Lifetime Profitable for TiVo

The Business of TiVo

Various Postings on the Subject of TiVo's Business Performance

Although their track record isn't encouraging, I'd like to wait and see how TiVo reacts pricing in the next month before I pronounce judgement. There are already signs of S3s being available for substantially less than $800 (ie. TCS for $680

) I don't reject the $800 initial price, but I would reject keeping it in that area 'til T-Day.

I want to see how they couple November's price reductions, advertising, and software release to be more effective.

I do think that price reductions will make big differences in volume. $599 will be meaningful. $499 a good increment above that. At $300 (box fee, ie. about $369) I think the SAC about equals the S2 SAC. At $369 adoption will be impressive by TiVo's standards (assuming the S3's bugs/irritations are worked out.)

One reason I say the above, is that the S3 really does provide impressive quality video, especially in its recording and scaling SD analog content. Its a very nice addition to a quality A/V system.

Personally, I've been sold on keeping it for $680 via TCS.

(October 23, 2006)

The table below shows the marketing efficiency achieved by TiVo in recent quarters. The conclusion is that TiVo has had to step up their SAC spending substantially for any given level of sales. It looks like Rogers' strategy has coincided with the deterioration.

The Q3 and Q4 2007 estimates assume significant improvement in efficiency. If that does not pan out, SAC could be exceed $270 for FY07. I am defining effieciency as the difference between Gross Adds and SAC, in percentages.

FY07 Gross Adds SAC Total SAC T-SAC yoy SAC yoy GA yoy T-SAC eff SAC eff

Q1 91 232 21112 35.3% 54.7% -12.5% -47.8% -67.2%

Q2 74 320 23680 42.4% 48.1% -3.9% -46.3% -52.0%

Q3 90 400 36000 27.0% 29.9% -2.2% -29.2% -32.0%

Q4 240 180 43200 24.5% 14.6% 8.6% -15.9% -6.1%

495 123992 FY07 SAC est 250.4889

FY06

Q1 104 150 15600 18.9% -6.3% 26.8% 7.9% 33.1%

Q2 77 216 16632 -0.4% 0.9% -1.3% -0.9% -2.2%

Q3 92 308 28336 -13.4% 12.0% -22.7% -9.3% -34.7%

Q4 221 157 34697 -10.2% 12.1% -19.9% -9.7% -32.1%

FY05

Q1 82 160 13120 0.0% 0.0%

Q2 78 214 16692 0.0% 0.0%

Q3 119 275 32725 0.0% 0.0%

Q4 276 140 38640 0.0% 0.0%

What about TiVo management's comments that the subs acquired under the new pricing plans have a higher net present value than those under the traditional plan despite the higher SAC?

TiVo's management has absolutely no idea what the NPV of the bundles is going to be. Its all a guess based on assumptions. Those assumptions, like most of what TiVo has done with their business, are unlikely to work out as favorably as TiVo "hopes." Its all a convenient spin for 12-18 months which will be followed by some new story. This is a scenario that has been repeated time and time again.

What about TiVo's claim that the new plans are an easier sell (as shown by the increase in online sales relative to retail), and an overall improvement?

I don't agree that there is net improvement. Change in channel mix has resulted in weakening retail sales to a greater extent than the improvement in direct sales. It is definitely possible to put together a marketing strategy with the numbers I advocate. Best Buy and Circuit City are not joining the bundle plan because they know what they are doing. It is TiVo that doesn't, and to listen to them is to go awry.

All planning goes awry in the real world. How can you say TiVo's planning for the S3 launch was poor? No battle plan ever survives contact with the enemy.

As far as the planning, there is typical imperfection and there is gross imperfection. TiVo consistenly leans toward the later. No battle plan of TiVo's has ever survived the enemy.

If TiVo ever has a good QTR, I will write it up as such. If they have two, I'll start to change my perspective. If TiVo ever announces a good strategy, I'll write it up that way and change my assumptions. I was high on the marketing concept last year, I only became negative when the actual plan was revealed to be seriously flawed.

