Om Malik on how to save TiVo

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Om Malik on how to save TiVo

Om Malik is in the TiVo Deathwatch camp, and he has some opinions on how to save the company (via Waxy):

TiVo should basically give away two million of these devices in next one month - hit the 5 million subscriber mark. That’s $65 million in monthly revenues (assuming everyone pays $13 subscription fees.) At those numbers the company can do $750 million in annual sales.

...

Next cut back on marketing completely, ala Apple in lean years. Stop pushing the service - and turn TiVo into an exclusive club, a BMW among PVRs.

First, I'd like to point out that there are plenty of Apple and BMW ads on TV. I think that establishing a premium brand requires lots of marketing, turning the product into a lifestyle choice is a lot of what marketing is. Apple's turnaround was launched with the iMac and the commercials with it.

Contrary to establishing a premium brand, the iMac was an attempt to make Apple's accessible to any home user - i.e. the "3 steps" commercial. I could imagine something similar to this for a Series 3 TiVo with cable card support: "Step 1: plug into TV, Step 2: plug in cable card, Step 3: Jeff Goldblum laughing." (Note: I haven't even read the phrase Series 3 anywhere, but if they announce one in the next 2 years I'll point to this post as evidence that I knew first. How else could I know that 3 comes after 2?)

As for giving away 2 million TiVo boxes, if we assume (i.e. perform a rectal-number extraction) that they cost $100 per unit - which is probably a low estimate - then a company with $88 million in the bank is spending $200 million to give away their product. This seems bad, but if they're given away with the cell phone free-with-contract model, then TiVo could make back the cost of those units within 8 months (again, assuming a cost of $200 million).

TiVo has done give-aways before, but never to that extent. In 2000 they had an essay contest where they gave away 14 hour Series 1 units at a rate of 10 a day from mid-September through Halloween. More recently they gave away 2000 Series 2 units to people in the Bay Area that Comcast had led to believe were getting a PVR. Giving away 2,000,000 units would be several orders of magnitude larger than anything like it in the past.

Om picks up on the fact that if TiVo stops trying to nab new subscribers with advertising, investors won't be thrilled.

Of course, no growth in subscribers means Wall Street isn’t going to like it. To that, I say screw them. How about taking the company private. Leveraged buyout! Small, company, which can become profitable. I know there is one gentleman who reads my blog, and is a tech buyout guru who could pull it off. Slow growth and profits versus certain death - well I take the former.

Add on a one time loss for 2 million TiVo units (2/3 the size of their current subscriber base) and people will reminisce about the "good times" when the stock (which has a 52 week high of nearly $13) was at $3.85. A low stock price would certainly make it easier for the company to go private, but it also makes the company a prime target for takeover.

by George Hotelling February 20, 2005 in TiVo

Comments

The 5M sub effort may have a flaw:

http://www.tvpredictions.com/tivonightmare022105.html

Phillip Swann
TVPredictions.com

Posted by: phillip swann at Feb 20, 2005 12:59:22 PM

While DTV brings in the majority of subscribers, they bring in a very small faction of revenue. TiVo gets peanuts for each DTV subscriber - on top of that DTV has blocked added services (HMO, HME) to their customers, locking TiVo out of additional revenue prospects that they have on standalone units.

Basically if TiVo loses DTV it would be a blow to subscription numbers, but not that big a deal on the books. They still get revenue from existing customers, as meager as that is, but they'll have CableCARD out in a year or so, and I understand we'll be seeing more new applications for TiVo - such as the TV/TiVo Humax is releasing. Plus they're adding ecommerce capabilities, etc, to the platform for additional revenue, further marginalizing the revenue from DTV.

While it would sure be nice to keep that revenue, it wouldn't be a disaster to lose it.

Many of those 'new features' NDS is promising are things TiVo can do *today*, but that DTV has refused to allow - MRV, M&P, etc. The others sound like things that can be added with software - there is no reason a DirecTiVo couldn't do video on demand, it comes down to communicating with the mothership and recording the right channel at the right time.

