Assuming everything goes according to plan, Rovi will close on its $1.1 billion acquisition of TiVo later this year. And, given the threat of a potential $36.6 million break-up fee, there is every incentive to keep the transaction on track. The bigger question, however, is not whether the deal will go through, but what happens after the deal gets done.

Retail roadmap
Rovi Corp. has already said it will take the "TiVo" name once the two companies merge, giving itself a far more recognizable and consumer-positive brand. Rovi has also made clear that it plans to continue pursuing the retail sales channel, with Rovi COO John Burke saying "it will be a very important part of the business going forward."

TiVo Inc. (Nasdaq: TIVO)'s retail business, however, is in rough shape. At the end of 2015, the DVR company had fewer than 1 million retail customers, leading to business restructuring (read: job cuts) and other cost-saving measures. Perhaps suggesting that TiVo would pare down its product lines, CFO and interim CEO Naveen Chopra said on the last earnings call that the company would begin to invest in consumer products on a more targeted basis, and that it would focus on not prioritizing subscription growth at the expense of profitability. Chopra also said that TiVo would scale back its retail marketing spend.

Yet at the same time that he emphasized retail cost cuts, Chopra also announced a new retail product under development. "We will focus our resources on new product innovations that embrace changing consumer behavior starting with an entirely new consumer product we expect to launch later this year," said Chopra, "and we expect this and other new initiatives to be the key source of subscriber growth in our consumer business." (See TiVo Teases New Retail Product.)

In short, TiVo announced that it wanted to reduce spending on the retail sector, while also launching a new product designed to turn the business completely around.

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With TiVo joining the Rovi family, the calculus changes somewhat. TiVo may have had a retail product roadmap in place, but it now has to consider what other assets Rovi can bring to the table. For example, Rovi acquired semantic-search and voice-control technology when it bought Veveo in 2014. Given the success of other conversational UIs over the past year -- including the Amazon Echo and Comcast voice remote -- the Veveo technology could be a welcome addition to TiVo's retail product line. (See Rovi Snaps Up Veveo.)

As one industry expert who's familiar with both Rovi and TiVo (but who asked not to be named) put it: "If TiVo had not already been thinking about [voice control], I would be surprised. In that sense, they're getting an in-house product that they can continue to evolve with... and certainly something that is going to be table stakes for TiVo very soon."

Rovi has also invested heavily in building up its analytics business, helped in no small part by the company's massive metadata stores. Combined with TiVo's analytics capabilities -- built largely around the acquisition of Digitalsmiths -- the merged enterprise will enjoy significant scale in an increasingly data-dependent industry.

Merrick Kingston, principal analyst at IHS Technology, believes that strength in analytics bodes well for the corporate merger. In an analyst note, Kingston commented: "In the face of structural demographic change, new consumption behavior, the oversupply of choice, and the trend toward micro bundling, pay TV will require unprecedented insight into its audience: what it wants, to whom it should sell, and what it should sell. The future pay TV business will be anchored in analytics, and the new TiVo will be uniquely positioned to address this shift in technology demand."

Next page: Gauging success in the service provider market

Selling to service providers
The same advantages that Rovi potentially brings to the retail sector are equally if not even more relevant to the service provider channel. TiVo has more than 7 million pay-TV subscribers using its platform, while Rovi reports that approximately 18 million subscription households use Rovi TV guide products. In theory, the two companies should be able to combine the strongest assets of both portfolios to create more innovative products and expand their existing customer footprints. Particularly as the online video market continues to grow and evolve, the joint assets of Rovi and TiVo should give the new merged entity a competitive edge.

At the larger end of the pay-TV market, Rovi does not have the user interface business that it once did (largely because certain Tier 1 operators decided to take UI development in-house), but the company still has a significant legacy base of smaller Tier 2 and Tier 3 customers. TiVo, meanwhile, has not only forged direct relationships with pay-TV providers, but it also signed an agreement recently with the National Cable Television Cooperative Inc. (NCTC) , giving it access to 850 independent operators. And TiVo bought Cubiware in 2015 in order to target cost-conscious pay-TV providers in emerging markets. (See TiVo Targets Tier-2s With NCTC Deal and TiVo's Future Looks Nothing Like Its Past.)

As a combined force, Rovi and TiVo have an opportunity to dominate the small-to-midsized operator market.

Challenges abound
Not surprisingly, the many potential advantages created by a newly formed TiVo don't negate the substantial challenges also ahead. For every positive variable affecting the future of TiVo, there's at least one negative aspect to go with it. Rovi relies on patent licensing for a large chunk of its revenue, and not only has that revenue stream contracted somewhat of late, but it's also landed the company in court more than once. Rovi is currently suing Comcast for patent infringement after the cable operator declined to renew its licensing agreement recently. (See Rovi Sues Comcast for Patent Infringement.)

The licensing-and-litigation strategy has worked out well for Rovi in many cases, but it's also left many customers unhappy with the company and may have poisoned the well for some future business.

IHS analyst Kingston sees limited contribution from TiVo on the licensing front, noting that "TiVo largely anticipates that its licensing income will disappear altogether in 2020," and "It is difficult to foresee how TiVo's patent portfolio will materially change Rovi’s IP-licensing opportunities."

There's also growing competition coming from all sides as newer brands home in on the video space. Netflix Inc. (Nasdaq: NFLX), Amazon.com Inc. (Nasdaq: AMZN) and Apple Inc. (Nasdaq: AAPL) are just a few of the major players that were barely a blip on the TV radar a decade ago when Rovi and TiVo were arguably in their prime. Increased competition could open more doors for the merged company as more content providers look to create their own distribution platforms, but the threat from outsiders is daunting. And that's without getting into the field of analytics and advertising where companies like Google (Nasdaq: GOOG) and Facebook reign supreme.

Finally, Rovi and TiVo have the tough task ahead of negotiating the transition from two companies to one. The companies acknowledge that there is overlap at the General and Administrative (G&A) expense level, and that they are planning to consolidate offices, locating their headquarters in Silicon Valley. A push for greater efficiency and consolidation inevitably means there are job losses ahead, and how those cuts are implemented could have a big impact on how smoothly the integration proceeds.

In the immediate term, Rovi has to close its deal to acquire TiVo before it can reveal any further information on integration strategy. When that happens, the companies say they will host an analyst day to discuss future plans. Expect to hear more in the fall.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading