Why would Apple even want TiVo?

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Why would Apple even want TiVo?

Still no news on the rumors that Apple is buying TiVo, since Apple isn't suing anyone this time there's no way to be sure one way or the other. However, people putting their TiVo stickers on the backs of their iBooks might want to hold off a little while. It's unlikely that either company will come out and deny the rumors even if they're untrue, so we'll just have to wait and see if they get confirmed.

While we're waiting, let's look at what the companies could offer each other. First off, TiVo is built on top of Linux, Mac OS X is built on top of a ~~NetBSD~~ FreeBSD port called Darwin. I'm no kernel hacker, but it seems like it would be possible to port TiVo's Linux changes to Darwin. It would be easier for Apple and TiVo than most companies because they both are built on PowerPC architectures - at least easier than if there were rumors of Microsoft buying TiVo.

Meanwhile, Apple's iTunes Music Store continues to sell iPods (well, they don't sell them on the iTMS, but you know what I mean). There is speculation that Apple will be building a QuickTime Movie Store; if Apple could make money selling the hardware they could use the iTunes Music Store business for it as well. It would also help cement the position of the Quicktime Streaming Server, which would likely sell a number of Xserves.

A TiVo acquisition would also provide a place for iTunes in the living room. Apple's AirPort Express proves Apples interest in moving out of the office and into the living rooom. There's even a way to control an AirPort Express from the TiVo using HME.

The TiVo could also tie into Apple's iLife suite. TiVo already plays well with iPhoto and iTunes, why not add iMovie and iDVD integration as well? My sister could make an iMovie of my nephew and send it to my TiVo between my 10 hours of Law & Order a day, then I could burn it using iDVD. Heck, why not let me show my Keynote slideshow using my TiVo?

Then there's the perennial talk of a video iPod. This fits in perfectly with TiVoToGo, you would simply dock your iPod on your TiVo and download your shows. Obviously there are some technical challenges there for the TiVo and iPod, but TiVo provides a great platform to build on.

So what does TiVo gain from this? For one thing, Apple is sitting pretty well these days. It could afford TiVo some elbow room to innovate; right now Ramsay is frustrated with investors not seeing the bigger picture. As an Apple division they could focus more on user experience and product development.

Apple's name would also give Om Malik the premium branding he says will save TiVo. Apple has a firm grasp on how to survive with a premium product and a small marketshare. TiVo's competition with the cable providers looks a lot like Apple's competition with Microsoft. Apples experience in this fight could prove invaluable.

Apple's offerings also tie into TiVo's Tahiti plans. TiVo knows that in order to compete with the cable companies, it needs to offer something they can't. Access to content through Apple would be a great start to that.

We may never hear anything else about this rumor but there's certainly plenty of reasons why an Apple/TiVo merger could work.

by George Hotelling February 24, 2005 in Op-Ed

Comments

With the massive recent run up in Apple's stock price the market cap of the company now sits at about $36 billion. With the massive drop in share price, TiVo's market cap now sits at about 1% of that or $388 million.

Although most acquisitions usually involve a premium, Apple could probably use their over inflated stock value to acquire TiVo for a little over 1% of the value of their company via a stock swap.

Heck, Apple's stock price moves 1% on any given day just because it happened to be sunny that morning instead of cloudy.

Seems like a no brainer to me. The brand, the customers, and the purchase of some of the select talented engineers should be worth that. If I were TiVo though I'd probably be pissed. They probably really do think that their company is worth more than that.

Posted by: Thomas Hawk at Feb 24, 2005 7:31:26 AM

Don't forget one of the reasons TiVo's fans might be most excited: Apple could bring it's expertise in user interface design to make TiVo's interface even better.

Like fixing this: http://www.stephenduncanjr.com/2005/02/why-doesnt-tivo-help-me-resolve.shtml

Posted by: Stephen Duncan Jr at Feb 24, 2005 7:38:06 AM

The apple imovie store is definitely a no-brainer expansion of the itunes music store... if netfix can get around the licensing hurdles to attempt to do it with TiVo, surely Jobs has the power to make it happen.

