TiVo's New Program

A new pricing structure has given the stock a pop. Will it help the money-losing company's bottom line?

TiVo's (TIVO) plan to add new subscribers to its stand-alone set-top box service has investors cheering, with the digital videorecording pioneer's stock up nearly 5% since the initiative was announced on Wednesday. The money-losing company hopes to lure new customers by eliminating the up-front charge for its players and bundling it with the price of subscription.

Under the plan -- which initially will be available only to customers who sign up through the company's Web site or call a toll-free number -- an 80-hour Series2 TiVo box and service bundle will cost $19.95 per month, or $224 prepaid, for a one-year service commitment; $18.95 per month, or $369 prepaid, for a two-year commitment; and $16.95 per month, or $469 prepaid, for three years. Previously, subscribers paid for the box, plus $13 a month or $299 for lifetime service (see BW Online, 3/09/06, "Tivo Rolls Out New Pricing Structure").

But is it a case of too little, too late? TiVo now boasts slightly more than 4.36 million subscribers, but its growth is slowing sharply as its partnership with satellite provider DirecTV (DTV) winds down. TiVo reported 356,000 net additional subscribers in the fourth quarter, which includes the holiday shopping period, but that's only about half the number added in the year-earlier period, before DirecTV began offering its own DVR service.


  At the very least, the move should help the company improve revenue visibility, notes William Blair analyst Ralph Schackart. But he adds: "The big question remains: What will consumer adoption be?" (see BW Online, 11/21/05, "The End of TV (As You Know It)").

It's not clear whether TiVo's new pricing plan will have much impact. While some consumers may like the idea of paying no up-front costs for the TiVo box, in the past few months the company has been charging as little as $50 for it anyway. That's well below the $99 threshold consumer electronics products experts say is the price point for impulse purchases.

Further, the new pricing plan is nearly double what cable and satellite providers are charging for their own DVR services, and it still requires setting up an additional piece of hardware in the home.


  TiVo Chairman Tom Rogers in recent weeks appears to be announcing a slew of initiatives that serve as placeholders for his stated goal of distributing TiVo software through the set-top boxes provided by the cable companies. The company most recently announced it would add parental controls to the podcasting and movie ticket sales (from online seller Fandango) features just made available through the stand-alone TiVo boxes.

Last year, TiVo struck a surprise agreement with Comcast (CMCSA), the nation's largest cable operator, to add its service to high-end Motorola set-top boxes by the second half of this year (see BW, 3/16/05, "Suddenly It's Fast Forward At TiVo"). Since then, however, the company has not given any updates on its progress in developing the necessary software, and it has not announced additional agreements with other potential partners. "The key to the stock over the next several quarters will be TiVo's success in striking deals with additional cable and satellite operators," says Piper Jaffray analyst Gene Munster.


  More important, the company must solve its continuing identity crisis. While it has the most powerful brand recognition in the DVR space, Wall Street rightly remains skeptical of its ability to compete as a stand-alone consumer electronics company. To deliver on its promise of being a software provider to cable companies, Rogers must provide a clear timetable. Meanwhile, TiVo's longer-term goal of building a viable advertising platform -- selling targeted advertising for companies -- remains just a gleam in executives' eyes.

Until then, TiVo's nearly eight years of consecutive losses make it a ripe takeover candidate. Worse, it could end up on the junk heap of failed technology companies -- even as it remains one of the best-loved products in recent history.

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