Can TiVo make a comeback?

An exterior view of TiVo headquarters is shown in Alviso, Calif., Tuesday, May 23, 2006. TiVo Inc., a pioneer of digital video recording, reports its first-quarter results after the bell. Analysts are expecting a loss of 19 cents per share, including stock option costs, on sales of $50.6 million. (AP Photo/Paul Sakuma)
Photograph by Paul Sakuma — AP

TiVo (TIVO) was once a household name and among the leading digital video recorder (DVR) makers in the world. Now, though, it’s a shadow of its former self.

Last month, for instance, TiVo announced that during its second quarter, it lost 3,000 TiVo-owned subscribers. While it was able to add 284,000 subscribers through partnerships with service providers (like RCN and Virgin) TiVo-owned subscriptions now hover at about 941,000. Over the last few years, the company has been hemorrhaging subscribers, losing “a couple hundred thousand” TiVo-owned subscribers in the last few years, CFO Naveen Chopra says.

TiVo-owned subscribers are paying customers the company acquired on its own. TiVo also has subscribers that it obtained through partnerships with pay-TV providers that are separate from its own “TiVo-owned” grouping.

Last month, TiVo revealed its latest product: the Bolt DVR, which allows users to skip commercials. Although the new device is a good idea, it (and others on the market) has only earned TiVo just a sliver of the set-top box market and has done little to reverse a revenue slide in its DVR business.

“[TiVo] has never been able to be the definitive market leader as a result of pay-TV-provider DVRs which dominate consumer adoption,” says Greg Ireland, research director at IDC. “[TiVo has] worked hard to offer products with compelling features sets, yet the barriers to entry—upfront costs, set up, service fees—don’t compare favorably with the ease of adoption of a pay-TV DVR box (even when those boxes offer less compelling interfaces).”

TiVo has just 6 million total subscribers (TiVo-owned and those it acquires through partnerships with TV providers) worldwide.

TiVo was founded in 1997, and should have become the dominant player in DVRs. The company lets users record and fast-forward through TV shows. However, it took little time for pay-TV providers to offer their own alternatives, leaving TiVo in the dust.

TiVo’s main issue was economics. The company has required customers to pay hundreds of dollars for its devices and then pay a monthly service charge. Cable and satellite providers “lease” the boxes to customers and have largely charged a lower monthly rate. Budget-conscious subscribers have fled, forcing TiVo to place a greater emphasis on licensing, and lawsuits.

In 2011, TiVo settled a case against EchoStar on patents it holds related to DVR functionality. The victory unleashed an opportunity for TiVo to sue or seek royalties from countless companies over their alleged abuse of its intellectual property. Over the last several years, TiVo has won settlements worth approximately $1.6 billion. Now, it’s gunning for Samsung.

“TiVo filed a patent suit against Samsung claiming infringement of four patents, including the ‘389 Time Warp patent,” Stephens analyst Tim Quillin says. “While we understand TiVo’s desire to protect its valuable intellectual property, we are not sure that patent monetization is broadly worth pursuing, even in light of the Company’s past success in asserting the ‘389 patent.”

Jefferies analyst Brian Fitzgerald disagrees. He notes that “TiVo would be unprofitable if you strip out the revenue generated from royalties”—a claim Chopra confirmed. Looking ahead, Fitzgerald believes the company must “aggressively defend its intellectual property” or lose significant revenue.

“Our complaint asserts four patents, including the ‘389 Time Warp patent and the ‘195 Trick Play patent, both of which we have litigated before,” TiVo CEO Tom Rogers said of the Samsung lawsuit in an earnings release in September. “Our complaint also asserts two patents that are related to the ‘389 patent but have expiration dates further into the future. Today’s action should help address one of the questions regarding the value, breadth, and applicability of TiVo’s IP portfolio post the 2018 expiration of the ‘389 patent.”

The statement underlies a broader issue for TiVo: its most important patent, Time Warp, will run out in 2018. TiVo is now hoping that its longer-lasting patents have the same appeal in courts that have allowed it to generate so much cash and license its technology to other companies. Some analysts have said that 2019 could be the year when TiVo fizzles as its royalty revenue dries up. Fitzgerald, however, argues that it’s not an issue.

“Remember, TiVo invented the DVR and the company owns a portfolio consisting of hundreds of patents,” he says. “We believe as long as third-parties produce DVRs, TiVo will continue to receive royalty payments.”

Chopra echoed that sentiment, saying that ideas of TiVo losing its patent-licensing revenue are “highly conservative.” He says TiVo has other intellectual property that it believes, “will continue to be valuable to companies.”

So, what’s next for TiVo? Chopra pointed to the company’s partnerships with TV providers, saying that the growth in that segment (TiVo said last month that agreements with providers are up 32% year-over-year), coupled with its high margins, make him “bullish” on his company’s future. He also said he believes TiVo’s DVR business could improve, despite declining revenue and subscriber losses.

“People ask us why are we in the consumer (DVR) business,” Chopra says. “The consumer business is the source of our innovation that creates demand in the [pay-TV provider] side. They are very symbiotic with one another.”

TiVo of course, must exude confidence for the future. But there are obvious competitive troubles the company must address and with the stock down 28.5% to $9.02 in the last year, shareholders seem less willing to believe things will go as well as Chopra suggests.

“We’re equally frustrated by the stock price, [which] does not reflect the growth we are driving today and expect to see in the future,” Chopra says.

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