TiVo's Future Gives Pause

It's normal to see growth rates slow down as business expands, but that doesn't account for the steep drop in TiVo's growth. And it's more disconcerting given that the company was pushing its DVRs in the holiday season by giving away free ones from its excess inventory.

More and more people are using DVRs, but TiVos? -- not so much. Instead, consumers are apparently using DVRs offered by cable companies and satellite TV providers, a trend that wasn't supposed to curb TiVo's growth because the software on TiVo machines was far more intuitive and helpful than what the cable companies were offering.

Todd Mitchell, an analyst at Kaufman Brothers (which has no underwriting relationship with TiVo), said the higher churn may be coming as cable subscribers upgrade to high-definition TVs. TiVo offers a high-definition DVR for $800, but the price break that cable and satellite companies are providing may be persuading some to switch.

Other die-hard subscribers are continuing to use TiVo but are showing up in churn anyway. That's because of the lifetime memberships TiVo offered early on, which the company stopped offering last year in favor of mandatory monthly fees.

TiVo said it's ending its marketing strategy of free DVRs and opting for more advertising. This should help the bottom line since the cost of subsidizing free DVRs is higher than an aggressive ad campaign, but many think it won't be enough.

"TiVo said it is shifting away from hardware subsidies and toward more pure marketing. This is telling, and what it tells us is that it does not matter if TiVo gives away the hardware; there are just not enough interested customers," Mitchell wrote in a report.

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