Remember the chestnut about how it's the second mouse that gets the cheese? It seems to be the case often enough in the tech sector.
From Netscape's browser to Excite's Internet portal to
CEO Larry Ellison's "network computer," the first movers in tantalizing new markets are often, in time, relegated to the tiny fonts of history's footnotes.
Is this the fate for
The pioneer of digital video recorders has fought valiantly to stay clear of the footnotes and remain smack in the middle of the big story itself.
One of the rare companies whose name becomes a commonplace verb, TiVo cultivated a small but fiercely loyal fan base while spinning out a string of innovations that kept its edge sharp. It was like a cat with nine lives.
But even cats have only those nine lives. And for TiVo, whose push for new subscribers during last year's holiday season was a big flop, the options as it steers toward profitability are growing scarcer.
TiVo's stock has reflected the growing nervousness, downtrending for the last 10 months with a series of lower highs. Shares closed Thursday down 8 cents to $5.88.
TiVo said that it added 163,000 new subscribers in the fourth quarter of last year, a 26% drop from the 221,000 gross adds a year earlier. Analysts had been expecting a figure north of 200,000.
But 62,000 subscribers disconnected their TiVos in the quarter, a 63% surge from the year-ago figure. Not only did that push up TiVo's churn rate to 1.25% last quarter from 0.9% in the year-ago quarter, it also meant that TiVo added only 101,000 net subscribers, a 45% drop from a year earlier.
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.
"There are ways TiVo can tweak the model; a lower price for its HD DVR, getting rid of mail-in rebates, giving subs more pay options, and TiVo can continue to layer on new services like TiVoCast, and TiVo KidsZone, but frankly it appears the consumer is just not buying it," he added.
TiVo keeps experimenting with new tactics to lure in new subscribers, but the Street seems to be losing patience. Analysts are grumbling about how the changes mess up their ability to forecast earnings, which wouldn't happen if they weren't met with declining subscription figures.
"With their market opportunity slowly slipping away as mass adoption of 'generic' DVRs ... the company must aggressively pursue subscriber growth," wrote Alan Bezoza at Oppenheimer, which does no underwriting for TiVo. "With only 1.7 million TiVo-owned subscribers, we question their ability to stay relevant within the media and advertising industry."
The company's best hope lies with the same rivals that have been killing TiVo with low prices. After some delay, TiVo will start licensing its software this spring to
, a move that could make up for declining revenue from TiVo's partnership with
or that could help Comcast reverse-engineer TiVo's peerless software.
TiVo is crafty enough to find a way out of its current bind. But Wall Street is growing impatient, and the options are running out. It's starting to look like 2008 is a make-or-break year for keeping TiVo out of the historical dustbin.