TiVo sees road ahead but the mountain in its way is Comcast

Enrique Rodriguez held his first results conference as the CEO of TiVo and decided to shake up the image of the company among shareholders, by announcing a search for “strategic alternatives” – either more acquisitions, or a sale, or taking the company private – to change how the company is viewed.

Rodriguez is clearly a shoe salesman, you know the one from the joke. One shoe salesman was sent to a desert island and called home, “It’s terrible, no-one here wears shoes.” But another salesman (Rodriguez) calls home next from another island and says “Boss, I cannot thank you enough, this is a great market because no-one here has any shoes yet.”

Rodriguez attitude is so positive and as he sees a world shifting away from everything that TiVo is famous for, DVR hardware, licenses and software for Program Guides – he sees nothing by new opportunities where his product line is heading – into the world of OTT video.

He wanted to focus instead on the work that TiVo has done in content discovery, natural language voice powered interfaces and dynamic metadata, as well as the company’s cloud-based, device-agnostic systems for OTT delivery. It is true that TiVo was one of the first companies to combine metadata in the cloud and push queries conducted back into the set top – that was ten years ago with its first operator sales to companies like Virgin Media in the UK, but today that is table stakes for staying in the marketplace for OTT technology. If you have to transfer a UX from one device to another, you have to push most of the workings back into the cloud and start from there.

He insisted that TiVo is growing relationships with customers still in the company’s traditional markets, which usually means consumer electronics manufacturers and Pay TV operators and of course repeated his now famous quote, “We have 9 out of the top ten US pay TV operators as customers.”

It is the tenth one that is the fly in the ointment – Comcast. It has tried to nail down a legal win over Comcast and does appear to be getting closer, but Comcast keeps wriggling out of sight. The worry is that Comcast now has a handful of X1 licensees in Canada and the US, and this is the technology which has the potential to keep TiVo at bay. One ITC decision had forced Comcast to change the technology in some of its devices to evade the signing of a license with TiVo, and if that holds water legally speaking, it will remain a setback to TiVo. At Faultline Online Reporter we do not believe that this will hold, as in no instance we have seen over the years has anyone been able to install a workaround into a piece of technology to the satisfaction of the court. Dish tried it in its case with old TiVo, and it ended up losing close to $1 billion.

It also doesn’t help that Comcast (who currently refuses to pay for a TiVo IP license) is about to buy Sky (who has been happy to pay for such a license in the past). If Comcast wins any latitude from the courts, the disease of ignoring IP license requests may first catch on at subsidiaries, then at licensees to its X1 technology and finally to the rest of the market.

But investors are shy of court decisions which can ruin or make a stock on the turn of a judges thinking and tend to steer clear of companies where large chunks of revenue are help up in courtroom battles.

Rodriguez talked up addressing emerging markets for virtual service providers, both content and new media companies, as well as advertisers, but it is probably the last area where it needs a substantial win. Companies like Adobe do well in the OTT advertising market and many other new players occupy the programmatic space. Is there room for TiVO?

TiVo has to switch almost overnight from getting most of its money from manufacturers of digital TVs, game consoles and other connected video devices where major Japanese and Korean names like Samsung, Sony, LG, Panasonic, and Sharp drive its revenue – Rodriguez reminded us that 90% of all Smart TVs shipped in North America were covered by a TiVo IP license.

One of the problems with a strategy based around recommendation systems is that sprightly young AI firms are springing up able to build a case for machine learning to drive recommendations, using open source big data tools. And in a market supplying skinny bundles there is a lot less requirement to being able to search between them. Fat bundles make for more search requirements.

Rodriguez reminded us that Discovery, HBO and Netflix have all licensed TiVo IP, and that CBS Interactive, A&E, and Sony all use its products. Well if all that is true, and it still is shrinking revenues over last year ($214 million for the last quarter, against $252 million a year ago), that’s not good. Investors can see that without the Tax Cuts and Jobs Act of 2017, the company would have made a far smaller profit, but at least that would be better than a loss.

From our point of view TiVo has been resistant to change for a long time and has only just got its current OTT product line together, and its latest successes are all in voice and metadata – a market it competes with Comcast for, and which has such worthies in the market as IBM Watson, promising AI based metadata enrichment as a basis for voice control.

About the only good news is that the merger integration of old TiVo with RoVi to form new TiVo, is ahead of schedule and going to save slightly more money than originally expected.

If Comcast thinks this through properly it will go out and buy TiVo, save its blushes in the courtroom and add it to the pile of startups that it has bought in the OTT video space – and merge all those companies – The Platform, Freewheel, others, into TiVo and simply include it all in an increased offering for X1.

Rodriguez said that “I expect 2018 to be a transformational year for TiVo.” Well if that happens, you betcha.