(October 21, 2006)

Does TiVo face any serious competition for dual tuner CC SA HD-DVRs in the next two years, or can TiVo just cherry pick the market until it releases a reduced cost Series3?

The competition against dual-tuner CC HD SA DVRs is fierce. Two years from now is a Lifetime. But I don't accept that TiVo will take 2 yrs to reduce prices to competitive levels anyway. I think TiVo will push sales with lower prices much sooner, but I think their sales goals (and/or results) will remain ridiculously low.

Won't selling the Series3 for $800 reduce SAC?

$800 will push SAC down, but the influence of the S3 will be small. I expect about 90K Gross Adds this QTR, with 10% or less being S3s. With the poor performance of TiVo $tore, I expect large expenses related to returns, etal. Many direct sales at $800 will otherwise be shifted to retail @ around $500; big difference.

You talk about escalating SAC, where do your figures come from? What allowance to you make for increased ARPU on the bundle sales?

Q1 & Q2 SAC are up $80 & $100 over last year (with the $100 being a full QTR of the current maketing strategy.) We are looking easily at $60-100 more than the $308 of 3Q06. No reason not to figure $40-60 more than 4Q06's $157.

That leaves us with FY07 SAC over $250 vs $191 and $182 in '06, '05.

It also means $100 more than an alternative strategy of getting SAC below $150 with higher sub adds for the sake of a short-term couple extra dollars per month from new Subs. The $100 is a big and risky investment and, together with lower Gross Adds, reduces the opportunites for other revenues (ie. Ads, TiVoCast)

(SAC is an average; it averages SAC from various sales channels. Ultimately we don't have the data to calculate the higher SACs vs marginal ARPUs for each channel.)

Hasn't some marketing already started, and won't it to ramp up significantly through the Holiday Season?

That's the right timeline for advertising based on TiVo's comments, and I'll take them as given for now. If they really go big, they'll drive up SAC more than S3 sales help; if they don't, Gross Adds will suffer and hurt SAC.

Whatever they do, they've maneuvered themselves into a strategy with much higher SAC, and I don't think the hoped for higher ARPU will compensate in the long run.

What do the Series3 shortages suggest about TiVo meeting their sales plan?

The evidence suggests extremely poor fulfilment and other planning by TiVo. There never was an actual global shortage. There are more retail locations than S3s to be sold this QTR, therefore it should be expected to often find individual locations without product. At no time was it not possible to get a Series3 shipped out from somewhere (and at favorable cost) within a day. There was alot of double ordering in the first days. There has been plentiful availability for at least two weeks.

The tragedy is that TiVo will meet their sales goals.

Former TiVo CEO sells shares:

HOT OFF THE WIRE PORTFOLIO NEWS - from Quote.com

(NASDAQ:TIVO) TiVo Inc.

Tivo Inc. Director Michael Ramsay Sold 20,000 Shares at $6.7 on

- Oct 17, 2006 05:20 PM (RTTNews)

(RTTNews) - Tivo Inc. Director Michael Ramsay Sold 20,000 Shares at $6.7 on 10/16

Does TiVo Charge NYS Sales Tax So The CEO Can Commute? (10-02-2006)

After ordering an S3, I got a confirm page with no sales tax indicated. Four days later I get the order confirm email with NYS sales tax added. Let's put aside that the billing address is NYS not the shipping address.

We "all" know the CEO lives in NY and keeps an office there supposedly so he can work his NY advertising deals.

So is TiVo charging NYS Sales Tax just to satisfy the CEO's predilections?

On TiVo's Web site there is a job posting for an Advertising sales manager. Last I heard all they had was the CEO and a secretary; I'm not surprised they are trying to increase their presence.

Is TiVo Store FUBAR?

HDTiVo Blog: The New Marketing Plan is Not Working (09-03-2006)

TiVo's quarterly results announced last week illustrate the poor performance of their 'new marketing plan' (NMP).

