TiVo’S Been Outflanked

Aug 25, 2003  •  Post A Comment

It’s the dog days of summer. And for TiVo shareholders, their stock has been the biggest dog of all.
From late July to mid-August, TiVo’s stock dropped nearly 40 percent, including a 25 percent dip during a three-day period. At this rate, you couldn’t blame TiVo CEO Mike Ramsay if he instinctively reached for the pause button.
The sudden decline has caused many Wall Street young’uns to raise their waxed eyebrows in disbelief. From WR Hambrecht to Adams Harkness, analysts have been jumping over themselves to be the first to recommend the stock to their clients. Always on the lookout for the next Mr. Right, Wall Street insiders have fallen in love with TiVo, saying that scores of millions of Americans may buy it in the coming years.
So what happened? Did the common investor watch that episode of “Sex and the City” in which Miranda’s nanny “broke” TiVo by sitting on the remote? Did people get sick of hearing TiVo name-dropped in every other prime-time show?
No and no. Here’s the real reason: The secret is out. Despite the buzz and the quality of its service, TiVo’s fate has already been decided. The DVR service will not rule the world, invading every living room with its fancy arsenal of recording bells and whistles. In fact, TiVo, which is now in fewer than 1 million homes, may never reach more than 10 million, no matter how many times David Letterman says he “TiVo-ed” last night’s show.
How can I say such a thing? Isn’t TiVo cute? Revolutionary? A damn good product? Yes to all! But the math is undeniable. Let me break it down so even a Wall Street analyst can understand:
1. Digital video recorders, which include TiVo, ReplayTV, EchoStar and unbranded cable services, are now in just 2.2 million homes. With 100 million TV homes in the U.S., that leaves tens of millions of potential customers for TiVo, right?
Cable TV operators, who now control about 65 percent of those homes, are rolling out their own DVR services. (TiVo has failed repeatedly to license its technology to the cable industry.) Cable subscribers will not buy TiVo in large numbers if they already have a DVR. At best, TiVo might pick up 3 million cable subscribers in the next 10 years.
2. The satellite TV audience represents about 20 percent of U.S. homes. However, EchoStar, which has 45 percent of that audience, also uses its own DVR service. That leaves only DirecTV, with which TiVo does have a partnership.
So add it up. At this point, unless TiVo can persuade EchoStar or the cable industry to switch DVR services, it will be shut out of about 75 percent of American homes. With those numbers, it’s impossible for TiVo to become a critical-mass product.
That doesn’t mean that TiVo can’t be “successful.” Apple, which is an indisputable success, has never tried to be anything more than a niche company. However, if Wall Street analysts and other TiVo enthusiasts keep raising expectations, the company’s stock may keep falling. n
Phillip Swann is president and publisher of TVPredictions.com. He can be reached at Swann@TVPredictions.com.