Adding TiVo to AOL mix

May 21, 2001  •  Post A Comment

As the latest sign the television industry’s established models are being shattered, a leading research analyst has boldly asserted that a multibillion-dollar media conglomerate should purchase a diminutive Silicon Valley technology company.
“AOL Time Warner needs a strategy for on-demand TV,” Forrester Research Analyst Josh Bernoff declared in his recent report, titled “AOL Time Warner Should Buy TiVo.”
Mr. Bernoff told Electronic Media that his advice to AOL Time Warner is based on the idea that the importance of broadcast television networks will continue to diminish as content and information retrieval technologies tailor television programming to an individual’s preferences while discarding rigid live programming schedules, Mr. Bernoff believes.
“What’s going to guide people in the future is a [television programming] recommendation engine,” Mr. Bernoff said. “[TiVo has] an ability to make recommendations based on what someone has watched in the past.”
Although TiVo has risen to prominence on the strength of the personal video recorder that complements its suggestion tool, Mr. Bernoff thinks the latter forms the core of TiVo’s business because PVRs from a wide array of electronic equipment manufacturers are now coming to market. As a result, the programming selection technology is TiVo’s most unique and valuable asset, according to Mr. Bernoff.
While provocative and timely, Mr. Bernoff’s analysis of TiVo’s place in the multichannel universe rests on the counterintuitive assumption that TiVo can, with its programming guide, compete with patent behemoth Gemstar-TV Guide. Unlike Gemstar, which has gradually built a formidable patent storehouse since the early ’90s, TiVo is a neophyte in the patent arena.
During the past few months the U.S. Patent and Trademark Office has awarded TiVo a very circumscribed set of intellectual property rights, including ownership of “the ornamental design for a remote control” and “the ornamental design for a replay bar icon”-hardly the type of patent collection that will enable TiVo to contend with Gemstar.
“Our failure to secure and protect our proprietary rights could have a material effect on our business,” TiVo concedes in its most recent annual report filed with the Securities and Exchange Commission. “We have filed patent applications … covering substantially all of the technology used to deliver the TiVo service,” the company wrote in its report to the agency. “To date, none of these patents have been granted, and we cannot assure that any patents will ever be granted.”
Patent litigation, however, may only be the tip of TiVo’s liability iceberg-the company fears that unrelated clashes with media rivals could be imminent. Specifically, the company believes it could become the target of litigation from broadcast networks and other media interests who are alleging that TiVo has used their programming without proper authorization. “We have received letters from Time Warner Inc. and Fox Television stating that … our personal television service exploits copyrighted networks and programs without the necessary licenses and business arrangements,” TiVo disclosed in its SEC filing.
Despite TiVo’s barren intellectual property cupboard and its other troubles, Mr. Bernoff dismissed criticism of the company’s patent portfolio as applicable to almost any media company, arguing that while Gemstar’s programming guide is geared toward television networks’ live scheduled programming, TiVo’s suggestion engine is designed to navigate through an assortment of shows that were previously recorded onto a computer hard drive.
TiVo could become an attractive feather in AOL Time Warner’s cap if Mr. Bernoff’s intuition is correct. Such a deal was foreshadowed by the $200 million minority stake that AOL Time Warner took in TiVo last September. Multiple system operators have begun placing greater emphasis on video on demand and personal video recording than on other forms of interactive TV.
“Cable operators that want to control their own walled gardens … have little use for AOL’s TV interface, AOL TV,” Mr. Bernoff observed.