TiVo: A nifty box but a risky
investment
By Tom Davey
Redherring.com
September 13, 1999
The latest gizmos for training your TV to do new tricks
are great toys for couch potatoes. But be wary of
investing in the vendors that dream up these gadgets.
You just might find your portfolio on the blink.
Take TiVo, which had a national
product rollout Friday and plans to
go public with an $80 million
offering the week of September 20.
Its video recorder lets you do all
sorts of amazing things that your
VCR doesn't.
You can freeze the live action of ER before going into the
kitchen to make a sandwich. Sliding back in your lounge
chair, you see that the doctor's scalpel hasn't nicked a
capillary since you got up. You zap out the next 90
seconds of commercials to catch up to the live broadcast
just as he's stitching up the patient's chest.
Or say you're a hard-core baseball
fan. You want to know if the umpire
made the right call. Play back the
action in slow motion to see if the
third baseman really tagged out the
sliding base runner.
Having a hard time deciding what to
watch on those 200 channels your
cable provider pipes into your house? TiVo provides a
special service that lets you vote -- one to three thumbs
up or down on each show you watch. TiVo then helps
you on future TV-watching decisions. Say your preschool
kid likes Barney. She punches her vote into the remote
control and TiVo scans the TV universe for future
programming on purple dinosaurs.
Leaving on a two-week vacation but afraid you'll miss that
classic series, The Hamster That Ate New Hampshire?
Simply pull up the onscreen menu and type in
"humongous rodent." Within a whisker of your return, you
can watch every missed episode.
DRAWBACKS TO PLAYBACKS
But will enough people buy this thing for TiVo to turn a
profit? Most TV watchers certainly would if it were cheap,
unobtrusive, easy to set up, better than competing
products, and able to replace a VCR.
Still, TiVo's $499 to $999 price tag might be a big turnoff.
Most people don't spend this much on their TV and VCR
combined. And despite its amazing features, the device
lacks common functions of VCRs.
For instance, if you rent a movie from a video store, you'll
still need a VCR to view it because the TiVo recorder
does not have removable storage. And if you want to
watch one show and record another simultaneously,
you'd still better hold on to that VCR.
Then there's TiVo's $10 monthly subscription fee for
tabulation of your viewing preferences. And TiVo feeds
you extra commercials that Big Brother -- um, I mean,
TiVo's sponsors want you to watch based on your
viewing habits.
Don't want to shell out an extra $10 a month on top of
your cable bill? TiVo lets you pay an extra $200 up front
for a "lifetime" service subscription. Of course, some
might see this as an omen. According to TiVo's
prospectus, the company doesn't expect a lifetime to
exceed four years.
Not deterred yet? Those customers still interested in the
service will have to run a phone line to the TiVo box on
their TV. This allows the device to call in to TiVo's
computers. In the middle of the night, while you're
sleeping, these computers are updated on what you
watch. They then decide what programming and
commercials you might want to watch in the future.
NO MONEY IN BOXES
So what if people don't subscribe to the service? TiVo will
still make tons of money selling the boxes, won't they?
After all, there are the pause, slow motion, and
commercial-skipping features.
Sadly, the answer is no. In fact, TiVo loses money on
each box. Under its contract with Philips Consumer
Electronics (NYSE: PHG), which makes and sells the
boxes, TiVo must pay Philips for each box sold. TiVo
must also pay Philips and DirecTV, which provides the
service, a "substantial portion" of the service revenue.
Earlier this week, Sony Corporation of America
announced a similar box-making relationship and a $27.5
million investment in TiVo.
The only way TiVo can make money is by signing up
customers and sponsors. But if sponsors can't reach
viewers, they won't sign up.
As of June 30, three months after it started selling the
recorders over its Web site, TiVo generated only $8,000
in service revenue from 1,000 subscribers. With Philips's
national product launch this Friday and Sony's launch
next year, future revenues will certainly be higher. But
will they be enough to justify a $372 million value for the
company after the stock offering?
ELECTRONIC GIANTS CAN'T GO WRONG
Novice investors may be impressed by the fact that such
notable companies as Philips and Sony are taking large
stakes in TiVo. Even if TiVo stays deeply mired in red
ink, these electronics giants still siphon off a large
portion of the struggling company's revenues by providing
the boxes and service. TiVo's prospectus bluntly states
the problem: "We expect to continue to lose money for
the foreseeable future."
The company also will face considerable competition
from vendors such as Replay Networks, America Online
(NYSE: AOL), and Microsoft's (Nasdaq: MSFT) WebTV.
Some competitors also plan to offer features that TiVo
doesn't, such as Internet browsing.
But TiVo is going out of its way to cover its bases. It
even filed a trademark application for its slogan: "Life's
too short for bad TV."
Or bad investments. |