The mini was rumored to be the Apple settop box:

http://www.studio2f.com/misc/2005/01/12mac_mini_less_is_more.php

And lets not forget the successful iPod was developed by an outside company for Apple. they're not adverse to using outside technology... especially since their first set top (Pippen) didn't fly:

http://www.computercloset.org/BandaiPippin.htm

http://www.macgeek.org/museum/pippin/photoalbum.html

Posted by: bob ligenfelter at Feb 24, 2005 7:39:12 AM

While, anyone Byin TIVO would be a good thing it seems. Id say they would be better served by someone in the television industry doing so. While apple would add many of advantages, they would still be in the same boat. Trying to expand the base of a good product while trying to overcome the inherant in equities in the television industry, namely cable boxes and software liscencing. unless apple plans to market cable boxes or integrted televisions seems like all we would end with is possibly a better tivo but not one any easier to mass market ( ie not much different to apples desktop issues)

Posted by: MB at Feb 24, 2005 7:55:41 AM

Since reading the rumors yesterday, I've been thinking about it more and more and it would really be a nice connection. Apple would gain instant access to hardware and software to enable a premium DVR as well as media sharing. The one thing missing though is HD which Tivo has but in limited ways...

If this is truly the year of HD for Apple, then they would need to figure out how to push that through at an Apple semi-affordable price.

PowerPC and Linux to match up pretty nicely... I'd definitely re-purchase a Tivo if this happened instantly. The Apple brand would do wonders to get cable DVR users off their couches and into Apple stores to get the goods.

Posted by: Jonathan Greene at Feb 24, 2005 8:46:07 AM

Just a minor technical correction. Darwin inherited a lot of technology from FreeBSD rather than NetBSD.

Posted by: Galitz at Feb 24, 2005 9:24:03 AM

If Apple bought TiVo, I would unquestionably make the switch from PC to Apple on either a) my next computer purchase or b) the minute the two companies announced some product integration advantages...I have had an iPod for the past couple of years...

Posted by: New York at Feb 24, 2005 10:17:59 AM

Another reason.
I have been anti-mac for as long as I could rememer...or atleast since I was past 5th grade and the Oregon Trail. If Tivo merged w/Mac I would be seriously tempted to get a Mac and join the cult.

Posted by: Tyson at Feb 24, 2005 10:24:18 AM

Actually, the Darwin kernel is not really FreeBSD, it's OSF Mach with some parts of FreeBSD grafted on.

Posted by: Major Technical at Feb 24, 2005 10:30:57 AM

Apple aquiering Tivo would make serious inroads for Apple gaining some dominace in the newly merging computering/multimedia world. They woudl be able to accomplish what Microsoft is trying to do from the opposite end. Microsoft wants computers to be multimedia home devices while Tivo, ipod etc area already multimedia devices with computing power but grew out from multimedia devices of similar past use functionality. Tivo- VCR, Ipod pasic 'walkman'. Apple would be very smart to gather the pieces and then intergrate them, vs the Microsoft track of trying to make the OS do everything for every item.

Posted by: a sysadmin at Feb 24, 2005 10:36:56 AM

Two Jobs quotes to answer your question: Why would Apple even want TiVo?

"Unlike video content, photo content is free and abundant, and there are no copyright issues to deal with."

"No one has any video content to put on them..."

Both of these quotes happened around the time of iPod photo launch.

Posted by: Brad Spry at Feb 24, 2005 10:37:30 AM

Sorry to be the only downer on this love fest (although I do love both Apple and TiVo), but a TiVo/Apple merger does not make any sense for Apple. Sure TiVo would come out of the deal better than they went in, but what exactly would Apple be getting for their $300-350MM (btw, Apple doesn't care if it's 1%, 2% 10%, shareholders only concern is Return on Invested Capital).

1. TiVo has customers. Yes, but these customers are not really profitable at this point and TiVo's existing model of subsidizing hardware with service fees isn't Apple's model (Apple likes to make money on their hardware). Apple would want to roll out their own devices at the next upgrade (Jobs seems to like controlling hardware and software). How many of those 3 million would convert? DirecTV's consumers probably wouldn't because News wants to push NDS anyway. In the final analysis, TiVo has customers, but they don't really convert very smoothly. The main customer growth would come after the acquisition and Apple doesn’t need TiVo to show it how to acquire customers.

2. TiVo has a nice UI. Well yes, but Apple is probably one of the few companies that could outdo them. The UI would be replaced with something better rapidly.

