Comcast Ends Funding for TiVo Engineering Program

Comcast ended funding for a TiVo engineering program that developed software for Comcast’s DVR platform, capping a nearly six-year run, TiVo said Monday in a 10-K filing at the SEC. But the companies are continuing discussions about “further development and deployment opportunities,” TiVo said. The funding pact expired Dec. 31.

TiVo forged a licensing and marketing agreement with Comcast in 2005 and the cable operator took delivery of DVR software two years later. The companies struggled with deploying the software, which was designed to be downloaded as an upgrade to Motorola set-top boxes to enable Wish List searches and Season Pass recordings. Comcast tested the software in the Boston area, but never expanded beyond that market despite unveiling plans for deploying it in Chicago. The TiVo service remains available in the Boston area and the companies are weighing a range of options for the future, including a program adopted by RCN, which is distributing TiVo Premiere DVRs, those familiar with the discussions said.

The Comcast pact generated $12.3 million in technology revenue for TiVo in the fiscal year ended Jan. 31, down from $16.7 million, TiVo said. The development cost declined to $4.6 million from $10.1 million, it said. The Comcast agreement is to expire June 30, 2014, with the MSO to pay a recurring monthly fee per household receiving the TiVo service. “It was an incredibly difficult software development process” and Comcast later moved toward a tru2way platform, TiVo CEO Tom Rogers said Monday during a webcast of the Lazard Capital Markets Technology and Media conference in Boston.

Meanwhile, development of a oft-delayed TiVo DVR/DirecTV satellite receiver is “nearly complete” and the product will ship in the “relatively near time frame,” Rogers said. The combo device will combine a TiVo interface with DirecTV’s programming. TiVo and DirecTV developed combo products for several years before parting ways in 2005 as the satellite operator switched to a DVR platform supplied by then-affiliate NDS, which like DirecTV, was owned at the time by News Corp. The companies signed a 7-year pact in 2008 with the first product originally scheduled to ship the following year. The combo device has since been delayed several times, most recently from late 2010 to early this year (CED Nov 26 p4).

DirecTV currently can’t distribute the earlier-generation combo set-tops to new customers, TiVo said. And DirecTV has added HD programming in a format that isn’t compatible with TiVo-compatible set-tops previously distributed by the MSO, it said. The result has been a sharp downturn in subscribers for the DirecTV/TiVo service. TiVo lost 357,000 MSO subscribers in the fiscal 2011 ended Jan. 31, to finish the year with 783,000 customers, down from 1.14 million the previous year. TiVo’s fiscal 2011 service revenues fell to $140.6 million from $159.7 million, TiVo said. But MSO revenue increased $15.5 million from $14.9 as DirecTV started paying a higher per household monthly fee in 2010, TiVo said. Tivo’s MSO-related average revenue per user rose to $1.27 in fiscal 2011 from 88 cents the prior year. TiVo also benefited from the addition of MSO RCN, which began marketing its Premiere DVRs to customers. Cox Communications, which originally tested downloads of TiVo DVR software in Rhode Island and Connecticut, and Charter Communications also are expected to distribute TiVo DVRs this year. Annual hardware revenue improved $51.6 million from $48.7 million with the new sales to RCN, TiVo said. The number of standalone TiVo subscribers slipped to 1.26 million from 1.46 million as the overall total dropped to 2 million from 2.6 million.

In international markets, TiVo modified its agreement in late 2010 with Seven Networks in Australia and Hybrid Television Services in New Zealand to switch to a non-exclusive pact so it could also work with other distributors in those markets, TiVo said. TiVo signed an exclusive pact with Seven and Hybrid in 2007. It signed several pacts for international distribution, including Virgin Media in the U.K., Ono in Spain and Canal Plus in Scandinavia. Virgin has started a limited rollout, while Ono and Canal Plus are expected to come on line later this year, TiVo has said.

As TiVo expanded distribution, it increased R&D spending in fiscal 2011 to $81.5 million from $63 million as it increased the number of R&D employees to 514 from 349, including temporary and part-time workers, the company said. It had 389 full-time R&D employees as of Feb. 28, TiVo said.

TiVo’s legal expenses are expected to double this year to $46 million as it gears up for patent infringement trials with AT&T and Verizon in October, company officials have said. Microsoft also sued TiVo in 2010 for infringement, alleging it violated several patents, including one describing a system for displaying program information. Microsoft filed a separate complaint with ITC in January seeking to bar import of TiVo DVRs infringing its patents. The ITC is expected to complete its investigation of Microsoft’s complaint by July 2, TiVo said. TiVo reached a settlement and signed a license agreement March 2 with Multimedia Patent Trust (MPT). Terms weren’t disclosed. MPT sued TiVo and six other companies in December alleging they infringed four patents, including one granted AT&T Bell Laboratories in 1993 covering adaptive coding and decoding of video frames and fields.

TiVo also is continuing to sell off remaining inventory of standard definition DVRs. It took an $11.2 million charge in 2008 tied to SD DVR materials, finished goods and non-cancelable purchase orders. TiVo sold off $660,000 of the inventory in fiscal 2010, leaving it with a $365,000 inventory reserve as of Jan. 31, TiVo said.