About 6 minutes after we sent out last week’s issue of Faultline, TiVo actually announced details of the settlement deal that it had agreed, not only with Motorola, but also with Cisco and the cable operator Time warner Cable, for a total of $490 million.
Earlier calculations which we referred to in our story last week came from analysts in the financial markets who assumed that the settlement would be in line with the amount per customer that other settlements had been based upon, and the market generally had expected about $1 billion for each of the two major complaints.
The result was that the TiVo stock fell some 15%, after it had risen 8% the day before, on profit taking and disappointment that the settlements were not higher. Of course for real TiVo investors getting a settlement of close to half a $ billion could hardly be seen as a disappointment, but to a bunch of investors who were effectively gambling on the outcome of a legal action, it was seen as a reason to get out of the stock. Almost anticipating this reaction the TiVo board sweetened the news with an extra $100 million of stock buy-back, taking that to $200 million in total, which it will slowly buy-in between now and August 2015.
This still leaves the company with $1 billion more or less in cash, higher forward payments and lower legal bills, and a business that will be in profit from here on in. And as if to remind everyone that it is trying to leave its litigious ways behind, TiVo announced that the new devices at Mediacom, the 8th largest cable operator in the US, have begun to roll out and that it has also signed another deal, with Atlantic Broadband, billing it as the 12th largest US cable operator
Atlantic Broadband, like a number of its more recent partners has signed up exclusively for connectivity to the TV and across the web and on mobile platforms.
TiVo has been going around signing up all of its existing DVR customers and introducing them to all the recently introduced multiscreen versions of its product which were developed primarily for ComHem in Sweden. Atlantic Broadband is the first cable operators to sign up for all of them from the get go.
A statement said, ‘Atlantic Broadband is the first US MSO to leverage TiVo’s complete product suite which delivers a unified experience that spans whole home DVR, HD Set tops for non DVR households, access to Internet delivered video and applications, and multi-screen viewing experiences delivered through a smart online portal and an Atlantic Broadband customized mobile application.’
These are the types of deals that will help the TiVo share price recover from that disappointment of last week, and which will drive next quarter’s figures for what we expect should be its first profitable quarter that was not driven by litigation proceeds (although of course it will have $490 million of those proceeds in the quarter).
We have to admit that even we were surprised that the settlement with NDS and Cisco and its key operator TWC was not more, and that TiVo did not hold out for more, due to the insidious nature of multiple attacks on TiVo from that quarter over the years. We can only suggest that the pressure of running multiple, expensive legal actions were thought to be keeping genuine investors away, who could not judge the company on its fundamentals while the legal actions remained.
TiVo should now be in a position to obtain a valuation that suits its rise to profitable levels of business and its massively healthy bank balance, driven by the $1.6 billion in legal settlements that it has won over the past few years.
Mediacom has some 1.24 million basic subscribers and should continue the upward swing in TiVo service through MSO resellers, which has proved so healthy over the past two years. Atlantic Broadband has only 251,000 subscriber homes but TiVo should be getting more money per subscriber home given that it will be pushing its entire portfolio.