Romping its way through the cable TV fields again, TiVo racked up another strong quarter of MSO subscriber gains, and expects the momentum to continue for the foreseeable future.
TiVo Inc. (Nasdaq: TIVO) reported late Tuesday that it netted 283,000 cable subscribers during the three-month period ending July 31, boosting its total MSO sub base to nearly 3.9 million. While that increase is a sizable drop from the company's record-setting gain of 341,000 MSO subs in the previous quarter, it represents a 20% jump from TiVo's pickup of 238,000 subs in the year-ago period. It's also considered a healthy gain for the traditionally weak second quarter. (See TiVo Racks Up More Big Gains.)
The strong cable sub gains easily offset the company's loss of 20,000 "TiVo-owned" subscribers on the retail side. As a result, the DVR pioneer closed out July with slightly more than 4.8 million total subscribers, up 33% from a year ago and its highest tally yet. Cable subs now account for about 80% of its total customer base, also a new high.
Largely due to the cable sub gains, TiVo's posted a profit of $9.3 million (or 8 cents a share) in its fiscal second quarter, a big improvement over its year-ago results when a litigation settlement payment in 2013 is factored out. The company's quarterly revenues climbed to $11.9 million, up 11.8% from $10.1 million a year earlier, as MSO-related service revenues surged more than 35% from the year before.
On their earnings call with analysts yesterday evening, TiVo officials said European cable operators continued to lead the way, accounting for about two thirds of the company's MSO sub gains. As usual, Liberty Global Inc. (Nasdaq: LBTY)'s Virgin Media Inc. (Nasdaq: VMED) made the biggest contribution, adding about 130,000 subs in the UK during its second quarter. Swedish MSO com hem AB and Spanish MSO ONO kicked in about another 29,000 and 42,000 subs, respectively, over the same period.
But what really excites TiVo executives is their potential for growth in North America. Citing fairly recent partnership deals with a number of midsized and smaller cable operators in the US and Canada, executives said they have now signed contracts with operators covering about 30% of the 10 million to 11 million Tier 2 households in the two nations. And they reach just 5% of those homes with their product right now.
"We see significant upside ahead, particularly in domestic markets," said TiVo President and CEO Tom Rogers. "There's a lot of revenue upside on the MSO front."
TiVo officials also indicated that they may be announcing more cable partnership deals soon, with the upcoming IBC conference in Amsterdam next month a likely venue for new European deals to be unveiled. In addition, they hinted at potential wholesale deals with other types of pay TV providers, perhaps big telcos in Europe.
"Our pipeline has never been stronger," Rogers said. "We're seeing operators of all sizes showing stronger interest than before."
TiVo CFO Naveen Chopra added that cable operator orders for TiVo set-tops are starting to back up. "We probably have more demand from MSOs than we can fill," he said, indicating that the company could run into "inventory constraints" this fall.
With the cable side of the business growing steadily, TiVo executives are now turning their attention back to their retail business, which has been slowly declining for years. In a well-publicized move to generate fresh momentum there, the company will introduce a new, low-cost version of its popular Roamio DVR for consumers who don't subscribe to pay TV services. Known as the TiVo Roamio OTA, the set-top will offer over-the-air broadcast channels, Internet video streaming services and DVR capabilities to subscribers. TiVo plans to test the model with a sales price of $50, plus a $15 monthly subscription fee, in Best Buy stores throughout much of the US, starting Sept. 12.
Rogers noted that there are now an estimated 10 million to 17 million US homes with broadcast-only TV antennas. While he's not sure what the demand might be for the new Roamio DVR, he sees little risk in trying it out. "We don't need significant penetration for a big uptick in retail subscribers," he noted.
TiVo executives said they plan to spend more heavily on marketing their retail set-tops in the second half of the year. In addition, they intend to introduce some new pricing programs for the fall holiday shopping season.
— Alan Breznick, Cable/Video Practice Leader, Light Reading