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.
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