Gross Subscriber Additions came in at 4% less than the same quarter last year. NMP was in full effect well before the quarter started and had been in development for at least 6 months prior. Marketing expenses were comparable to last year. The quarter benefitted from the availability of a long awaited unit with dual tuners and more speed.

Most damning of all for NMP, the same quarter last year TiVo purposely attempted to not sell many boxes. Let me restate this because it is important: MNP could not beat a period when TiVo tried not to sell boxes, despite having a long awaited new product on its side.

All this comes as no surprise. I explained why NMP would not work when it was first announced. What is more surprising is that TiVo is still trying to figure NMP out (although I also said TiVo really hadn't back then.) On their conference call, Rogers admits TiVo is still adjusting the offerings to learn about what will work. This comes over 10 months after initial development and over 5 months after introduction of NMP. TiVo still appears to have months of 'tweaking' ahead.

TiVo can do all the 'tweaking' it wants; what it is going to come back to is that the pricing isn't correct and the purchasing mechanics are flawed.

What has TiVo learned so far? According to them, they've figured out that if they lower 3yr Service by $100, many more folks pick it (50%?) and total sales increase somewhat!! (I am not sure of the exact meaning or interpretation of the statements made.) Well, there's nothing about that that a Freshman in Economics, Business or Marketing wouldn't know without even having to try it.

With NMP TiVo broke something that was already broken. They didn't fix much, if anything. TiVo is just finding out that they have priced the bundles much too high. They likely have yet to understand that there are problems with the terms which also constrict sales.

TiVo's strategy with NMP is to increase ARPU more than SAC (ie. NPV of a Sub) and also increase Sub adds. The second part - Sub adds - is not working, and the first part is in much doubt. TiVo claims that NPV is up under NMP; but that is likely based on assumptions not backed up by actual experience, which I doubt are correct. Simply put, my view is that SAC appears to be increasing by over $100 (long term avg.) and ARPU is not likely to compensate. One of the great risks I see going forward is the disposable nature of the box under some NMP offerings.

NMP was supposed to fix the Sub add problem and build the the Service business. TiVo did not have a problem making money with the old offerings, they had a problem not garnering enough Subs to pay for the entire enterprise. Even if TiVo is right that NPV will increase, the decline in Sub adds will hurt more since there will be less overall Service Margin to pay the other bills.

Finally, while TiVo says online sales (now under NMP) have increased relative to retail, with the overall decline in business all that means is NMP is the lesser of the evils. Indeed, NMP itself may be the cause of some of the damage to retail sales.

===================

I have over the years seen times when retailers were "better" friends than today, when demos were hooked up to TVs and running, when TiVo had a much more visible presence on the floor, etc.

Quote:

Originally Posted by jfh3

As long as there is no incentive for Best Buy or Radio Shack or others to do so, retail sales won't change much.

I am not sure why there isn't an incentive. What is TiVo doing wrong on terms with the retailers that they don't have a financial incentive to push TiVoes?

I could understand retailers feeling sales are so low that there is no value in trying (and/or that product offerings just aren't exciting enough to try again.)

I could also understand that retailers might be unhappy with TiVo over NMP, and not interested in helping current non-NMP retail sales as well as not interested in adopting NMP. Retailing is a complex and difficult business; these retailers are not dummies; they probably see NMP for the bad idea that it is, and realize TiVo hasn't gotten the program adjusted yet even as it is designed.

It might have been better for Rogers to have had some retailing background along the line.

==============================

Did anybody mention lifetime on the conference call?
Yes. An analyst wanted to know where TiVo would get its cash without Lifetime sales.

TiVo said the tweaking of the 3 yr pre-pay price was helping in that respect. By contrast, TiVo expressed great confidence in their cash position on the last conference call.

Edit: Oh, and I guess they are getting it from floating more stock.

Edit: Oh, and I guess they are getting it from Lifetime S3 transfers.