Posted by: MegaZone at Feb 20, 2005 3:46:06 PM

Sorry Phillip, but I think you're way off base in much of your prediction.

1) I know TiVo has some issues, but I think describing TiVo as losing 70% of their subscribers in the next few years is a bit of a stretch. TiVo does generate approximately 70% of their new customers from DirecTV, but the switch from TiVo won't be nearly as rapid as you suggest. (TiVo subscribers are somewhat sticky.) In addition, DirecTV customers count for somewhere around 10% or less of TiVos net income. Having these customers slowly migrate off the platform (if that does indeed happen en masse) will do very little to TiVos bottom line, let alone causing a "desperate wounding."

2) You suggest that News Corp. has a significant interest in migrating to NDS. First, being in-house can be a mixed financial blessing, especially since they generate free cash flow on their TiVo devices due to the hard bargain DirecTV stuck with TiVo (hence the anemic earnings). But even so, the primary benefit would be additional control over the device, something they don't have with TiVo. But you seem to suggest that one of the reasons NDS is attractive is VOD. Unfortunately due to the underlying sat infrastructure VOD is financially impossible without new birds (and probably still financially iffy after without a more mature VOD market). NDS will not change that fact. Second, interactivity can be handled through TiVos platform quite easily. NDS has strategic benefits for News Corp., but the ones you lay out are not really the most important reasons. It really has everything to do with rights management and how the content is delivered, but we can get into that during a different discussion.

3) The HD migration is one of the best points you bring up about the migration path that News will push, and they will push it to the detriment of TiVo and their $800 HD box, but by the time the NDS and TiVo box are competing head to head, the price differential will be minimal. And TiVo customers will switch if forced, but the real problem will be that DirecTV will stop being a source of new customer growth. NDS will certainly get most, if not all, of new DirecTV subscribers after 2007. That will hurt, more in the PR department that in the CFO’s office. But you talk about News recouping the NDS customer acquisition costs through VOD (again, impossible) or interactivity (proven in Europe, but still a long ramp-up in the US before real dollars start flowing.)

Anyway, the bottom line is that this transition will take years to play out, during which time TiVo’s fate will be decided by other factors besides the DirecTV relationship. The only way the loss of DirecTV kills the company is if enough people read bad press and scary (if largely unfounded) articles like the one you just wrote and stop buying TiVos because they think TiVo won’t be around to support the product.

Posted by: Alex Rowland at Feb 20, 2005 4:10:40 PM

Swann is a dork; he spams stupid crap all the time on TiVo websites because he hates TiVo and likes to hear himself pontificate on things nobody cares about.

But back to the article - the point about Apple and BMW is valid. During the times when Apple was really taking a beating, they pulled back completely from TV advertising.

And honestly I haven't seen a commercial for TiVo on TV but that may be because I skip commercials most of the time.

Posted by: Reader at Feb 20, 2005 6:53:40 PM

Swann and other members of the punditocracy and the chattering classes like to create self-fulfilling prophecies, so that they can "prove" that they were "right all along".

For the past few years, the media herd mentality has been in a "TiVo must die" mood, just as in the past they have been in a "Palm must die" mood or an "Apple must die" mood.

As long as people don't believe them and create a self-fulfilling prophecy, TiVo still has time to make a successful transition to CableCARD 2.0 and long term survival. TiVo needs to avoid stupid mistakes, and prove the pundits wrong.

Posted by: David Deane at Feb 20, 2005 7:12:03 PM

To survive, TiVo needs to solidify it's best of breed reputation with short-term enhancements while the longer-term innovations are being developed.

In the short-term, I would like to see these enhancements:

-- Extend TiVo2Go to Macs, working with the Mac's own DVD burning capabilities.

-- Enhance multi-room viewing to allow multi-room control of all TiVos in the house. I want to be able to program, delete, etc. on any of my TiVos from any of my TiVos.

-- Support wireless-G. This is a no-brainer. Multi-room viewing is hamstrung right now by it's lack of speed.

-- Lower unit costs. Get rid of the 40 hour. Make the 80-hour be the base model at the $99 cost. The only difference is the hard-drive and hard-drive costs are ridiculously low right now.

