TiVo to Rovi’s rescue, thanks to Samsung, HBO deals

TiVo posted impressive results this week, reporting revenue up 69% year-on-year to $252.3 million for Q4 2016. A large jump was fully expected with the newly combined financial clout of TiVo and Rovi, but the standout stars of the show were the licensing agreements TiVo recently signed with Samsung and HBO – deals which brought in a hefty sum of money to return Rovi to profitability.

It’s worth mentioning that Rovi made a loss before buying TiVo in April last year for $1.1 billion, and the combined patents force is churning out ever growing royalty payments. Rovi’s turnaround has largely come about on the back of an intellectual property (IP) license with Samsung for TiVo patents in its mobile, consumer electronics and set top business, including catch-up payments, following the settlement of a patent infringement suit against the South Korean firm. This was for allegedly infringing four original UI patents in its set tops and smartphones relating to time shifting and trick play.

HBO’s long-term IP license, signed last month, includes a joint patent portfolio from TiVo and Intellectual Ventures (IV), the company TiVo first partnered with in February last year.

TiVo also signed an important patent deal with Netflix in December, in partnership with IV, for patents which relate to OTT video delivery, combining them with its own patents and going out to the OTT community to get cash from various industry players. The details of either of the three significant deals mentioned were never announced, but IV holds around 70,000 patents and Rovi had some 5,000 of its own at the time of the Netflix deal, and it is this combined OTT subset which Netflix and HBO signed up for.

In a nut shell, TiVo deserves bragging rights having signed off its most successful year with priceless deals with the world’s largest SVoD company, the world’s biggest electronics manufacturer, and one of the most valuable networks globally. However, this time next year some of its key patents will begin expiring, such as those for rewinding and other trick play functions, and it will also have to face up to the shrinkage of the physical DVR market. Although some of TiVo’s patents will remain relevant for network PVR as the pay TV market increasingly embraces it.

In Rovi’s final quarter as a separate company, it showed that its patents revenues were falling slightly, but still represented over 50% of its revenues. The new TiVo company reported IP licensing revenues of $140.3 million for the fourth quarter of last year, up from $89.5 million in Q4 2015 – meaning these patent portfolios represented more than 55% of total revenues for the quarter.

IP licensing revenues for the full year 2016 were $347.4 million, while the Software and Services sector pulled in $83.8 million and Platform Solutions recorded $12.5 million.

Despite this, TiVo slightly missed profit expectations, with net income of $9.8 million for the quarter, and 2016 net income of $32.7 million, compared to a net loss (for the old Rovi) of $4.3 million in 2015. Zacks Investment Research therefore downgraded the company from buy to hold, citing “intense competition particularly from companies like Dish Network and Cablevision Systems which are said to be eroding TiVo’s subscriber base, which seems to be the primary headwind in the near term. Notably, shares of TiVo have underperformed the broader market over the past year.”

TiVo has projected financial year 2017 revenues of between $800 million and $835 million, compared to $489.6 million for last year. We suspect that TiVo will be taking the sizeable lump sums received for licenses from Samsung, Netflix and HBO, and spreading them out evenly between quarters.

Tom Carson, President and CEO of TiVo, said: “our Q4 financial results reflect the strength of the new TiVo, and strategically important deals with Samsung, Netflix and HBO demonstrate the value of the combined company’s products and intellectual property. The TiVo integration is proceeding as planned. We also continue to expect cost synergies of at least $100 million with 65% coming from actions taken within 12 months of the close.”