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.
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.
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."
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