After clashing with cable operators for years, TiVo is definitely enjoying its new role as cable's best friend for life.
Capping off another strong fiscal quarter, TiVo Inc. (Nasdaq: TIVO) added nearly 300,000 cable subscribers in the three-month period ending October 31, a record total for the DVR pioneer. As a result, it closed the quarter with 2.9 million MSO subscribers, up 54% from a year ago, and almost 3.9 million total customers, up 32% from a year ago.
Notably, an increasing portion of TiVo's cable subscriber growth is now coming from MSOs other than the UK's Virgin Media Inc. (Nasdaq: VMED), which has deployed TiVo to nearly half of its cable homes and has been accounting for the bulk of the company's customer gains. TiVo, which gained about 75,000 more cable customers in the third quarter than in the second quarter, said about 80% of that increase, or 60,000 customers, came from other MSOs. In particular, the large Spanish MSO ONO , which has now deployed TiVo to about a third of its subscribers, has been contributing heavily to the company's customer growth.
Just as impressively, TiVo posted quarterly net revenue of $117.3 million, up from $82 million last year, as technology and hardware revenue both soared. Net income also came in high at $10.2 million, well above analysts' expectations and TiVo's own financial guidance for the quarter. That figure, though, marked a big drop from last year's total of $59 million, which was driven mainly by the proceeds of a settled lawsuit with Verizon Communications Inc. (NYSE: VZ).
On their earnings call with analysts late Tuesday, TiVo executives noted that their growing base of North American and European MSO partners now gives them access to a total of 10 million cable video households. With its latest subscriber gains, TiVo is now deployed in about a quarter of those homes.
TiVo President and CEO Tom Rogers told analysts that he sees plenty of upside in those 10 million homes. "We think we could double or triple that opportunity going forward," he said, arguing that the company has just "skimmed the surface" so far. "We expect to benefit from additional MSO subscriber gains."
Noting that other cable companies are showing interest in teaming up, Rogers said TiVo is also seeking to expand that pool of 10 million cable households through deals with other MSOs. Just last week, for instance, the company announced a new pact with Blue Ridge Networks Inc. , a mid-sized US cable operator. "We look beyond our existing footprint when we think about the opportunity," he said. (See BlueRidge Chooses TiVo.)
In response to analyst questioning, Rogers argued that cable operators should follow TiVo's lead in combining video and broadband offerings by integrating traditional pay-TV programming with over-the-top (OTT) video fare. In a much-watched stratagem, Virgin Media is now rolling out TiVo-powered set-tops that integrate Netflix Inc. (Nasdaq: NFLX)'s OTT service and Sweden's com hem AB plans to follow suit shortly. (See Euronews: Orange Fears Merger 'Earthquake'.)
While content licensing deals have prevented cable operators from offering Netflix the same way in the US and MSOs have had "a mixed view" of Netflix, Rogers said the landscape is now changing. With Netflix now reportedly in contract negotiations with Comcast Corp. (Nasdaq: CMCSA, CMCSK), Suddenlink Communications , and other major US cable operators, he said operators are showing increasing interest in incorporating Netflix in their video offerings. (See Netflix-MSO Deal in the Works?)
"Our view has been that the merger of linear television and streaming over-the-top video is where the future is, and Netflix has clearly risen to the level of must-have on the over-the-top side," he said. "I don't think consumers feel as if they have a full package of options until Netflix is included."
Rogers also took a swipe at large US MSOs such as Time Warner Cable Inc. (NYSE: TWC), which is now shedding both video and broadband subscribers, that continue to go their own way instead of striking partnership deals with TiVo. He noted that such mid-sized cable operators as RCN Corp. are faring much better by teaming up with TiVo and splitting the proceeds. (See TW Cable Hemorrhages Subs.)
"There are a fair number of large operators where the issue of control has played out as an issue of continued importance," he said. He argued that most cable operators will eventually have to give up control of some elements, such as their user interfaces, to offer "best-in-class" services and compete effectively in the evolving pay-TV marketplace.
— Alan Breznick, Cable/Video Practice Leader, Light Reading