=============================================

Chucky: I am away from may 'data' all this week, but I checked out these things:

Old CEO was in place for Q1 Earnings release late May '05; Rogers didn't start until well into Q2 then, meaning Q2 reflected Old CEO (I do not speak the name) strategy. I even have a vague memory of you saying Q3 was affected by prior strategy. Do you remember?

S&M increase 10% YOY for Q2, a few % even taking out option effect.

Rebates, etal, increased about 66% YOY. Even allowing for channel fills this year, I'd like to see some real data showing that line was effectively below last year's.

Remember this comment from Rogers:

Quote:

Originally Posted by ChuckyBox

Interesting.

He said they got "3, 4, 5 times" the conversion rate with the $16.95/month, no upfront cost offer than they get with the traditional $12.95/month, buy the box offer. That's a pretty significant finding. And it sounds like that offer is coming to a retailer near you very soon.

(The "conversion rate" is the percentage of people who call up with an interest in TiVo who actually end up signing up.)

If Roger's etal knew what they were talking about back then, why didn't NMP boost business significantly over last year without any extra effort?

Perhaps not a complete direct answer to you, but something to chew on.

-------------

Agreeing with what you said about factors in S&M and Rebates, there's no clear sign that the overall effort was much less (and the absolute numbers are higher).

For online, I don't remember more signs of marketing online previously relative to recently, so that seems like its in the push range too. They did have some deals this summer. And don't forget canabalisation from retail and pissing off retail partners. Just because the online mix increases doesn't mean its good overall. Retailers have obviously not joined NMP in its early forms as originally hoped.

I get what you say about conversion rate, but don't forget the advantage of the DTs this year.

Sure NMP will start doing better when they start advertising - god I hope so! How much more do they have to push up SAC?

Sure NMP will do better as they tweak the prices - towards what I said they needed to be originally. Rogers alluded to NMP in the 8/24/05 earnings release. I hope he didn't get out of bed that morning and first think about it. It took them probably 8-9 months to go from idea to launch, and its another 5.5 months into operation. That's rediculous.

I think we can both say OMP was junk. Whether NMP has been a little better or worse, its still pretty much been junk. And that deserves the label 'Not Working.'

==================================================

I forgot about the selling more boxes...

Does selling more boxes really mean more to the end user or just more to the channel?

Does selling more boxes and less Gross Adds mean more 30 day trial cancellations or something else like funky timing between sales and registration?

What will be TiVo's Excuse This Time? (07-25-2006)

Will TiVo finally use the old bad weather and high gasoline prices excuse when they come out with their 2Q subscriber results?

1. Yeah, they'll pull the gasoline/ bad weather line.

2. No, they'll come up with some other new excuse.

3. No, they'll say they are still working hard towards work on getting the marketing and product line in shape.

4. No imagination, just same excuses as last time.

5. No excuse necessary. TiVo will have a decent result.

6. No, stupid, TiVo's marketing is going to kick butt and they'll report way more gross and net subs than last year.

Quote:

Originally Posted by Dan203

I think their biggest problem was the number of DirecTV subscribers jumping ship was much bigger then any growth they could have hoped to see in the standalone market. I think once the Comcast and Cox deals kick in we'll start seeing an upward trend in subscriber growth again.

Dan

This is a problem, especially short term, because the DTVs are now leaving well before Cables are arriving. I think it is also pretty up in the air whether Comcast/Cox will just replace DTV or exceed it or fall short in the years to come.

But this has been a known problem for a long time and I don't think the -29K number was out of line with reasonable guesses.

The Cox signing has increased my hope for TWC and/or CableVision.

For now, the dollars are not that huge.

=============================

I think a much bigger issue going forward is what is going to happen to Churn now that the first of the one year commitments are going to come due (what's the exact date?)

How will the existence of the S2DT and the S3 effect Churn in the face of expiring commitments? What about the increasingly rapid move to HD in general?

========================================

HiDefGator:

Well said.

For one thing, TiVo needs more financial resources to put toward R&D. They can't possibly fend off others at this rate.

Its not even about getting to profit under the status quo.

