10-K SEC Disclosure

DirecTV Doesn’t Yet Have Rights to Make, Market TiVo DVRs, TiVo Says

April 8, 2010 by Mark Seavy|Top News

DirecTV doesn’t have the right to manufacture and distribute TiVo DVRs to its subscribers despite the companies being expected to release a new DVR/satellite receiver later this year, TiVo said in its 10-K report filed at the SEC. DirecTV and TiVo executives weren’t available for comment.

TiVo and DirecTV, which jointly developed and marketed combo products from 2000 to 2005, are readying a version of the DVR service for a DirecTV broadband-enabled HD satellite receiver, TiVo said. The combo device, originally expected to arrive in first half 2009 and later postponed to this spring, now is expected ship in the “latter half of the year,” TiVo CEO Tom Rogers has said (CED March 10 p1). DirecTV parted with TiVo in 2005 in switching to a DVR platform from then affiliate NDS. It extended the pact with TiVo in 2008.

Under the new agreement, DirecTV will pay TiVo a “substantially higher fee” for subscribers using HD DVRs. The pact calls for minimum payments that increase during the term of the agreement starting this year, TiVo said. DirecTV also will continue paying a monthly fee for customers using earlier TiVo DVR/satellite receiver products, TiVo said. TiVo will continue to defer a portion of the fees as a non-refundable credit to fund product development, TiVo said. DirecTV accounts for a “significant portion” of TiVo’s 1.14 million cable/broadcaster subscriptions, TiVo said. Cable/broadcasters selling the service include Comcast, Cox Communications and Seven/Hybrid TV in Australia. TiVo’s average revenue per users (ARPU) for cable/broadcaster subscribers declined to 88 cents for the fiscal year ended Jan. 31, from 96 cents a year earlier. The ARPU for the 1.46 million TiVo standalone subscribers was $7.65, a decrease from $8.16, TiVo said.

In the quarter ended Oct. 31, DirecTV told TiVo it over-reported TiVo subscriptions by 146,000 for an 18-month period, TiVo said. As a result, TiVo recorded a $1.8 million one-time reduction in cable service revenue and trimmed Q3 deferred revenue by $200,000, it said. TiVo’s cable/broadcaster revenue declined in the fiscal year ended Jan. 31 to $14.9 million from $22.4 million. TiVo’s cable/broadcaster subscribers declined by 541,000 in the year ended Jan. 31, the company said. DirecTV accounted for 12 percent of TiVo’s $16.9 million in accounts receivable, down from 18 percent in fiscal 2009, trailing Comcast (27 percent), Seven/Hybrid TV (22 percent) and Best Buy (17 percent).

Best Buy and TiVo are “investigating” development of interactive applications for broadband-equipped TVs and Blu-ray players under a five-year agreement signed July 7, 2009, TiVo said. TiVo introduced its new standalone Premiere DVRs at Best Buy in March, it said. TiVo’s Rogers disclosed plans in December for combo products with Best Buy under its Insignia brand (CED Dec 8 p1).

Meanwhile, Verizon and AT&T have fought back against a patent infringement suit TiVo filed against them in August, alleging their set-top boxes violated the so-called time-warp patent that allows for recording one program while watching another. Verizon filed a counterclaim in February seeking to have the TiVo patent found invalid, TiVo said. It also alleged TiVo’s technology infringed six patents including one describing a method for selecting video programs based on viewer preferences. AT&T sued TiVo in March claiming TiVo products infringed four patents included one covering a means for providing bookmarks when listening to a previously recorded audio program. TiVo’s time warp patent also is at the heart of its legal battle with EchoStar, which was recently granted a stay until April 30 of an injunction barring it from selling DVRs that infringe the time-warp patent (CED March 29 p7). TiVo’s time-warp patent was granted in 1991 and expires March 12, 2011, TiVo said.

TiVo has $2.2 million remaining in reserve from a $6.4 million charge it took in the fiscal year ended Jan. 31, 2008, tied to the close out its SD DVRs, the company said. It sold $1.5 million of the inventory in fiscal 2010, it said. TiVo offered a “limited exemption” to Blackrock Inc., permitting the investment firm to own up to 16.99 percent of its common shares without triggering poison pill provisions. The move keeps Blackrock as a “designated holder” rather than as an “acquiring person” which comes into play if someone owns more than 14.99 percent of TiVo common shares. The change is believed to have stemmed from Blackrock’s acquiring Barclays Global Investors. The addition of Barclays put Blackrock’s TiVo ownership just above the 15 percent threshold. The limited exemption gives Blackrock the right to buy more TiVo stock without triggering the poison pill.