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TiVo settles on spin out strategy, dillydallying around sale

Financial analysts punished TiVo after the company finally went about deciding on its business separation saga almost one-year in the making. Investors have no doubt been left scratching their heads in bemusement as to why a sale of the products division hasn’t already been orchestrated.

What has instead happened is an agreement to spin out the Product business to shareholders, while keeping the IP Licensing segment close to its chest. However, it notes the TiVo board remains open to strategic transactions for either business.

During TiVo’s annual earnings call at the end of February, the company came out and confirmed it had received acquisition interest from a number of unnamed third parties, so what appears to have happened is a fundamental collapse in any negotiations. But TiVo’s thinking may be that by completing the separation first, instead of twiddling its thumbs and distracting the issue with a convoluted five pillar plan – as outlined by CEO Raghu Rau on the aforementioned call – spinning off the Products division to shareholders makes it much easier to sell.

Executing the separation will, however, take at least another year. With TiVo shares plummeting by 13.8% immediately following the separation announcement, how much further will they slide in mid-2020 when the process is expected to complete?

So, TiVo started out with three likely scenarios – selling the entire business; splitting it in two and selling each side to separate buyers; or splitting in two and selling off just one arm. The latter was always the obvious choice, but still TiVo hasn’t managed to instigate a bidding war between buyers and the way we see it, the company has regressed firmly back to square one.

We have been vocal in our frustrations with TiVo as a business since its takeover by Rovi, clinging to patent litigation cases with increasing importance while failing to convince the outside world that the company is capable of engineering any genuine in-house innovations. Conclusively, these frustrations have resurfaced this week as an immediate sale of the Products segment would have eased investor qualms and given TiVo a financial boost as well as streamlined focus.

Inevitably though, TiVo cited the on-going patent infringement lawsuit with Comcast. “We now see the next potential value-creating catalyst as the upcoming ITC decision around the Comcast dispute that is expected by June,” said a statement.

When Faultline Online Reporter proposed TiVo split itself in two, six months before the company announced the plan in January, we proposed that what TiVo needs is to come to market with a cheaper, easier to install and superior voice control – not just at the top end of the market, where it has Sky and Dish using its services (around its metadata), but also in a plug and play manner, for the bottom end of the market. And much of this lies in extensions to its Experience 4, its next-gen TV experience which is being rolled out by US operators including Atlantic Broadband, RCN Telecom and Service Electric.

Indeed, TiVo restored some faith during a webinar last week, as executives lifted the skirt on in-house developments, specifically with sizable investments in natural language processing techniques with a roadmap heavily focused on Android TV.

Of course, the value in TiVo’s products division stems from its presence in approximately 23 million households worldwide where its Platform Solutions technologies are present. However, revenue last year was down in just about all categories, with Platform Solutions slipping over the year from $334 million to $315 million, while Software and Services dipped from $85 million to $76.2 million. IP Licensing revenue tumbled by over 25% from $402.9 million to $295.1 million, leaving New Media and the Rest up nominally from $72.7 million to $73.5 million.

The IP Licensing business, meanwhile, comprises some 5,500 issued patents and pending applications worldwide. If TiVo can prevail against Comcast in the latest lawsuit and put the dispute to bed for good, it could trigger a momentous turn of events for the vendor.

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