Thursday, August 26, 2010

That sound you hear is TiVo circling the drain

Residents of Alviso, California have reported hearing a strange "swishing" sound for several weeks. That sound has now been identified as TiVo circling the drain. TiVo's fiscal second-quarter financial results were released yesterday, and the company is continuing its long downward spiral:
  • The company lost 125,000 subscribers in the quarter, and its total subscriber base stands at 2.5 million vs. 3.1 million last year, down 22%.
  • Subscriber churn in the quarter was 1.9%, up from 1.5% a year ago.
  • Revenues fell 11% overall to $51.6 million, and the services and technology component of revenues fell 14.2% to $42.1 million.
  • The company posted an overall loss of $15.3 million, compared to $2.7 million a year ago.
  • TiVo has been claiming for several years that licensing deals with cable and satellite operators would make up the difference, but companies like Comcast have been extremely slow to roll out services based on TiVo's technology.
If TiVo's problems were simply due to the bad economy, you could argue that a turnaround is only a matter of time. However, TiVo's subscriber declines predate the recession, so a macroeconomic turnaround may well not help TiVo enough to make a difference. Companies that fade as long as TiVo has very rarely turn around on their own.

In my opinion, it's time for TiVo to actively begin looking for an acquirer. The company still has some valuable patented technology, but as time goes on, more companies are figuring out ways to get around those patents, so TiVo management needs to move while it still has something to sell. TiVo could be integrated into the businesses of set-top box powerhouses such as Motorola, Cisco and Pace. Its DVR and advertising monitoring technologies could be valuable to Google in the future development of Google TV.
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