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Direct hit tips over TiVo stock

Move is another sign the satcaster is distancing itself

HOLLYWOOD — Shares in TiVo fell nearly 15% Tuesday after DirecTV revealed it sold its entire stake in the digital video recorder provider Monday.

Move is another sign the satcaster is distancing itself from TiVo as it prepares to launch its own DVR service from fellow News Corp.-owned company NDS, quite possibly at a discount compared with its TiVo offering.

It also explains the unexpected departure last week of DirecTV vice chairman Eddy Hartenstein from TiVo’s board. (Daily Variety, June 7)

Satcaster said at the time it was not divesting from TiVo.

A DirecTV spokesman said the sale of about 3.5 million TiVo shares, or 4% of the company’s outstanding equity, for $24.1 million was part of an ongoing strategy to sell off non-core assets, similar to its decision to divest from sat-radio company XM in March.

DirecTV has roughly one million subscribers to its combo service with TiVo, and expects to add another million by the end of the year.

That package has been the primary driver of growth for TiVo and is the only area in which the DVR provider is projecting growth. Nearly three-quarters of its subscriber additions in the first quarter came from DirecTV, a share that’s expected to grow for the rest of the year.

The $4.99 per month package from DirecTV is the only TiVo package that can compete based on price with the increasing number of generic DVR offerings from cable MSOs. TiVo’s own retail unit costs a minimum of $149 for the hardware alone, before the service cost.

TiVo is looking to partner with cable providers in order to expand its reach. Such talks haven’t yet gone far, though, CEO Mike Ramsay admitted in a recent investor conference call.

DirecTV’s contract to offer TiVo lasts until February of 2007, but doesn’t prevent the satcaster from adding other DVR services in the meantime.

If DirecTV does add a DVR offering from NDS at a lower price, and TiVo is unable to partner with a cable MSO, it will be left to position itself as a premium service worthy of its higher cost, a strategy Ramsay has already begun to hint at.

Asked about the two companies’ future, a DirecTV spokesman would only comment, “We have a strong relationship with TiVo. They’re a very important part of our product mix.”

TiVo representatives declined to comment.

Shares in TiVo closed Tuesday at $6.41, down 14.5%.

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