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TiVo slump accelerates, kicks review can further down the road

Even by its own recent standards TiVo’s 2018 results contain little to cheer about beyond some welcome contract renewals from big customers like Verizon and Sky Mexico. It is almost a decade since TiVo was regularly feted as the original disruptive pioneer of DVR, with a high-water mark coming in 2010 when Virgin Media in the UK, now part of Liberty Global, signed the firm as its supplier of advanced set tops for integrating OTT with broadcast content.

More recently the acquisition by Rovi for $1.1 billion that closed in September 2016 also provided a lift, especially as TiVo’s brand was considered the stronger and so retained as the combined group’s trading name. But the stock value has tracked downwards steadily from its peak of $63 in 2011 to around $11 today, fairly accurately representing the company’s decline as a major force as it has transformed from hardware to software and IP.

Fortunes have not been helped by the ongoing patent disputes with Comcast, which inevitably have pre-occupied the company more than its much larger antagonist, irrespective of the rights and wrongs which are still not entirely clear. Comcast has won some recent battles, with the  US Patent and Trademark Office in November 2018 ruling that a TiVo patent describing a way to watch a show while viewing schedule information for other programs should never have been issued.

This was the last of over 40 reviews Comcast had sought with the agency to challenge TiVo patents for features that cable viewers had become accustomed to. Comcast’s essential stance has been that TiVo did not invent many of the features it has had patents issued for. But the war goes on and only in January 2019 TiVo, or technically Rovi Corporation, filed another suit against Comcast alleging unpaid patents in the US District Court for the Central District of California, relating to DVR functions for network recording, as well as some whole home DVR functions.

Apart from being bogged down by all this, the wider problem is that TiVo is blighted by uncertainty over not just strategy, but its whole future course as a company. This dates back exactly 12 months to the time its last full year results were published and the last quarterly bulletin when there was some good news. TiVo then posted an unexpected return to profit, albeit a modest GAAP operating profit of $4.8 million.

This spurred TiVo to kick off a strategic review over the future of the company, looking at a possible break up or sale, which was supposed to conclude well before now. As we reported just four weeks ago, TiVo was in a three-horse race between 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.

But more recently the split has looked more like between the IP division and rest of the business. We speculated that the energy it has been pursuing its litigations with Comcast indicated it would retain the IP, but it could mean it wanted to shore up its value.

Either way, it is still no clearer now and TiVo has further extended its review beyond the full year in the same breath as announcing the poor 2018 results. The problem there is that, rather like the Brexit process for the UK, the longer the agony goes on, the greater the cost, again irrespective of the merits. As one of our peers put it, TiVo is like a house that has been up for sale for too long in a declining market with the owner stubbornly holding out for the original price. There may be poetic licence there because we do not know if TiVo has been holding out for too much, but it is definitely a case of being blighted by uncertainty.

At least the prolonged “for sale” status has cushioned the share price against significant fall, but the latest figures may change that, for positives are few. Annual revenues were $696 million, down almost 16% on the $826 million total a year earlier, while the small 2017 GAAP profit turned into a $299 million loss. This raises questions over financing operations over the coming year, with options including tapping equity markets and raising debt capital. This may increase the urgency of a sale but also reduces the value.

After all, revenue 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.

At least until this year TiVo had been enjoying steady revenue growth of around 10% a year and the underlying problem then was that it was not keeping pace with operational expenses in a business quite heavy on R&D. Now that it is essentially a software company, TiVo is compared with peers in that field, even when those are not in the same industry sector. On this scale TiVo does not match up so well, but against legacy pay TV companies the figures stand up better, because these are not good times for that sector.

The future for TiVo depends on the contents of that strategic review when it is eventually published and then on how well whatever plans that emerge are executed. With some good clients remaining and remnants of the technology that once lit up the pay TV industry, there is some hope of survival, if not revival of former glories.

For our money, Synamedia could do worse than reverse into TiVo for stock, and take its public quotation in the US and add it to its own IPR and its more energetic TV architecture workforce. Just a thought.

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