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April 05, 2007

Buy (a) TiVo

Today’s recommendations: buy a TiVo DVR and buy TiVo stock.  Although I intend to follow both recommendations, I’m much more comfortable with the first one than the second.  I’m much better at picking technical devices than picking stocks or figuring out the right time to buy or sell them.

TiVo has now been made very much Internet-aware according to an article by David Pogue in this morning’s New York Times.  It can play Internet video content on your big screen as easily as it plays the stuff that comes in over cable.  It can show the videos and stills and play the music you have on your networked computers.  It can be instructed what to record remotely through Verizon cellphones ($2/month) or over the Internet (no charge).  You can send home videos and slides to the “now playing” lists of TiVo-equipped friends and listen to Internet radio.  David says it can everything the much-hyped Apple TV can do “and it’s already hooked up to your TV”.  David’s even got a nice video up that dramatizes all this good stuff.

TiVo will, says I, play a huge role in the migration away from channels and traditional networks. As content owners increasingly bypass traditional middlemen – networks – to deliver their content to owners, we consumers’ll be spared the pain of a paradigm shift because we’ll already be watching most of what we watch from TiVo and we won’t care how it got there. Moreover, TiVo helps reduce the need for massive bandwidth into every house by providing an inhome buffer which can be filled whether we’re watching or not and supply us with content when we’re ready to consume it.

TiVo is the Macintosh of DVRs.  We’ve used the high end DVRs rented by Comcast, Dish Network, and DirecTV.  None of them come close to the first TiVo we bought in 2000.  Its version1.0 user interface still leaves the current UI of its competitors looking like DOS.  Moreover, the other DVRs just don’t work right much of the time. 

For example the Comcast DVR thought that, if you start to watch a show you’ve been recording and the show is still being recorded, the right place to start is wherever the show is in real time. I had to fast reverse with my eyes averted from the screen to avoid seeing the third quarter score before I started to watch from the opening kickoff.

The Dish DVR unpredictably stops recording events before they’ve finished – great for watching close games if you like being kept in suspense.

None of these are nearly as helpful in finding shows that you like as TiVo was.

How come everybody doesn’t have TiVos then? Price and marketing.  TiVo and the DVRs provided by cable and telcos both cost about $10/month to use. But you have to buy the TiVo initially paying $100 to $800 depending on features. And, although TiVo invented and perfected the DVR category, they haven’t marketed in a way that makes their huge differentiation clear. This may be a matter of cash (they don’t have that much) or fear of antagonizing the satellite companies with whom they’ve sometimes had distribution deals.  Trust me, though, if you can afford it, you do want to buy a TiVo.

Now about the stock: there are plenty of reasons why you should NOT buy it. The company is not profitable and doesn’t seem to have any immediate prospects for getting that way;  cash flow is decidedly negative and there isn’t a whole lot of cash (but not debt either); insider trading since at least November has consisted entirely of sales.  Although TiVo is clearly the better mouse trap, that’s been true for a while and still hasn’t done the company much good.

I’m buying it because I think the Internet capability will be the enabler for a switch from network TV to Internet TV. The competing boxes delivered “free” by the cable and satellite networks won’t be good at getting content from the Internet because this capability creates direct competition for these networks. Apple could compete; Microsoft could compete; but neither of them have really shown much of an inclination to take on vested interests for years (to be fair, Apple’s sent mixed signals – timid with iPhone, bolder in pushing for unlocked music for iTunes). So I think TiVo gets to alone where much stronger potential competitors fear to tread.

Word about these Internet capabilities is more likely to spread virally than most marketing messages (still not an excuse for weak marketing). The result could be that TiVo gets a huge market for licensing its technology to box makers, a strategy it can execute without much capital. Moreover, some of these Internet features can create network effect making it much harder for a competitor to get established even if the technology is not patent-protected or can be duplicated. I haven’t looked at TiVo’s patent portfolio at all. I’m assuming but don’t know that it has at least enough defensive value to prevent the kind of squeeze Verizon’s been able to put on Vonage.

Maybe I’m just buying the TiVo stock because I like the product and HOPE that it’ll speed the transition off of network TV. If so, even less reason for you to follow my lead in this.

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