Megazone:

Better off means little. If you are starving to death and find a Cherrio you are better off. TiVo is a little better off, but the big costs associated with SA Subs are nearly zero with DTV Subs, so the difference is not that great. Ad revenue is probably a wash between DTV and SA. That leaves DOD (if ever) as an SA advantage.

More revenue is nice, but enough more revenue is really nice.

I think 4 years is a reasonable number for the vast majority of DTVs to leave. Anyway the deal only goes about 5 years, if I remember.

TW passes TiVo in Subs? (02-01-2006)

In their earnings release today, Time Warner reported 1.5 million DVR subs. It is unlikely that TiVo will report that many SA subs when numbers come out for its 1/31 ending quarter. TW Subs rose 219,000 in the quarter, far higher than TiVo's will.

This puts TW by itself ahead of TiVo and pulling away.

Quote:

Originally Posted by TWX Press Release

Digital Video Recorder subscribers rose 219,000 during
the quarter (the largest quarterly increase ever) and 621,000 for the
full year to 1.5 million subscribers, serving 27% of digital video
customers

--------------------------

02-01-2006

While TiVo isn't giving guidance on Sub adds, they are still giving guidance on revenues and expressing a sense of subscription trends in their statements; that information is consistent with sub add behavior over the last two quarters. Both ways of looking at it point to close to 100,000, half what would be needed to equal TW. Remeber also the TW number is 12/31 and TiVo's will be 1/31.

Maybe if TiVo launches a new marketing model - which they have said for some time they will do - sub adds will accelerate. They claim their tests have shown that will be the result.

---------------------------

Quote:

Originally Posted by TW Press Release

Digital video subscribers grew 199,000 in the quarter (the
largest fourth-quarter increase since 2002) and 595,000 in the full
year for a total of 5.4 million, representing 49% of basic video cable
subscribers. Digital Video Recorder subscribers rose 219,000 during
the quarter (the largest quarterly increase ever) and 621,000 for the
full year to 1.5 million subscribers, serving 27% of digital video
customers.

TW is the only cable company I see breaking out the DVR number from the Digital sub(or HD sub) numbers.

Looking at this again, I see a very interesting fact: DVR subs increased more than total Digital subs for the year and QTR. That's a very good sign for the DVR business; so many existing Digital customers are upgrading to DVR that DVR subs are outpacing new Digital subs, (ie. marginal penetration of DVR in Digital cable is over 100%!)

Quote:

Originally Posted by Comcast PR

During the year, Comcast Cable deployed 1.5 million advanced set-top boxes with DVR and/or HDTV programming capability. At December 31, 2005, 25.2% of digital customers have one or more advanced set-top boxes compared to 13.1% at the end of 2004.
...
In addition, Comcast had more than 2.7 million advanced set-top boxes with DVR and/or HDTV programming capability in digital customers' homes, driving growth in video revenue per subscriber.
...
... 1.1 million or 13.1% increase in the number of digital customers, the highest rate of digital subscriber additions in 3 years. Comcast Cable ended the year with 9.8 million digital cable subscribers and digital cable penetration reached 45.6% of basic subscribers.

Comcast reported 1.5M new HD boxes for the year (incl. DVRs). (I assume an "advanced" STB is an HD box DVR or not). It appears that advanced STBs are far outpacing new Digital subs, meaning lots of people are upgrading.

TW seems a little ahead in digital penetration vs. Comcast, but if Comcast is close to TW's success, it could have 2M DVRs out there, having added about 1M in the year.

The DVR business is doing very well, people are showing strong willingness to both adopt and upgrade to it. By the end of this year, when TiVo has its Comcast box available, there might be well over 3M potential upgrades from DVR - plus millions more Digital and analog subs who could upgrade directly to Comcast/TiVo.

----------------------------

Quote:

Originally Posted by TiVoOpsMgr

I guess you're talking only about standalone subscribers. But that's hardly the same thing as them "passing us in subs" as your headline reads.

Totally right. The headline doesn't always tell the whole story.

Big Surprise!

