TiVo Deal Gets Lukewarm Reception
Updated from 2:49 p.m. EST
As part of their seven-year agreement, Comcast will market TiVo's recording service to its 21.5 million cable customers. TiVo will introduce a new version of its service that will work with the digital video recorders, or DVRs, that Comcast is currently offering customers. The companies expect a widespread implementation of the service in mid-to-late 2006.
This is TiVo's second deal with a major distribution partner and comes as its other partner, DirecTV (DTV), has begun to introduce a competing service to TiVo's. It also comes as analysts and investors have grown increasingly dubious about TiVo's prospects.On the news of the deal, TiVo's stock jumped as much as $2.30, or 60%, to $6.13. In recent trading, the company's shares surged $2.67, or 70%, to $6.50 a share. But some analysts rushed in to pour some cold water on the market's enthusiasm. After the initial run-up, Janco Partners analyst April Horace downgraded TiVo's stock to sell from market perform. Horace questioned how and to what extent Comcast will promote its TiVo offering when it becomes available, given that Comcast has in the past put more emphasis on promoting other video services. Meanwhile, the deal with Comcast may help end TiVo's already rocky relationship with DirecTV, Horace said. And it may undermine sales of TiVo's more profitable stand-alone service, she said. "While the announcement between TiVo and Comcast sounds good, we are not as sold on the deal," said Horace in her note. "In light of the risks associated with the unknowns with Comcast ... we feel the shares have more downside risks than any [further] upside." Horace does not have a position in TiVo shares and Janco has not received fees for investment banking from TiVo in the last year.
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