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Can TiVo Cash In on Broadband Video?

TiVo Inc. (Nasdaq: TIVO) continues to integrate broadband video offerings into its higher-end, stand-alone digital video recorders (DVRs), but will the additions of services and apps such as Amazon Unbox and, more recently, YouTube Inc. , really generate much in the way of subscriber gains? (See TiVo Channels YouTube.) It all depends on who you ask.

TiVo, of course, believes that this strategy is key to its ability to stand out from a crowd of "generic" DVR/set-top combos as well as boxes that come equipped with broadband connections, such as Apple Inc. (Nasdaq: AAPL)'s Apple TV system.

"We like to think of ourselves increasingly as a DVR that is... a digital video recorder, but also a digital video retriever," TiVo president and CEO Tom Rogers said last week in New York at the Collins Stewart Growth Conference. "Broadband video... goes to the heart of distinguishing us from just being a digital video recorder."

But it may take more than that to drum up healthy, new subscriber gains, according to Brian Coyne, a vice president and analyst with Friedman Billings Ramsey & Co. Inc. If anything, TiVo's latest features, cool as they are, may do more to keep its existing base happy.

"Anyone who would be nominally interested in those [features] already owns a TiVo," he adds, questioning whether TiVo's stand-alone platform offers enough to keep consumers from going with more generic (and usually cheaper) DVRs from cable and satellite TV companies.

While TiVo's hi-def-capable stand-alone boxes are becoming flush with "nice to have" features, they won't necessarily be compelling enough to bring significant numbers of new customers TiVo's way, he says.

Still, Coyne does give TiVo high marks for its ability to evolve from an earlier island-based mode, to one that is more open to latching on services and applications from outside parties and allowing DVRs to hook into PCs.

Jim Denney, TiVo's vice president of product marketing, acknowledges that some new features might not, on their own, be enough to bring in loads of new customers, but they will enhance the experience for TiVo's existing subs. TiVo, he adds, believes the addition of YouTube fare will appeal to both sides.

And it's TiVo's ability to build super-capable DVRs that will help the company bring in consumers who appreciate those extra bells and whistles and are willing to pay for them, according to Jimmy Schaeffler, chairman and senior research analyst for The Carmel Group .

"If you look at the growth of advanced services, early adopters often include a high percentage of high income demographics. I think it's a great philosophy," Schaeffler says.

But, he points out, that strategy will work out better when TiVo's cable partnerships solidify and allow the company to draw from a larger consumer base.

The cable question
TiVo is climbing into the cable bed through deals with MSOs such as Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Cox Communications Inc. . (See Comcast Boots Up TiVo and Cox Tees Up TiVo Test Bed .) Comcast has already deployed Motorola Inc. (NYSE: MOT)-made set-tops outfitted with a watered down version of the TiVo service in the New England region. Wider rollouts are expected later this year, but Comcast and TiVo have not disclosed how many customers have signed up. Comcast did not return a call for comment.

But one thing is clear so far: The cable-TiVo offering won't come with all of the same features, particularly those like Amazon Unbox, which could pinch the cable operator's revenue stream for video-on-demand (VOD).

Not that anyone is surprised by this or expects this component of TiVo-cable model to be modified much. "I do think the feature aspect will always be something that's locked down by the operator. I don't think that will ever change." Coyne says.

TiVo's Denney says the decision about what goes in or doesn't go into his company's "partner" products is multi-faceted. He says TiVo has "free reign to innovate" in the stand-alone environment because TiVo has full control of the hardware and software. Operators, he says, select what they want, but some features are limited by the capabilities and general horsepower of the set-top. "You can't do what the box won't allow you to do," Denney says.

Schaeffler says cable operators are missing an opportunity by not selling and distributing stand-alone TiVo units under a revenue-share agreement. A taste of TiVo in the integrated cable set-top product could persuade them to upgrade to TiVo's full-blown stand-alone platform. "That [strategy], to me, would have an awful lot of attractiveness to it," he says.

And, aside from its MSO deals, TiVo is making a significant investment in developing stand-alone boxes that support the industry's removable CableCARD. TiVo has already launched a one-way HD-DVR box that's less expensive than its high-end Series 3 box, and the company is considering an interactive version based on tru2way. (See TiVo Courts Cable With New HD-DVR and TiVo à la Mode .)

Denney could not elaborate on when TiVo might introduce a tru2way product, but did confirm that the DVR pioneer has not yet signed the tru2way MOU (memorandum of understanding) recently negotiated by Sony Corp. (NYSE: SNE) and several major U.S. MSOs. (See Sony Supports tru2way, Revealed: The Tru2way MOU, and More Firms Go the Way of Tru2way.)

— Jeff Baumgartner, Site Editor, Cable Digital News

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