3. TiVo is a great brand. Again, yes, it is a great brand, but Apple's is better. The brand name would be subsumed relatively quickly, especially if all this TiVo death watch stuff continues. TiVo might become “Munsoned.” (oblique ref. to Kingpin)

4. TiVo has IP. This is the one place TiVo has some advantages, but I don’t think Apple is the kind of company to buy a bunch of patents to go sue everyone else. They could use it defensively, but Apple is an innovative company, not a SCO.

5. TiVo has TV expertise. Well so does Apple. A PVR is not a difficult thing to build. Integrating with the cable/satellite providers is the bitch and Apple knows it. Jobs has said this is the primary reason why he would avoid the market, he doesn’t want to deal with those guys. Nothing has changed since then, in fact the situation has gotten worse. Apple is not in the business of selling through channels, especially pain in the ass channels like the cab/sat guys.

Jobs will wait for the IP video market to mature a bit before entering the fray. If Apple decides to go after the TV market, Jobs will do it the way he has done it with everything else, with his own hardware and software through his own channels because he believes he can do it better than anyone else. And frankly, coming off the iPod success, he’s got a right to feel that way.

Posted by: Alex Rowland at Feb 24, 2005 11:21:09 AM

Oh, I forgot

6. TiVo's talented engineers. Yeah, Apple's got some of those as well. It can hire more for less than $388MM.

Posted by: Alex Rowland at Feb 24, 2005 11:22:42 AM

> Id say they would be better served by someone
> in the television industry doing so.

I would totally disagree with that. A television company may buy TiVo just to kill it because they don't understand DVRs the way consumers want them. It took Apple to be a success in online music (iTunes Music Store) -- I think they could do wonders with TiVo.

> Both of these [Jobs] quotes happened around the
> time of iPod photo launch.

But those quotes were in relation to a video iPod, not a set-top video box.

Posted by: KJC at Feb 24, 2005 11:58:28 AM

Buying TiVo with stock would not affect the capital invested line of the ROI calculation. Issuing stock does not count as invested capital.

Posted by: New York at Feb 24, 2005 12:39:21 PM

Much more likely scenario: some institutional investor holding a few hundred thousand shares of TIVO stock "leaked" this rumor to a few plants in the media in hopes of being able to finally get out of TIVO for a previously unthinkable $4.50/share. Mission accomplished I guess: if you want to trace the source of this rumor, just look for anyone dumping major amounts of TIVO stock in the next 24 hours.

Seriously, while Apple (and half a dozen other companies) might have good reason to buy some of TiVo's patent portfolio and source code when it inevitably goes up for sale, the only things that buying TiVo as a company would get Apple (or anyone else) are:

- an product line that is unprofitable both in self-branded and licensed versions

- a shrinking, dissatisfied customer base currently being actively poached by the Cable and satellite companies

- the instant enmity of the MPAA and the TV networks

What's the upside on this deal, exactly?

Posted by: Doctor Memory at Feb 24, 2005 1:07:36 PM

I thought TiVos used MIPS-chips rather than PowerPC.

Posted by: Booka at Feb 24, 2005 1:16:01 PM

Yeah, I was just going to post that. The Series1 used PPC, the Series2 uses MIPS.

Posted by: MegaZone at Feb 24, 2005 1:29:45 PM

I think what a lot of people are missing is that Tivo is the video appliance that everyone likes in the same way that iPod is the music appliance. If Apple surrounds themselves with the best accessories, it will find more and more people turning to its hub - the Mac. I agree that having premium capabilities that work with the iLife suite would be, well - sweet.

I think the value here is in ability to turn around and penetrate the market as quickly as possible. If Apple comes out with a video solution, the imitators will be on them like attack dogs. In other words, they need the lead time - not being first, but being best, like they had with the iPod. Tivo gives them a solid customer base, passionate consumers, a launching point for more integrated digital lifestyle STUFF, the connection between computer and TV that everyone wants - I think it is a win.

Posted by: Thomas Martin at Feb 24, 2005 2:28:56 PM

Tivo has 1.5 million subscribers. (Or, at least, did, in April of 2004).

That's a lot of eyeballs to direct to "synergy" products at the next software update.

Posted by: sammy baby at Feb 24, 2005 3:18:22 PM

Based on the "Why would Apple even want TiVo?" title, I thought this entry was going to be a voice of reason, but it turned out to be yet another hit off the crack pipe.

Fortunately, Alex gets it, with a clear and well-written post.

Even if Apple wanted to get into the DVR space, they do *not* need Tivo to do it. A buyout would be lose-lose for both companies (I've had Tivo for seven years, Macs for twenty).

