TiVo Makes Deal with Comcast

TiVo upset a lot of advertisers when they first came out with their digital video recorders. Viewers could skip commercials, pause action to take a phone call or go to the bathroom, and record hour after hour of copyright-protected material. Since it premiered, though, TiVo has hit a rough patch, as the blue sky promises turned cloudy, and as competition increased. The deal announced with Comcast should remove most of those worries, and the stock rose 54% on the news. But it's not the revenue that is the big deal, but rather the market place power it gives TiVo.

Regular TiVo subscribers pay $13 a month for the service. It is unlikely that Comcast will charge that much, or if it does, it is certain that less than 100% of that will reach TiVo. At the same time, Comcast has 21.5 million subscribers of whom 8.6 million get the digital service that could use TiVo's technology. The deal runs for seven years and Comcast can renew it every year for another eight. In the world of cable and satellite TV, this is an eternity.

Comcast has its own DVR service, which is tells for $10 a month to its subscribers. In mid-to-late 2006, TiVo's service will be an alternative, but in all likelihood, it will replace the existing service as it makes no sense to retain both. Rupert Murdoch's Directv Group has found that subscribers with DVR service are less likely to switch providers, and the TiVo brand name in this field is worth having.

According to a Reuters report, this deal will be worth $10-$30 million to TiVo, which is a rather broad range suggesting that some fundamental details (like what to charge Comcast's customers) have yet to be settled. Nonetheless, TiVo reported total revenue of $172 million for fiscal 2005, which ended January 31, 2005. So, the Comcast deal is noteworthy but not earth-shattering.

What TiVo really gets out of the deal is clout with other cable and satellite providers. Moreover, it will be able to talk to retailers like WalMart (which currently doesn't offer TiVo boxes) on a more level plain. Still, the 54% increase in the stock price brought TiVo's shares to $5.86 a share, so it has a ways to go before it returns to the price level of 5 years ago, when it traded on the high side of $78 a share.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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