DVR pioneer's prescription for recovery puts it on a collision course with networks
NEW YORK — TiVo was the best thing to happen to television since the remote control, but now the company that invented the digital video recorder is struggling to keep from becoming the next Betamax.Longtime NBC cable exec Tom Rogers made the jump from TiVo board member to CEO in July, taking over for co-founder Michael Ramsay, an engineer more attuned to the tech business than the entertainment world. Since then, Rogers has injected the company with a media-savvy mojo that’s giving the networks — and some Wall Street analysts — fits. Rogers’ former employer NBC Universal, for one, is petulant about TiVo’s plans to allow users to download network shows onto PSPs and iPods. “This is clearly not the proper way to behave,” said NBC U TV prexy Jeff Zucker. Rogers’ rescue plan for TiVo has consisted of a breakneck inking of deals with Intel, Yahoo!, Fandango and others, but it’s also putting the company on a collision course with the broadcast nets, which were just getting over their fear that ad-skipping would spell ruin for their business. “He’s shaken up the company,” says TiVo advertising veep Davina Kent. “He’s focused on being more than just a tech company, but also a media company.” TiVo blindsided the nets in November with the announcement that it would release software allowing users to easily download network shows to iPods and PSPs — for free. This came after ABC inked its Apple iPod deal and before NBC gave a slate of shows to iTunes for $1.99 apiece. While TiVo itself is too small a user base to impact this nascent business, net execs are disturbed by the precedent the move sets. What if, for example, the cablers begin offering such services through their own DVRs? NBC Universal said the move “creates the risk of legal conflict.” While the addition of portability to the TiVoToGo service exists only as a press release, NBC execs say a legal confrontation over it is likely. TiVo’s position is that space-shifting content from one device to another for personal use is perfectly legal. TiVo general counsel Matt Zinn says the service will provide consumers “added flexibility to use lawfully acquired content in a manner that is undistinguishable from activities that have long been understood to be ‘fair and legal.’” Regardless of the legality, playing nice with Hollywood hasn’t done much for TiVo, which is struggling against generic competitors and the prospect of irrelevance. Rogers has already made it clear that the lights at TiVo won’t quietly fade to black. If the company goes down, it goes down swinging. Observers give Rogers credit for making big moves, but some say the flurry of business deals and announcements are just distracting from the cold reality that it’s all too little too late. Sanders Morris Harris analyst David Garner characterized the “almost daily” press releases as “attempts to garner attention, while masking a business model that is fundamentally flawed.” Rogers declined to comment through a spokesman, who said he’s too busy working on fixing the problems to discuss them. The company ended its third quarter with 4 million subscribers — about half of all DVRs in the U.S. — but the vast majority of those, 2.7 million, were sold through DirecTV, which officially ends its relationship with TiVo in 2007. Rupert Murdoch-controlled DirecTV is transitioning its user base to a box produced by another News Corp. subsid, NDS. DVRs are essential to the prospects of satellite TV because they don’t have the bandwidth to offer the type of on-demand programming that cable can. Nevertheless, DirecTV’s switch to an inferior generic NDS box, the R-15, is emblematic of the challenge TiVo faces. “Frankly we think it’s a dog, but it exists,” says Michael Adberg, co-founder of Weaknees, a company that services and upgrades DVRs. Even though nearly everyone agrees TiVo has the most reliable and user friendly box, sales are not growing as fast as demand for DVR boxes in general. “Three to four years ago, we all thought TiVo would be the dominant platform, they would be the Kleenex,” says NPD Group analyst Stephen Baker. “What happened is they’re getting a smaller and smaller piece of the marketplace.” Complicating TiVo’s efforts to win over subscribers with a better box are the relatively few people who will ever have the opportunity to compare. “The average person who has a DVR thinks they have a TiVo,” says independent media analyst Richard Greenfield. “One of the real pitfalls of TiVo has been the inability to give people a better understanding of it,” Rogers admitted in a conference call to analysts in November. Nevertheless, TiVo will make an attempt to sell a premium DVR with features like TiVoToGo and others. “Over the next four to six months, we will be announcing a number of new features which will even more clearly set TiVo apart and convincingly demonstrate we are in no way being commoditized,” Rogers said. Aside from premium features designed with partners, Rogers is trying to create new business by enabling searchable ads to create a Google-like revenue stream that would pay TiVo each time an ad is requested. Indeed, advertising is at the heart of what Rogers has admitted is the long-term play for TiVo: working with cable providers and satcasters to serve marketing to their DVR users. That’s the main drive of a new deal with Comcast, which includes the cable operator selling TiVo software as a premium upgrade for its own DVR. Rogers and Ramsay have said that in the long run, the advertising biz is most important to TiVo. That’s why it signed a deal with DirecTV to serve ads to the satcaster’s own DVR subs at the same time it’s ending a relationship to sell the TiVo service. If all goes well, TiVo will deploy technology that gives DVR users new ads to watch at the same time they are fast-forwarding through old ones. Insiders say Rogers was instrumental in negotiating the Comcast and DirecTV deals, even though he was vice chairman at the time. And one of the main reasons he was given the CEO job, even though he lives in New York and commutes every week, is his ability to make more such deals. TiVo will need as many advertising partnerships as possible in order to scale the business and make real money off it. Otherwise, the Comcast pact could end up much like TiVo’s deal with Netflix last year: a much-heralded announcement that gives the stock a short-term boost but ultimately goes nowhere. In the meantime, TiVo has refocused on cable to secure its future, targeting the 36 million analog cable customers who are converting to digital at a slower pace than expected. For those still getting analog cable, TiVo is the only option for DVR service. Presumably those users are more price-sensitive, and Rogers is pitching them with a cheaper DVR option than upgrading to digital and getting cable’s brand-X box. TiVo does have one final option to secure its financial future — one that’s not sexy but could result in big money. Company is embroiled in a patent dispute with EchoStar’s Dish Network that’s set to go to trial in March. If TiVo wins, it could end up collecting a license fee from all DVRs that function like a TiVo, and could force cable and satellite to pay for the use of the brand. If it loses? Then TiVo is left on its own to find a way to fit into the universe of non-branded DVRs or else find itself buried alongside other technologies that may have been best, but still finished last. Ben Fritz in Hollywood contributed to this report.
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