Comcast, TiVo Form Partnership [WSJ]
DVR Service Will Be Available To Cable Subscribers in Late 2006
By NICK WINGFIELD and PETER GRANT
Staff Reporters of THE WALL STREET JOURNAL
March 15, 2005; Page B1
After years of fruitless efforts by TiVo Inc. to forge an alliance with a cable-TV company, the maker of digital video recorders has formed a partnership with cable giant Comcast Corp. that could greatly expand TiVo's audience.
TiVo will develop a version of its service -- which helps viewers easily record television programs onto a disk drive -- that Comcast will offer as an option to its cable subscribers, the companies said Tuesday. The service is expected to be available in a majority of Comcast markets in mid-to-late 2006.
Financial terms of the deal were not disclosed.
The agreement with Comcast, the nation's largest cable-system operator, is a huge win for TiVo, a Silicon Valley pioneer whose future has been mired in uncertainty as much larger rivals have become serious about introducing digital video recorders, or DVRs, similar to TiVo's. The devices have won a loyal following among some television viewers, who use them to quickly skip through commercials on recorded programs and to pause live broadcasts.
TiVo, of Alviso, Calif., is the top provider of DVRs. It has more than three million customers who pay monthly subscription fees in order to download updated television program guides, personalized recommendations on shows and other perks.
In the past year, though, cable and satellite-TV companies have started to deploy their own DVRs. These companies have a huge built-in advantage over TiVo since they can combine those devices with TV tuner boxes and inexpensively market them to customers as part of service packages. Satellite-television provider DirecTV Group Inc. has for years distributed its own version of TiVo's service, but the company recently said it would begin emphasizing a rival technology made by NDS Group, a company that is controlled by Rupert Murdoch's News Corp., which became the controlling shareholder of DirecTV in December 2003.
TiVo executives were unable to reach an alliance with cable companies, including Comcast, in the past because they could never reach terms that were attractive enough to the company. In an interview earlier this year, TiVo Chief Executive Mike Ramsay said cable companies were unwilling to leave TiVo much control over the design of its service and offered to give TiVo only a "marginal" share of subscriber fees.
"We're trying to build a company here that has sustainable growth and is profitable," Mr. Ramsay said at the time.
For Comcast, the agreement gives the company the ability to offer high-end TiVo digital video recorders to complement the DVR business Comcast launched last year with boxes mostly manufactured by Motorola Inc. Comcast will likely charge more for the TiVo service than the Motorola service -- which goes for about $10 a month -- because TiVo offers features not currently available on most of Comcast's standard Motorola boxes, such as recommendations of programs.
Comcast will likely offer the TiVo service as an option to all of its 21.5 million cable subscribers, as well as to 18.5 million other households that have access to its cable systems but don't currently take service, according to a person familiar with the matter. For DVRs to work, customers have to buy an upscale tier of cable service known as digital cable, which costs about $10 a month extra. About 40% of Comcast's customers take digital service.
Comcast's partnership with TiVo reflects the strong demand among households for digital-video-recorder offers from cable and satellite companies. Many consumers like these plans because they typically allow subscribers to simply rent the recorders rather than having to shell out money to buy a DVR.
Demand has been strong for Comcast's DVRs. In the fourth quarter alone the company installed 180,000 of them and expects to add more than one million this year. Comcast last week said it had cut a long-term deal to buy $1 billion worth of Motorola boxes while also creating two joint ventures with Motorola to develop and license DVR technology for cable companies. The companies said the TiVo service will run on existing Comcast boxes that are capable of recording digital video.
"One of the reasons you'll see a slight increase in capital expenditures in 2005 is our bullishness on digital video recorders," Comcast CEO Brian Roberts said last month during an earnings conference call. "Consumers love this product."
Comcast along with other cable companies were later than satellite in introducing DVR service. Comcast initially focused on video-on-demand service, which gives viewers the ability to access at any time thousands of hours of movies, programs and other content stored in computers at centralized distribution points. But as satellite-TV operators succeeded in using DVRs to lure away customers, Comcast scrambled to offer a comparable service.
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