Amid Cloud-Based Video Shift, TiVo Seeing Margin on High-End Boxes

TiVo has “reinvented the notion of what we should be,” said CEO Tom Rogers at the UBS annual Global Media and Communications Conference on Monday. Nine of the top 21 U.S. TV service providers have signed with TiVo for advanced television solutions, “and no one else has anything close to that kind of following among the operator base,” Rogers said. This follows a perception in the industry as “the guys who had been rejected by the cable industry” because cable operators found their own DVR solutions and “people thought TiVo had been passed over,” Rogers said.

TiVo now positions itself as the company that enables “any kind of content whenever you want it,” a ubiquitous concept whose implementation is “a lot harder” than the phrase suggests, Rogers said. In the broadband TV world, TiVo pulls together linear channels, recorded TV, and video on demand offerings from the cable provider and puts it together “in a single interface where you can have one box, one UI and one remote control that gives access to anything you want to watch,” he said. Rogers cited TiVo Stream, recently introduced by the company, that he said is the “only cable implementation that allows consumers to port their live or recorded TV programs to their tablets” delivering the kind of functionality that “consumers are demanding,” he said. “It’s not easy to do or everyone would be doing it,” he said.

Hardware historically hasn’t been a margin driver for TiVo, although the company is seeing some margin flowing from upper end SKUs such as the company’s four-tuner DVR and recorders with larger hard drives, Rogers said. The company generates profit with the user experience “through the UI and software,” he said. Hardware has simply been “the means by which that’s delivered,” he said, and the evolution away from hardware to the cloud makes sense for TiVo and cable operators, he said. “We don’t have a problem implementing the TiVo distribution to other pieces of hardware,” Rogers said, and increasingly hardware manufacturers are asking the company to distribute cloud-based IPTV versions of TiVo, he said. The cloud-based solution “liberates” cable companies from having to provide a set-top box, instead allowing the operator to piggyback off other devices that the consumer already owns, he said.

As a software cloud-based service, TiVo can be a “value-add” for cable operators because of the “sapping of free cash flow” that new technologies exact in capital expenditures, Rogers said. That drain of new hardware implementation cable operators have had to undertake in the past “can be reduced considerably” with a “much lighter focus on the next generation hardware” and being able to rely on other devices in the home, he said.

Regarding profitability on the consumer side of TiVo’s business, subsidized hardware has been the primary drain on the company’s profitability, Rogers said. Higher end boxes are changing that to a degree as consumers are willing to spend more to store more video via more tuners and greater storage space. “A lot of people look at Sunday night television like they're going to Costco,” he said. “They want to load up on their Sunday night shows. There’s a ton on and they want to be able to record it and watch it over the course of the week,” he said.

On the service operator side, top-tier providers including DirecTV, Comcast, DISH Network and BSkyB in the U.K. have chosen their own user interface, Rogers said. That doesn’t preclude a relationship with TiVo for “some kind of user experience,” he said, citing relationships with Comcast and DirecTV. “The rest of the world realizes they need a third party to engage in the heavy lifting and R&D” that software development requires, he said. TiVo’s solution gives those providers a way to offer advanced TV, he said. Rogers cited 400 million TV subscribers in the developed world -- “a very interesting business” -- who will go through the transition to advanced TV in the next few years, he said.

TiVo’s relationship on the provider side varies according to the needs of the provider. In 12 of Comcast’s markets, consumers can get a TiVo Premiere box with Comcast’s Infinity VOD library along with Hulu, Netflix, YouTube, Amazon and regular Comcast channels in one package. That’s a “unique play,” where consumers pay TiVo directly and TiVo pays “a small amount back to Comcast,” Rogers said. The revenue per subscription for TiVo “is very high,” he said.

The DirecTV relationship is unique because “what really makes TiVo sing today is tying broadband to the box,” and satellite providers don’t have a broadband solution, he said. The TiVo implementation for DirecTV is very different from that of cable operators, he said. “Anyone who wants to get TiVo through DirecTV can get it,” he said.

TiVo had also discussed a deal with Cox Communications previously that was rooted in the QAM-based set-top box world, Rogers told us. As Cox has moved more into IPTV as a way to drive video on demand, “we changed the focus of our discussions,” Rogers said. “We're still involved with Cox and that’s the twist we took in how we might work with them” going forward, he said. Yet another model exists for Charter Communications, he said. “We're the user interface but they have to come up with a hardware strategy that they're comfortable with,” Rogers said. Charter is currently analyzing its capital expenditure and hardware approaches, he said.