Digital video recording pioneer TiVo (TIVO) may be a household brand, but the company appears to be stuck in a rut.TiVo's stock essentially finished where it started in 2006 (it closed the year at $5.12), while progress also stalled on a deal to integrate its software with digital video recorders already in the homes of Comcast ( CMCSA) subscribers. Profitability looks distant, too: The company lost $11.1 million in its most recent quarter and expects to lose as much as $38 million in its current fourth quarter. But perhaps even more important, TiVo faces a possibility of being marginalized in a world where user-generated content is exploding and consumers have stakes in multiple media beyond television, such as digital photos and online videos and music. Content convergence and the ability to access media any place, anytime is becoming a fast-growing need that TiVo won't be able to meet unless it reinvents itself. For TiVo, the question is: Will it expand its digital content radar or just be limited to being a smaller part of the cable universe? If the company just wants to follow the old model, then it's condemned to a slow death, says Joe Costello, CEO of Orb Networks, an Emeryville, Calif.-based start-up. "TiVo has to transform itself," he says. "It's a very good application for recording TV, but look, it is a much bigger world, and they have to make a bigger play."
And to do that, TiVo needs to expand its media focus. That's because if TiVo doesn't do it, nimble start-ups like Orb will. Orb lets users record and share not only TV content but also photos, home videos, Internet videos, Internet radio stations and podcasts. It also lets users play that content on any device, be it the laptop, PC, TV or the phone. Orb even lets users take their recorded TV content and package it to create their own channel. Orb is inking partnership deals with set-top box manufacturers to put its software into their boxes. "They really are getting this notion that we have got to make digital media available on the set-top box," says Costello. TiVo's challenge comes not just from an increasingly commoditized DVR market but also from smaller start-ups and tech companies such as Cisco ( CSCO) making a play for the business. Last year, Cisco acquired Scientific-Atlanta, a maker of cable set-top boxes, for $6.9 billion. Users also have newer ways to get their TV content. This year, Nintendo ( NTDOY) decided to integrate the Opera Internet browser into its latest Wii gaming console, making it easier for users to download software from the Internet and use the device to record all content, including television. As user-generated media gathers speed, TiVo's need to be more aggressive grows.
To be fair, TiVo has taken small steps in this direction. The company offers TiVo ToGo, a feature that lets users transfer already-recorded content to any device, including mobile phones, Apple's ( AAPL) iPod, and even Sony's ( SNE) PSP handheld gaming console. And in November, the company said it will let subscribers transfer broadband video from their PC to their television sets, even if those videos didn't originate in a television format. But what it may really need is a leap of imagination and a strong appetite for risk that will enable TiVo to be at the center of all digital media. The company's ToGo service has been plagued by complaints of extremely slow transfers. And what users really want is the ability to immediately stream cable content to any Internet-connected device, anytime. That niche is now being filled by third-party hardware such as Slingbox and Sony's LocationFree product that lets users record and play video from anywhere via the PC or the laptop. So while TiVo just does time-shifting, Slingbox and its peers allow for place-shifting too. TiVo has indicated that it plans to use broadband-based features as additional differentiators, wrote Bear Stearns analyst Kunal Madhukar in a recent research report, but "in the current generation software, the process remains cumbersome with users still required to download the content they want on their PCs." Bear Stearns makes a market in TiVo shares.
However, making a move into other media -- as well as giving users the ability to download content from any source for viewing on TV or any other device of their choice -- won't be easy for TiVo, because it's unlikely to be a short-term revenue driver. And TiVo's poor financial performance clearly limits its risk-taking ability. A move to expand itself into other areas of digital media could be hazardous, because it isn't clear it will work, says Todd Chanko, media analyst with JupiterResearch. "TiVo is still primarily about the consumer, and I personally think you are demanding a lot of the average consumer with an idea like this," says Chanko. When most consumers turn on their TVs, they are more inclined to watch "real" television content, he says. "Adding more digital media could be a value-add, but I really doubt it is going to end up driving a significant amount of business," he says. What is clear, however, is that TiVo's current model
doesn't seem to be gaining ground. It needs to take risks and innovate again.