TIVOLUTION TAKEDOWN By CHRISTOPHER BYRON
March 10, 2003 --
I have a question: What's the big deal with Tivo? All up and down Sixth Avenue, the executives of the American media seem to believe Tivo Inc. is going to do to advertiser-supported broadcast television what America is apparently all set to do to Saddam Hussein - that is, flip out his lights.
Well frankly, folks, my doubts about the threat this Alviso, Calif., outfit is said to represent to the broadcast television industry were only reinforced last week when the company released its latest quarterly numbers. Put bluntly, they stank.
Wall Street sent the stock - down already by more than 90 percent since the peak of the dot-com bubble - tumbling another 15 percent, to a week-end closing price of barely $5.50 per share.
We'll turn in a minute to a close-up look at what the numbers show - that the so-called "Tivo service" just doesn't have the consumer appeal the company had hoped (or that broadcasters had feared). But before getting into the details, first a thought or two regarding what this Tivo company actually is, and what it supposedly does. And that's just it: I frankly don't know.
THE first time I heard the name Tivo, it was from some network person wailing right out loud on TV that if Tivo were to catch on, no advertiser would ever again pay a dime to place a commercial on his network, or on anyone else's.
But wasn't this a little extreme? Tivo's big selling point is supposedly that it lets you cut out all the commercials from your favorite shows. But can't you do the same thing with a VCR already?
So what if VCRs are hard to program. A Krups coffeemaker is hard to program, too, but if you want a cup of coffee badly enough, you'll figure out how to get the job done.
I soon came to see that Tivo has other problems as well. Like, what's with that name? Does Tivo say "VCR for Dummies" to you?
Well, to me it says, Billy Blanks, King of Cool. That's because one day I flipped on the tube and up came this fabulous-looking man, Billy Blanks - all ripped with sweating muscles in a spandex tank top, punching the air in time to some rock music, on a stage in front of 300 gorgeous, adoring women who were doing the same right back at him.
"Tae-bo!" cried the voiceover, "It's the craze that's sweeping America!" - or words to that effect. I thought, "Wait a minute. You mean I can flex my pecs in front of a ballroom full of blondes like that guy, and destroy all of broadcast television at the same time? A two-fer? This is great!"
Eventually, of course, I realized that Tae-bo and Tivo are not the same thing. But when I went to the Tivo Web site to get the lowdown on what this product really is, I saw soon enough why I was confused: Even Tivo doesn't seem to know what it is.
From the Web site, I came away with this: With Tivo, you can, I think, somehow watch a TV show before it's on. Or rearrange things so that the end comes at the beginning. Or watch only the commercials - or only the shows - or edit out all the boring parts. In fact, as I understand it, you may even choose to go for the gold and program an entire lifetime of viewing pleasure for yourself, featuring nothing but hour after hour of King Tae-Bo getting loose.
The Web site also made clear that getting Tivo up and running is not what you'd call a mere lock-and-load type operation. Click that "Order Now" button and you may be embarking on a land war in Asia.
For starters, Tivo violates that infallible rule of consumer marketing known as Byron's Law ("If you have to reach behind the TV to hook the thing up, the product's a loser"). And when it comes to hooking up Tivo, the phone company has to get involved - and you may even need to move your TV into a different room or run black cabling all over the house.
And Tivo ain't cheap. The basic, plain-vanilla Tivo set-top box costs $249.95. The better one costs a hundred dollars more. And they're useless unless you sign up for the Tivo "service," which costs another $12.95 per month. In addition, you may need a "wireless telephone jack," which will set you back another $69.95. And if it turns out that you need some "right and left RCA composite cabling," well, too bad - because the stuff is on back-order, and none of what you've bought may work with it.
So let's now turn to Tivo's latest quarterly numbers, because they suggest pretty clearly that in a slowing economy, when money is once again tight, there just aren't enough people around who are willing to spend close to $500 in the first year for the thrill of bringing home a bunch of boxes that test the marriage and wind up going back the next weekend anyway.
As a result: After piling up more than half a billion dollars in losses in a five-year effort to sell a monthly subscription service based on enabling TV viewers to pause, rewind and play back live or recorded television broadcasts, the company's financials are beginning to buckle under the strain.
To grow this or any business, you have to promote it. But the company is saving its cash by slashing marketing outlays. And that, in turn, helps explain why revenues look to have peaked in the October quarter at just a hair under $25 million, and have actually declined by 8 percent during the three months since then.
In a way, the cutbacks are understandable. After all, there's not much point in spending millions on marketing if the business looks like a loser - even if you don't count such costs and focus instead only on what is known as "gross profits" (revenues before the deduction of administrative, promotional and similar costs).
Even on this ultra low-bar basis, Tivo doesn't hold out much promise. In the October 2002 quarter, the company racked up a 16 percent gross profit margin, and in the latest quarter the margin fell to barely 9 percent.
What's the future? In its press release last week, Tivo said it has enough cash and whatnot on hand to keep going for at least a year, trotting out an improvement in something it calls "adjusted EBITDA" to support the happy news.
But EBITDA (earnings before interest, taxes, depreciation and amortization) is an accounting gimmick cooked up by Wall Street to get investors to ignore the balance-sheet debts of enormously leveraged media companies like AOL Time Warner. The concept - which even the accounting profession itself has dissed - is doubly meaningless when it comes to a company like Tivo, which has almost no debt at all.
THE real measure of this company's staying power is its cash flow from operations. But with less than $44 million of cash left on the balance sheet, and a burn rate that ran at $35 million in the nine months through October, the only way that cash is going to last more than a year is if overhead, including marketing, is slashed even more. Rather than a company maneuvering to grow, Tivo now seems to be struggling simply to survive.
Not so long ago, companies like Tivo were Wall Street's spandex stocks, promising all of America a night to remember. And at 90 times revenues for a ticket on the red-eye to paradise, who among us dared think about the morning after? Not many, I'll say.
But the Hotel Dot-com has been shut down now, and most of the era's digital darlings have either changed their names and found new pursuits, or they've simply gone out of business.
Only a few still remain, gamely working the streets in their frayed high-tech finery, conjuring little beyond memories of mistakes that can't be undone. How many among us still get turned on when the voice of an EBITDA press release whispers from the doorway, "Psst, sailor! Only $6 per share - wanna go upstairs?"
As for me, I think I'll stay home and flip on a night of Tae-bo.
* Please send e-mail to:
cbyron@nypost.com
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