We have a habit of bringing readers of Faultline the results from TiVo (and Netflix) and despite yet another affirming set of numbers which show that it is genuinely a key business leader in the OTT and pay TV business, TiVo share price barely budged once again. It has slowly climbed about 10% over the past two months.
The company still makes a loss, but this is now largely due to its legal actions, and given that it is about to go head to head with Motorola, and that another court win is almost a certainty, this time against a business which it actually colluded with in bringing its DVR technology to Comcast, at a time when Motorola had not got a clue what a DVR was. The clear sign of copying intent that Motorola showed by bringing out DVRs after being shown how to build them by TiVo and still refusing to pay any patent royalties, could make this the biggest pay day in TiVo’s history.
Meanwhile the numbers jumped in quarterly services and technology revenue terms to $61.8 million, and the reason that the TiVo share price tends not to move, except on court pronouncements is because this is still a low number making it track annual revenues of around $240 million. On this it lost $10.3 million but that’s after setting aside another $10.9 million of litigation expense, and without it, the company would have made its second successive profit.
Litigation is expensive, but it has been profitable for TiVo, to the tune of around $1 billion in its past. In Motorola and finally Cisco there may be double that amount on offer and then it can turn to overseas rivals who have copied its DVR technology, where it is less expensive to litigate. One victory in Europe would probably be enough that it could lay that particular ghost to rest and become driven by IPR license fees for some time to come.
TiVo mostly sues on one of its original patents, referred to as the Time Warp patent, and yet it now has 100s of patents, relating to UI, advertising and OTT meta data manipulation. For every MSO implementation of TiVo, there are more set top makers to derive fees from.
And that number, of MSOs, is going up. TiVo revealed that its MSO revenues are now 98% higher than this time last year, a nod of assent to its recent strategy of tying up smaller US and overseas players in deals where its box is shipped, to the exclusion of any other high end DVR.
Revenue growth is a mere 13% annually, but when you consider that subscriptions under the TiVo direct brand have been falling rapidly, means that other revenues are growing much faster than 13%. It is this new partnership approach with smaller MSOs that is paying dividends, and Virgin Media in the UK added another 172,000 licenses, out of a total growth in MSO subscriptions of 277,000, the biggest jump for 7 years. TiVo announced a new deal at Atlantic Broadband, the 12th largest US MSO, and Midcontinent and CI recently launched on TiVo. In June TiVo expects Mediacom to begin rollout, with CableONE following later in the year. All of these will continue to grow the subscribers of TiVo service.
Knowing that TiVo tends to prefer to invent, rather than partner, we suspect that its new recommendation system, offered initially on tablets, called ‘What to Watch’ has been built without the benefit of partnering with one of the major recommendation players which have been sweeping the US MSO community. That’s probably a small misstep in our estimation, in that companies like ThinkAnalytics, Jinni, Viaccess Orca and DigitalSmiths and even newcomer Veveo, all have something original to offer, which has required deep pockets and a long term investment. We have often suggested that TiVo partners with one of them, and buys in perhaps just some of the algorithms, or better still, one of the companies. If it has done that, we’re sure it will come out in time
The application is sure to be in the cloud, with an online link to the App, and it could even be a combination of more than one of these technologies. However companies like Netflix, which has its own, albeit first generation recommendation system, to help people search its extensive OTT catalog, show that writing it from scratch is still an option and perhaps that’s what TiVo has done.
Chances are it will first see the light of day at Com Hem in Sweden, which is moving closer to its launch date with TiVo and it has begun pre-registration of upgrade requests.
TiVo revenue was at the top end of its guidance, which had forecast a net loss of $16 million to $19 million and it had a net loss last year of $20.8 million. During the quarter TiVo repurchased $31 million of its own stock
The 172,000 TiVo additions at Virgin Media take the total there to 1.5 million, which equates to 40% of its entire base. Churn at Virgin down for the 6th quarter in a row, and in Spain, cable company Ono has taken TiVo subs to 166,000, up 68% from three months ago. Suddenlink in the US now has 80,000 TiVo devices installed and has begun installing the new whole home TiVo system built around the TiVo Mini and TiVo Stream.
TiVo said that it was about to begin offering Major League Baseball OTT on its own subscriptions and this was expected to further drive down churn there. The company says that it has cut R&D expenses by 13%, but then again, it’s been on a long run of invention, and perhaps it needs something of a consolidation period.
TiVo is also hoping to build a brand new revenue stream through its Research and Analytics business, and reminds everyone it has signed a deal with Nielsen to sell its data alongside TiVo clickstream data. It also plans to merge its TiVo Watch ratings service with purchasing insights from TiVo Research and Analytics.
The company said that it expects second quarter revenues above $68 million and expects MSO deployments to drive sequential increases in both service revenue and technology revenue. But it will still make a loss of at least $13 million, which
includes $9 million to $11 million of litigation spend.