-- Release the HD model to the masses at a cost of around $499, with the same capacity for HD as the 80-hour unit offers today in normal capacity.

-- I would also like to see some kind of web-browsing capability for units that are hooked up to the home network, although I know this is tricky. The option would have to be easy to use, perhaps based on a "Favorites" list only, that could readily be updated through interactions with a laptop that is also on the home network.

These are a few of things I can see. I'm sure other folks can offer some other enhancements.

Posted by: Jim Cahill at Feb 21, 2005 8:48:29 AM

George,

While your suggested three steps may be good marketing, as someone who has successfully gotten a CableCARD to work, I can say that step 3 in your analysis above would be more than just a few parts:

a) contact cableco to give them the registration numbers off of the TV screen
b) after you explain what a CC is and they take the numbers, you wait for 24 hours with little hope
c) contact cableco again when it still doesn't work to speak to a supervisor, who doesn't show ANY record of you having called in
d) supervisor takes numbers
e) call super again when it doesn't work after 24 hours, but he's out that day so talk to a different super who show you called in, but it appears to be a signal problem
f) after truck roll, now no cable TV in the house
g) call to complain, cable gets fixed
h) hesitantly, call back again, "Oh, you mean CableCARD? You have to talk to a different group for that."
i) Get ahold of the ONE person in the entire company that knows anything about CCs
j) Numbers get taken, but still no luck
k) call back when it still doesn't work to find out the person fat-fingered the numbers
l) numbers corrected, still no luck
m) complain enough on AVS Forum that a kind soul puts me in touch with the regional technical services director
n) much troubleshooting gets done
o) Cableco claims TV (Mitsu) is not compatible with CC
p) Mitsu claims Cableco full of it
q) Cableco upgrades firmware on headend equipment
r) Further troubleshooting and many resets by the ONE person who knows anything about CCs and suddenly, CC starts working

In summary, while the FCC may have mandated that cablecos supply CCs, they sure didn't mandate they have to support them in ANY reasonable fashion. With the lack of incentive for the cableco to help transition you OFF of their equipment, you can bet support is going continue to be poor for CC in the near future.

Posted by: Randle at Feb 21, 2005 12:34:30 PM

RE: Cable card. I agree Tivo (and Replay) needs to do this. Sure, there are growing pains but just becuase Randles cable MSO sucks doesn't mean they all do. Getting CC working for me was a snap, now I want a PVR, dual tuner, that works with it that's not a Motorola POS. Connectivity wiht premium content is critical. Inability to record their favorite shows in HD off cable PLUS the added hassle of IR blasting make the old style stand-alone PVRs less attractive than a fully integrated unit as long as the fully integrated unit works well. Tivo and Replay need to do that. I prefer Replay, mainly becuase I've had all the connectivity features TiVO people whine about for years. I want that with HD and CC support. But hey, if TiVO gets theri first I'll sign up.

Posted by: Ian at Feb 21, 2005 9:43:15 PM

Come on, let's stop inventing parallel universes in which Tivo survives. This is a sinking boat that just hasn't capsized yet. I hate that it will, because I own and love tivo.

Yet, it's clear that Tivo sat on their corporate behinds for one year too many.

I now know more people that own the new comcast pvrs, and they swear they're nearly as good as tivos. You and I know they're not, but it's better that the dishtv pvr, and good enough that these people will never ever see a need to get a tivo.

These applications won't do a damn thing either. They're confusing as hell to me, and I own a tivo. It's not focused - it's obvious desperation. I personally can't think of a way Tivo can get back in the game, save some miraculous deal with a cable provider.

People here are listing geek solutions (802.11g, HDTV support, more recording time). How about working when you plug it in?

Posted by: John Beeler at Feb 21, 2005 10:04:24 PM

I think the best thing they could ever do is make dual tuner units. It doesn't seem like there are many dual tuner dvr's you can buy. With the networks starting to stagger the times of shows to counteract DVR's this would pretty much solve that problem.

Posted by: Robert23 at Feb 22, 2005 6:45:37 PM

Om Malik on how to save TiVo

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