Believing in TiVo is a big like believing, or not believing, in god. If you believe, then no amount of evidence to the contrary ‘ such as the referral of TiVo’s patent dispute with Dish Network to an ‘en banc’ review ‘ which means that it has to prove its case all over again, can turn you against the company. While if you don’t believe, then no amount of technology and service deals ‘ such as those with Virgin Media and Ono in Europe and Cox, RCN, and Suddenlink in the US ‘ can convince you to believe that TiVo is a company destined to scale the heights.
It is the same with this quarter’s results. TiVo haters will point to the cash used and the continued losses, while the TiVo lovers can point to the broadening of its customer base outside of the US, and its cash and liquid asset mountain of $240 million.
Here at Faultline we tend to continually comes down on the side of TiVo, quite simply because we think that TiVo actually invented one of the most important home devices all by itself, the Digital Video Recorder. Other’s say that until it has proven this to the world at large, it will never be the recipient of the royalties that it may well deserve, and without that it has a weak business model.
But that business model is changing, and the critical thing for believers is that TiVo at US cable company RCN, now says that it completed the adoption of the new TiVo Premiere box, its OTT hybrid device, in just three months across a broad territory including Washington, DC, New York, Boston, Philadelphia, Lehigh Valley and Chicago. This is way ahead of schedule.
And that’s a critical part of the new TiVo strategy. Because RCN has done this so swiftly it will become the perfect reference for other operators, who want to jazz up their cable TV offerings and bring Internet delivered content to their customer TV sets. TiVo also said as it announced its results that feedback from RCN subscribers has been extremely positive, with results exceeding expectations and an accelerated adoption.
If that can also happen at the two new European accounts in the run up to Christmas, and also particularly at Cox in the US, the third largest cable operator, then TiVo numbers will once again beat expectations in the next few quarters, as they did this quarter.
TiVo’s numbers to the end of July were above its revenue and net income guidance with service and technology revenues at $42.1 million, exceeding guidance of $40 to $42 million, although this is a fall compared with the $48.8 million for the same period last year.
TiVo reported a net loss of $15.3 million, compared to guidance which was a loss of $17 to $19 million, although a year ago the loss was only $2.7 million. This led to a small fall away in the TiVo share price, but it has crept up of late, after the shares more than halved on the news of the en banc review of its patent claims against Dish. Today it is considerably ahead of where it was the day after that announcement, and the next two a quarters will be critical to continued investor belief, as it embraces OTT services and begins to reposition as an international TV operator partner which carries out mass DVR distribution.
Tom Rogers, President and CEO of TiVo said, ‘.. as part of our deal, Cox will market TiVo Premiere to its subscribers and provide free installation for TiVo Premiere boxes, removing a major source of historical friction … We are incredibly encouraged by that step.’ Effectively part of TiVo’s strategy in the US is to use its brand to sell its Premiere box through retail, but on set top boxes that the cable operators are happy with, meaning cable customers can buy them too. If this was to happen in large numbers then the cable company would lose the cost of buying in set top boxes. Great for the operators, good for TiVo, lousy for companies like Motorola and it would also be bad for Cisco’s Scientific Atlanta arm except for the fact that TiVo has been ported to both those architectures.
Rogers explained the moves in Europe too, ‘The catalysts for this international progress are clear and we see a strong pipeline of interest.
Unlike some of the large operators in the US, international players must rely on outside partners to provide their set-top-box software. There are very few players who can credibly provide solutions that handle an incredibly dynamic and strategically important set of consumer-facing features in combination with an increasingly complex set-top box and network infrastructure. Within that small universe of players, TiVo remains the only advanced solution that has proven deployments”
Here Rogers is up against companies like NDS and Nagravision’s OpenTV which he talks about as solutions which come with an agenda ‘ as a Trojan horse to sell middleware, conditional access, or set-top boxes.
The TiVo management guided that its third quarter would bring in service and technology revenues in the range of $40-42 million and a not loss of between $19 and $21 million. Our bet is that it will beat both this and any, even more optimistic, guidelines it sets for the fourth quarter.