Posted by: Rob at Feb 24, 2005 3:41:41 PM

I agree that Apple wants to surround itself with the best accessories, but those accessories are going to be Apple accessories that Apple has designed from the ground up. I don't know of any time since Jobs got back that it acquired someone's elses product to incorporate into their product line because it was well designed or had passionate customers. It's just not his style.

And as for the ROI calcualtion I was talking about the tens of millions of losses that Apple would sustain to get TiVo's business model into the black. I don't think TiVo would be an all stock transaction nor would Apple get away without investing significant dollars to redesign the product, relaunch etc. I guess I would lump that all into the transaction cost. Wasn't written very clearly.

Posted by: Alex Rowland at Feb 24, 2005 3:48:20 PM

A good post. Not sure yet what to believe but I think it could be a good thing for Apple (and clearly for Tivo who need all the help they can get right now). The big thing for me is that the Tivo has the opportunity to become the first mainstream consumer internet-connected item in the living room. Windows Media is not yet consumer friendly enough but if anyone could make something consumer friendly, Apple and Tivo can. The possibilities of simple video syncing to a portable device suddenly seem practical as well. Fingers crossed.

Posted by: Kenny at Feb 25, 2005 2:11:46 AM

While the Tivo and Apple cultures are similar, an even better partner would be Google.

They could provide contextual ads alongside TV listings, as well as the upcoming (at least, it kept getting mentioned in the Fall) "fast forward ads" that supposedly show a small ad while fast forwarding through shows.

Google has begun capturing closed-captioning text, and allowing users to search through that, and get pictures of the shows. Google could show context-sensitive ads on TiVo.

Posted by: Mark at Feb 25, 2005 1:13:36 PM

I agree with the initial post and the general concept that Apple acquiring TiVo is great for the product and for TiVo (maybe even Apple). However, has Steve Jobs/Apple ever bought another company just to integrate a product into their own line? I can't think of a single item. It just doesn't seem to be the Apple way of product development. That doesn't mean that this won't happen, but it sure does make it a lot less likely.

As far as the whole issue of Apple not being able to turn profit off of selling their version of a TiVo, I disagree. They would just sell them for about $500, rather than $300. That's the whole premium branding for you, in a nutshell. How much more is an iPod than it's competitors, and it's still the Kleenex of portable digital audio players.

Posted by: Jason Coleman at Feb 25, 2005 2:29:34 PM

I with those who say "Pump and Dump" -- look it up in your favorite Wall Street/SEC dictionary.

Posted by: DeVo at Feb 26, 2005 12:48:50 PM

The last time Apple bought a company to integrate it's technologies was those many years back when it brought/bought Steve Jobs back into the company by buying NEXT. At that time it was a final act of desperation...and it worked, oddly.

Buying Tivo would be the act of a company desperate to get into DVR. Is Apple that company? I don't think so. I don't think this is the proper time for entry into this market. It needs time to mature. DVR likely to become a commodity with many players involved. Apple can brand their own devices when the time is right.

Posted by: Sean at Feb 27, 2005 10:46:19 AM

> "Unlike video content, photo content is
> free and abundant, and there are no copyright
> issues to deal with."

It's true! Video content, like audio content, is non-free and copyright-encumbered. Which, as we all know, is why Apple's insane "I-pod" initiative drove the company into bankruptcy back in 2002 -- just ten months after the hardware was first released. It's a miracle that the company survived the resulting shareholder lawsuits, let alone Jobs...he wouldn't *dare* try to repeat a failure of such monumental proportions.

Posted by: Ernie Longmire at Feb 28, 2005 11:10:32 AM

Apple has never done a high profile acquisition and I would not expect it to do so now. Apple could easily produce a DVR on its own that would equal and likley surpass Tivo. Buying Tivo would completely ruin Steve's introduction of the product. No way!

Posted by: pb at Mar 1, 2005 9:39:49 PM

Although I likewise never see it happening, I think a Real acquisition would really bolster Apple's presence in the digital content distribution world. Put Real clients out of there misery, replaced by QuickTime clients. Put the impressive Real catalog of audio/video on the free QuickTime server. Fold the music store into iTunes. Re-launch Rhapsody as the iTunes subscription offering. Pick up 1.5m paying subscribers and $300m in good revenues.

Posted by: pb at Mar 1, 2005 9:44:21 PM

Why would Apple even want TiVo?

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