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.

TiVo is forecasting still more losses for the next quarter, and investors have to wonder when, if ever, they're going to see an upside. Given the company's track record, the only likely upside will be when the company is acquired.

Pace to acquire 2Wire for $475 million

On the heels of passing Motorola in the worldwide set-top box business, Pace will acquire 2Wire for $475 million. 2Wire supplies DSL routers for AT&T and other service providers, and also supplies media management software. Pace has recently been chosen to provide next-generation set-top boxes to Comcast, so the addition of 2Wire will give Pace an excellent position in both the U.S. Cable and IPTV markets.

Big set-top box changes underway at Comcast

ESPN 3D, the cable network carrying 3D coverage of the World Cup in the U.S., is available to cable operators via both MPEG-2 and MPEG-4 compression. MPEG-4 is significantly more bandwidth-efficient than MPEG-2. and according to Cable360, Comcast customers who want 3D programming will have to use MPEG-4 compatible set-top boxes starting in August. Comcast has approximately 10 million MPEG-4 set-top boxes in the field, and 25 million set-top boxes that only support MPEG-2.

Most of Comcast's MPEG-4 set-top boxes are from Motorola, but the company is said to have chosen Pace to supply its next-generation set-top boxes. The Pace STBs will support MPEG-4 H.264 compression and Tru2Way applications, and they may be compatible with Switched Digital Video (SDV) services. Comcast's choice of Pace will have a major impact on both Motorola and Cisco in the U.S. market. Pace has been very strong everywhere but the U.S., but supplying the largest video service provider in the U.S. will dramatically increase its presence and shake up the market.

Pace passes Motorola on the set top, TiVo supplies Technicolor with PVR software

There were two big pieces of news in the set-top box business yesterday. First, CED reported that, based on preliminary numbers from IMS Research, Pace has overtaken Motorola to become the world's largest set-top box supplier overall (aggregating cable, satellite and IPTV shipments). If the final report confirms this finding, it's huge news. Motorola (and General Instrument, the company that Motorola initially purchased to get into the set-top box business) has been number one in STBs for as long as anyone can remember. According to IMS, the top five STB vendors are now Pace, Motorola, Technicolor (formerly Thomson,) Cisco and Humax.

In related news, TiVo will provide PVR software to Technicolor for its STBs. This announcement is potentially a huge win for TiVo, which has struggled in its efforts to get its PVR software deployed on set-top boxes other than its own. (There's a deal in place with Comcast, but the rollout has been incredibly slow.) Technicolor is the leader in supplying STBs to satellite operators worldwide.