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MARCH 14, 2005
TiVo: Going, Going...Pause The market thinks it's on the block, but the company has other plans The hardest job in headhunting might be filling the CEO job at TiVo Inc. (TIVO ) The struggling Silicon Valley icon is looking for a new chief executive as the current boss, Michael Ramsay, is slated to move into the chairman post this June. But the market seems to be betting that the innovative company -- the pioneer in digital video recorders that pause and record live programming and skip commercials -- will be sold before then. The logic? TiVo's market cap is only $336 million. Take away the $150 million of cash on hand, and the company's valued at less than $200 million. TiVo's sagging stock has jumped 16% since Feb. 14 on hopes that a media or electronics power -- Sony (SNE ), Time Warner (TWX ), even Apple (AAPL ) -- will buy the money-losing TiVo for its brand and software smarts. Expectations aside, there are plenty of reasons TiVo isn't likely to hook up with a suitor anytime soon. Fact is, for all of its passionate followers and its legendary ease of use, TiVo does not fit neatly into the business plans of industry giants. And it threatens to undermine revenues and upset relationships with Hollywood. The upshot: For most of the would-be suitors, marrying TiVo would mean rethinking their business. Consider TiVo's latest scheme, announced in January. By early next year, the company plans to update software on its boxes so that subscribers can use the Web to download and store movies. TiVo also plans to provide digital links to other partners, such as Netflix Inc. (NFLX ), the DVD-rental-by-mail pioneer. If Comcast Corp. (CMCSA ) or DirecTV Group Inc. operated this service, it would likely compete with their pay-for-view and premium channels like HBO. And they would face pins-and-needles negotiations with Hollywood before implementing a TiVo system that lets customers download shows to notebook PCs and portable video players. Instead, DirecTV, Comcast, Time Warner and others have chosen less costly hardware from TiVo competitors such as Motorola (MOT ), Scientific-Atlanta (SFA ), and News Corp.'s (NWS ) NDS Group (NNDS ). These products are tailored more to the demands of cable and satellite providers, and less to the end-users. How so? They offer premium options, such as downloading out-of-town sports or outtakes from American Idol but prevent users from surfing the Internet for programming. It's a pared-down service, but their customers, unlike TiVo's, don't have to buy a box. Sony and Apple also have reasons to keep their distance. Both companies already have strong brands and are more likely to develop their own DVR technology, say analysts. One company that could use TiVo's brand is Korean TV and set-top-box maker Humax Co. In a bid to boost its own brand in the U.S., Humax partnered last year with TiVo to roll out DVD recorders that include TiVo software. This year, Humax plans to market a 26-inch LCD TV and new portable devices loaded with the TiVo software. Buying TiVo could give Humax ties to upscale buyers. But for now, a Humax spokesman says, the company is not interested. HANG ON FOR THE RIDE For their part, TiVo execs and board members maintain that the company has a viable future -- and is not courting suitors. In January, TiVo hired Silicon Valley's Howard Fischer Associates International to find a new CEO to run TiVo's multimedia plan and sell the company's vision to Wall Street. The new exec will be hardpressed to keep TiVo's share of the DVR market at between 20% and 30% as the digital recorder set-top-box biz grows from 11 million units last year to a projected 45.5 million units by 2009 projected 45.5 million units by 2009. "The good news is the category is growing like crazy," says TiVo board member Geoffrey Y. Yang, a founding investor in TiVo. "[But] it's very difficult to maintain share when you're the industry leader." The next CEO stands to inherit lots of red ink. After spending $50 million last year to lure new subscribers with rebates and ads, TiVo is expected on Mar. 10 to report losses for the year of $85 million on revenue of $107.2 million. That's nearly three times the bleeding of a year earlier. Analyst Daniel Ernst of Hudson Square Research Inc. expects TiVo to inch into the black this year, with earnings of $1.5 million on sales of $362.4 million. If TiVo's Net strategy takes off, the company still has a chance as a stand-alone player. That's a sobering thought for the TV giants and studios. In fact, given the disruptive potential of TiVo, maybe one of the titans will spend a few hundred million to buy it after all -- if only to kill it.  By Cliff Edwards in San Mateo, Calif.
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