TiVo Soars After Broadening Pact With AOL - TheStreet

Updated from 10:54 a.m. EDT

The race to deliver interactive television to American consumers appears to be heating up, with three separate announcements this week by big players who are trying to get a leg up in the space.

America Online

(AOL)

and video-on-demand company

TiVo

(TIVO) - Get Report

said Wednesday that they are expanding their alliance in an agreement that includes a $200 million investment in TiVo by the Web giant.

Under the terms of the new three-year agreement, AOL and Sunnyvale, Calif.-based TiVo will develop a co-branded AOLTV set-top box that will combine TiVo's personal recording software -- which allows programming to be delivered to a hard drive, recorded and then viewed at the consumer's convenience -- with AOLTV's interactive television offerings. The two companies hope to deliver the set-top box by early next year.

The agreement marks the expansion of an alliance first announced in August.

With its investment in TiVo, Dulles, Va.-based AOL will become the company's single largest shareholder. Under the terms of the deal, AOL's initial stake will represent around 10% to 15% of TiVo, according to a source close to the deal. If over the course of the agreement, AOL hits certain performance benchmarks and delivers TiVo to more subscribers, it has the right to acquire another 10% to 15% of the company, the source said.

TiVo shares rocketed on the news, jumping 11 7/16, or 53%, to 32 7/8 in heavy afternoon trading. AOL climbed 1 3/8, or 3%, to 53. (TiVo closed 12 15/32, or 57%, higher at 33 51/64, while AOL closed 13/16, or 2%, higher at 52 7/16.)

The deal makes TiVo the exclusive provider of set-top boxes for AOLTV, an enviable position should AOLTV achieve the kind of dominance in the interactive TV space that AOL's Internet service provider has.

"The deal is certainly exclusive in that TiVo will be the only personal video recorder on the AOLTV platform," said David Courtney, senior vice president for finance and administration and chief financial officer at TiVo.

TiVo is free to develop similar deals with other interactive TV providers, Courtney added.

The announcement comes a day after

Microsoft

(MSFT) - Get Report

said it will start an interactive-TV service of its own, dubbed UltimateTV. That service is not to be confused with the Redmond, Wash.-based company's

WebTV

, which delivers TV programming over the Internet.

UltimateTV will be part of a satellite-TV receiver developed with El Segundo, Calif.-based

Hughes Electronics'

(GMH)

DirecTV

and France-based

Thomson Multimedia's

(TMS)

RCA

.

Microsoft hopes to begin offering UltimateTV later this year.

Microsoft was up 2 13/16, or 4%, to 70 11/16 while Hughes was up 3/16 to 104 7/16. Thomson was up 8 1/2, or 8%, to 120.

Separately, New York-based

Time Warner's

(TWX)

cable channel

TBS Superstation

, New York-based interactive TV company

ACTV

(IATV)

and

Liberty Livewire

(LWIRA)

of Hollywood, Calif., said Wednesday that they will begin offering three hours of interactive TV every week.

That service, which does not require a set-top box, will give viewers the chance to interact while watching

Ripley's Believe it or Not

and

WCW Thunder

. TBS Superstation reaches 79.1 million viewers and is one of the biggest cable channels. The companies touted the weekly block as the first regularly scheduled interactive TV programming. ACTV and TBS have collaborated on specials before.

ACTV rose 9/16, or 4%, to 15 5/16. Time Warner was up 2 3/8, or 3%, to 77 5/8. Liberty was up 7, or 17%, to 47 in extremely thin trading.