From TIVO thread
To:Netconductor who started this subject
From: John Fowler Tuesday, Apr 20, 2004 7:16 AM
Respond to of 1387
TiVo Loses Investors Amid Cable-TV Competition: Taking Stock
April 16 (Bloomberg) -- B. Randall Watts uses TiVo Inc.'s digital video recorder to tape New England Patriots and Boston Red Sox games. The Boston Co. Asset Management money manager is no fan of the company's stock.
Watts has instead bought shares of Scientific-Atlanta Inc., a maker of set-top boxes. The company's products, supplied to cable companies such as Comcast Corp. and Time Warner Inc., include recording devices.
Money managers such as Watts have shunned or sold TiVo --the second-best performer in the Bloomberg Hollywood Reporter Index this year -- because the company's stand-alone recording service may become superfluous. Customers can purchase the same product directly from cable and satellite companies as part of their television service.
``It's tough defending TiVo against the competition,'' said Watts, who manages $500 million in small-company stocks for the firm in Boston. ``All set-top boxes in the future'' will have digital-video recorders inside them, he said.
Technology upgrades have overtaken companies' business in the past. Netscape Communications Corp., for instance, charged for its Web-browsing software before Microsoft Corp. added its Internet Explorer program to the Windows operating system. The company, now part of Time Warner's America Online unit, gives away the software.
In Storage
Digital video recorders use a computer hard drive to store programs. The devices enable consumers to record multiple shows at the same time, pause and rewind live programming and watch broadcasts without commercials. More than 24 million homes will have recorders by 2008, up from 3.2 million at the end of last year, according to Adi Kishore, an analyst at the Yankee Group, a Boston research firm.
TiVo, based in Alviso, California, is the market leader with 1.3 million subscribers, Kishore said. Episodes of HBO's ``Sex in the City'' and CBS's ``King of Queens'' have featured story lines about the service. Less than 1 percent of customers disconnect in a quarter.
The company estimated in March that it will add at least 1.5 million customers by the end of January 2005, up from its previous forecast of 1.2 million. Two-thirds of its growth will come from its partnership with DirecTV Group Inc., the biggest satellite-TV provider.
Cheaper Service
Shares of TiVo are up 21 percent in 2004, buoyed by the forecast for subscriber growth. On the other hand, they have dropped 27 percent since reaching a high for the year on Feb. 11; the Standard & Poor's 500 Index has slipped 2.5 percent during that stretch.
The company, which sold stock to the public for the first time in September 1999, has never shown a quarterly profit. For the latest quarter, ended Jan. 31, the loss narrowed to $12.4 million from $32.5 million as it cut prices in an effort to boost sales.
TiVo's machines range from $149 to $349, including a $50 rebate. Customers pay either pay $12.95 a month or $299 for a lifetime subscription. DirecTV customers can get a TiVo-equipped box for $99 and pay a monthly service fee of $4.99.
Comcast, Time Warner and Charter Communications Inc., the three largest cable companies, offer digital recording for $4.95 to $9.99 a month. They don't charge an extra fee for the set-top box that includes the recorder. The companies have a total of 38 million subscribers.
No Confidence
Scientific-Atlanta sold 260,000 boxes to the three companies, among others, during the quarter ended Jan. 2. The total was eight times higher than the amount sold in the same quarter of 2003. Shares of the company have more than doubled during the past 12 months.
EchoStar has signed up more than 1 million subscribers for digital recording. The company charges $4.98 a month for the service and nothing for the box.
Philip D. Tasho, chief investment officer of Tamro Capital Partners LLC in Alexandria, Virginia, subscribed to Comcast's service rather than buying a TiVo because the Comcast offering was cheaper and didn't require an additional cable box. He sold TiVo's shares based on concern about competition.
``There was a lot of evolution with the format and we weren't necessarily confident that TiVo was going to be the way to go in the future,'' said Tasho. He records about 10 hours of programming a week, including episodes of HBO's ``Six Feet Under'' series.
`Whole Lot More'
Cable companies will capture the largest share of the digital recorder market during the next four years, Yankee Group's Kishore said.
TiVo has pledged to spend as much as $50 million to sign up new customers. The plan includes offering the $50 rebates on boxes and advertising for the first time in three years, said Brodie Keast, a senior vice president at the company.
TiVo has partnered with consumer-electronics companies to offer DVD players equipped with video recorders and will sell a package by December that allows subscribers to transfer shows to personal computers, Keast said. ``There is a whole lot more than DVRs to define TiVo,'' he said.
Investors such as Brian Horey at Equity Growth Management in New York said TiVo's reliance on DirecTV for the majority of its new subscribers is a threat to its growth. Half of TiVo's customers are DirecTV users.
Rupert Murdoch's News Corp. bought a controlling stake in DirecTV in December. News also owns NDS Group Plc, a maker of digital-TV software that is developing recording technology.
`Open Question'
TiVo ``will survive as long as Murdoch wants them to,'' said Horey, who researched the company last year and decided against buying the shares.
DirecTV CEO Chase Carey said the company's partnership with TiVo may not remain exclusive. ``As we've said to them, there are issues that we have to figure out,'' Carey said. ``We're talking to them, but it's an open question.''
TiVo's Keast said he's ``confident we will have a future with'' DirecTV. Keast said the company is also in discussions with cable operators about partnerships.
Boston Co.'s Watts said he isn't likely to abandon the TiVo service he gets through DirecTV because it's compatible with his high-definition TV. Still, he won't swap his Scientific-Atlanta shares for TiVo stock.
Digital-video recorder technology ``is going to be incorporated into the set-top box,'' said Watts, who has been a TiVo subscriber since June 2002. ``I wonder how much of a commodity it will be.'' |
