s a company that had great success in terms of improving its fundamental execution on its business, rolling out new products to the market, and transitioning from a device-centric company to a cloud-centric company,” he says. As for talk of M&A, Tullo says he believes TiVo would prefer to remain independent but would be amenable to selling if the right deal came along. “I don’t think they’d be open to somebody buying them for IP rights and closing them down,” he says. “I think they want TiVo as the operating system of cable TV, and as long as a deal emerges where it could be that for them, then they will be open to a discussion.” In other words: rumor has it, there’s a chance.