Robbie Stephens Conference: TiVo, Liberate Look for More Revenue

SAN FRANCISCO -- TiVo (TIVO) and Liberate Technologies (LBRT) may be changing the way people watch television, but they both have bigger plans for their businesses.

That's probably a good idea, with Liberate's shares at about $11.63, down from a 52-week high of $119.88, and TiVo trading at $5.75, off its 52-week high of $49.13.

According to TiVo Chairman Michael Ramsay, people who buy the company's personal video recorder are finding greater satisfaction with television, enjoying a better relationship with their cable companies and rediscovering long-dormant passion in their marriages. OK, so we made up the passion piece of the equation, but speaking at the Robertson Stephens Technology 2001 Conference here Tuesday, Ramsay addressed TiVo's long-term prospects beyond owning a technology that in his words "is kind of cool."

But while investors and customers love the technology that allows them to store television programs on a hard drive and pause live broadcasts, TiVo must morph its revenue model to one that depends more on licensing fees and less on subscribers.

Currently, the company is subsidizing the cost of the TiVo units -- sold under the Sony (SNE), Philips and Thomson brand names -- to build market share. So far, so good. After 18 months, personal video recorder technology has a higher adoption growth rate than personal digital assistants, videocassette recorders and compact disc players had in their first 18 months of existence.

Still, he said, "We would like to operate more on a license model" by signing up services that offer TiVo. Already, it has DirectTV and AOL-TV in hand. And as that model expands, the subsidy cost "goes to zero."

Currently, the company's revenue comes from recurring subscription revenue, premium services, advertising and commerce and audience measurement. Ramsay said 62% of TiVo subscribers sign on for the $199 lifetime subscription while 38% take the $9.95 a month package.

While Ramsay would like to see the monthly number climb, he doesn't mind the lifetime signups because the cash infusion helps TiVo keep its burn rate in check.

So, while the personal video recorder company is changing the way Americans entertain themselves, it'll be a while before it entertains thoughts of profitability.

Liberate, which provides a software platform to deliver content and applications to televisions and non-PC appliances, also has an eye on making licensing revenue 70% of its overall revenue, which is expected to grow to $11.7 million in the second quarter. That's up from $6.1 million in the second quarter of 2000.

Liberate CEO Mitchell Kertzman said the company, which targets cable network operators as its primary customer base, is in a sweet spot because those cable operators are trying to cut into their customer churn rates -- the number of subscribers who leave and the cost associated with replacing them -- and increasing their revenue per subscriber.

One of the company's key customers, Insight Communications (ICCI), reported that its churn was cut by one-third and its revenue per subscriber increased $5 a month after it introduced enhanced television services, Kertzman said. The enhanced services Liberate facilitates include email, chat rooms, instant messaging and transactions via set-top boxes.

Liberate's technology essentially enables cable operators to use what they call middleware from Liberate to distribute content and applications in Java or HTML formats via a standard platform into all levels of set-top boxes, Kertzman said.

Kertzman said Liberate's headcount, close to its goal of almost 500, won't grow much in the coming quarters, and that its cash burn rate is currently $20 million to $25 million a quarter.

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