TiVo’s future clouded by IPR separation, Comcast and Android TV

The situation at TiVo is far from clear – at its results conference we heard multiple finance analysts asking for more and more granular details on the same questions – where will the strategic evaluation lead it? The answer, clear as mud, is that it may break into two, and either go to two alternative buyers, or that it may break into two and one of the businesses will be kept, or it may be sold in its entirety, or none of the above may happen.

CEO Raghavendra Rau made it clear that there was plenty of interest, both to purchase the company outright, or buy the IPR business separately, and also there are those interested in the software products. But no-decision on which way to go was ready at this time, although he promised clarifications before or at the Q3 figures.

What we can be sure of is that TiVo’s promise to get out of hardware has caused it sufficient discomfort already in terms of triggering losses, that it would be unwise and unlikely to reverse that decision.

Its $10.8 million revenue decrease at Platform Solutions was largely down to a $6.3 million decrease in hardware revenue, but also a $3.8 million decrease in revenue from two international MSOs. These MSOs perhaps signal a genuine weakness, as those particular MSOs will apparently continue to be weak for the rest of the year. But dropping out of hardware is a good thing, and other stuff relates to an amended revenue recognition system brought in this year.

It seems to have cut costs also, but much of this is down to not paying for hardware to be made. TiVo claims that total cost cuts, when they run for a year, will take $25 million away from costs.

Hardware will continue to go down until it is depleted entirely, but if there are weaknesses in some international MSO shipments, many US partners, including RCN Telecom, Atlantic Broadband and Service Electric will be deploying TiVo’s Next-Gen TiVo Experience 4, which among other things will initiate voice control but it is mostly about an improved EPG experience, which includes advertising in search and EPG frames – and these will yield about twice the ARPU of previous generations.

There are many trends in the market which move against TiVo being successful in its own right, unchanged. Our worry is that a shift to Android TV, anticipated at 40 or 50 operators in the coming 24 months, will include one or two TiVo customers, mostly in favor of the Android Play implementation, which brings in Netflix and Amazon integrations for next to nothing, and also voice control, which TiVo is also expert at.

But TiVo needs 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. It has also this week had to back Amazon Alexa, rather than only its Nuance based in-house voice service, on the basis that my enemy’s enemy is my friend and Google’s Android TV threatens old TiVo revenues. This should resonate with smaller operators who love the installed superiority of Alexa, almost as much as the ubiquity of Google Voice.

Unique voice users for TiVo grew to 1.4 million users from 1.2 million last quarter and quarterly queries grew from 76.3 million to 84.1 million in Q2.

Older “Rovi” revenues however are also threatened, and Comcast has won a few rounds of its IPR battle with TiVo over relicensing its EPG and other patents. Even if it wins this in the end, it will be at a far lower license level, and is unlikely to affect its revenues significantly. It does point out that other users of Comcast Xfinity X1 in Canada have renewed patent licenses and recognize the need for a license agreement covering their X1 deployments.

If TiVo does survive intact, much of its future revenue growth will be on the back of advertising to its captive audience, made up of 22 million subscriber households around the world and its TiVo’s Audience Discovery (“TAD”) analytics to improve the audience reach and targeting of advertising campaigns. But then again old Rovi had a comprehensive set of advertising systems also.

TiVo listed some new wins for the quarter at TDS, the seventh largest telco in the US; K-Opticom in Japan plans to use its G-Guide for mobile App and Astro, in Malaysia, is using TiVo video metadata enrichment.

Virtually every video supplier is likely to go through metadata enrichment, but for every one that ends up paying TiVo more, it is likely one will be seduced to use a system from an AI start-up.

Finally, it said that a pan European service provider has taken its metadata to power an OTT video service planned in multiple European countries – well that could quite easily also be at Sky, and what precisely will happen to TiVo when and if its IPR nemesis Comcast, takes control of Sky?

Interim CEO Raghavendra Rau said that he would be in place until the end of the strategic review – what’s the point of finding a new CEO if you are just going to sell all or half of the business – and then if some part of it remains within TiVo, a new CEO will be appointed.

From our point of view we feel that the IPR assets might do better in a specialist company which leverages them alongside other patents in related areas, and the core product business might provide momentum for a company like NDS, when it completes its buyout from Cisco, or Ericsson’s MediaKind, which as it stands seems unlikely to make it through the current period of separation from Ericsson, but a canny move might be for Google to add TiVo patents to its own, buy the whole thing outright and consolidate around video. But then again with Comcast building its own technology platforms these days, a great way for it to remove a pain in its side, would be to buy the business outright.