





Tivo made a name for itself with a set-top box that performed magic: at the touch of a remote you could pause the present, slip into the past or leap over ads into the future. Now, the future of the company which defined the DVR is likely to depend on dumping the magic box altogether.

The eleven-year-old DVR company was so universally loved on its entrance into the marketplace that it got to date a character from "Sex and the City."

And yet Tivo’s stock has been languishing at or below $6 for months, it has only a 10 percent share of the DVR market and its market cap ($619 million) is so low that any one of our nation’s beloved moguls could buy the company for some loose pocket change.

Tivo, a company known for innovation and user satisfaction, has yet to prove its dominance in the marketplace. Under Tivo’s new CEO Tom Rogers, the company has been hard at work coming up with advertising solutions, partnering with cable companies and bringing new features and content options to subscribers.

Still, only 3.6 million of the nation’s 36.2 million DVR users in the United States are willing to fork over $300 for three years of Tivo service.

Why? Because the Tivo box is dying.

Until recently, Tivo was spending over $300 per user on subscriber acquisition (through hardware discounts, sales and marketing, retail rebates and incentives) — barely breaking even when new customers purchased a Tivo box.

"That’s one of the reason why the standalone business has so many flaws,” says Mark Harding, an analyst at Maxim Group. ”Adding another device to the entertainment hub is not what people want to do.”

But the small penetration of Tivo boxes in American households is surprising compared to the high levels of customer satisfaction that Tivo routinely receives. Ten years ago, Tivo was seen as a game changer: it empowered viewers, who swooned over the ability to pause and fast-forward through commercials, and stoked fears among network executives about delivering eyeballs to advertisers.

But TiVo has repeatedly failed to gain traction in the marketplace even though it has been hard at work creating innovative ad solutions and coming up with ways to help advertisers and networks recoup ad dollars. Tivo sells advertising units that play when users fast-forward through commercial breaks and pause video content.

But not many television users have seen these things, and there’s the rub.

"Advertisers aren’t buying it because it isn’t at scale," said one executive in the TV advertising space. "That’s not interesting. Come back when you can do it at scale.”

The way to change that, of course, is through strategic partnerships, which has been a focus at Tivo of late. This year, they announced that Tivo subscribers would have access to content from YouTube, Amazon’s Unbox, Rhapsody and Jaman. Thursday they announced that subscribers would have access to the Netflix streaming media library of 12,000 movies and TV shows.

“We want to bring our Tivo-friendly menu — everything we’re known for in making television available – to content that hasn’t been available on the TV for consumers” says Tara Maitra, Vice President of Content Services at Tivo.

But Tivo still has a long way to go if it wants to entice subscribers to pay for content that can often be found online. Daniel Taylor, an analyst at Yankee Group, says that the "TV-Killer" may find itself facing irrelevance long before television networks have to face up to the problem:

“DVR and video on demand are struggling for relevance today. The challenge that Tivo faces — the challenge that any device-based service faces — is how they’re going to address user behavior. For every one person who plans ahead to tape shows they’ll miss, there are nine other that want to go online now that they’ve missed it.”

But that’s why Tivo is moving away from pushing stand alone boxes and towards offering TiVo content as an additional option to cable subscribers.

“I look at this way,” says Maitra. “Is Tivo continuing to offer the best experience for consuming TV? Are we continuing to find the best ways of giving you all the content you want to watch at your fingertips? If so, then I think we’re doing OK.”

With movies on demand from Amazon and Netflix, Tivo has already increased its reach and hopes to continue offering content from online sources like YouTube to bring the content users want to television screens.

According to Harding, the future of Tivo exists in licensing agreements with the cable companies: "It’s easier to sell consumers on an upgrade to the Tivo interface on an existing cable company provided DVR. It’s also a lot more profitable."

If Tivo can keep providing the goods that users want to see, its signature box may go away, but the brand has a strong chance of survival.