I started the thread when I was stuned by the realization that a cable company had already come so far, in that its measure of subs vs TiVo's long term future measure of subs had been surpassed. I still had a TiVo is #1 mindset, which in one way of looking at it was becoming untrue. Also, I realized TW is just one cable company while TiVo is sold throughout the US.

The thread has evolved for my purposes into thinking about how robust the DVR market is, and further into those implications for TiVo with its cable software strategy. You may have noted when I broke down the Comcast numbers some time ago that I remarked how much opportunity there could be (3M units) just with Comcast by year end. I also mentioned direct upgrades to TiVo (SAs) which was a nod toward the S3 primarily.

I too want to ask you about how you, or TiVo, think I ought to weigh/value the remaining DirectTV units in light of the end of that revenue stream being in sight - at least as per the last public info on the subject. I am sure you will not be able to answer until the Earnings Release on the 8th, but maybe after?

Thanks.

----------------------------

Quote:

Originally Posted by HDTiVo

Maybe if TiVo launches a new marketing model - which they have said for some time they will do - sub adds will accelerate. They claim their tests have shown that will be the result.

Well, TiVo did launch the marketing model, and it was nothing like I expected.

The result, the likes of TW added 212K DVRs in Q1; TW and Comcast showed no "seasonality" and only growth in DVRs; meanwhile TiVo showed seasonality and continued lower YOY growth, adding only 51K SA units.

Moreover, while the TiVo Q1 included some time with the new marketing model, nothing was said to indicate it is having a positive effect on sales. Indeed the tone was abysmal regarding results and post quarter activity. TiVo could not even say they'd match last year's Q2 net ads of 40K.

Remember Q206? That was when TiVo decided 'not to even try to sell units' and 'turn a profit.' New marketing plan & new DTs in 2Q07 and TiVo can't even match a quarter when they 'purposely didn't sell units?'

It seems the DVR market is on fire everywhere except at TiVo.

The DT will do very little to boost sales. While TiVo priced it correctly relative to the ST ($30 premium) it still is vastly overpriced and hurt by the misguided marketing plan. Furthermore, the DT lacks features sufficient to excite new buyers or a replacement cycle such as MPEG4 playback, Component (480i +) and/or HDMI (upscale) output, digital audio in/out, etc.

Maybe when there are some analog cable co. distributions there will be a significant number of SA units added - but they will be no more sufficient to pull TiVo out of the financial muck than millions of DTiVo units have.

In the meantime, TiVo's weak subscriber growth threaten its two promising business lines - advertising and DOD. Advertisers are in an experimental phase, looking for ways to get at a changing viewer style, but they won't stick around with TiVo for long with so few viewers to reach. The same small numbers means TiVo lacks clout in DOD; TiVo will not be considered a worthwhile platform to purpose content to by a significant enough content creator base.

If TiVo were ramping subs with a proper marketing plan, advertisers and DOD would back TiVo longer and that in turn would drive sub growth further - particularly through availability of desireable DOD content.

TiVo has a financial presentation on 6/13; that should be plenty of time to come up with some definitive statements about recent marketing results - including the effect on sales of the DT.

-------------

TiVo's Fate: What's in the Cards?

------------------

HDTiVo Blog
7/21/2006

The last couple of days I've been thinking its time to start talking about 2Q07 results. I guess it took hold because last night I dreamed of reading an annoucement that they did something like 347,000 net ads roughly 50-50 between DTV and SA. The dream ended with me shouting 'Wow! Nice job and way to go TiVo.'

Now those are Q4 kinds of numbers from a somewhat bygone era. Chances are TiVo will lose DTV subs and they've guided to below last year's SA net ads (ie. <40,000); remember that 2Q06 was when TiVo tried to sell less boxes and turn a profit.

http://www.tivocommunity.com/tivo-v...9&&#post3680499

Quote:

Originally Posted by ChuckyBox

I think the TiVo HD box for the next couple of years will be the Series 3. The next iteration of the Series 2 is much more likely to be a dual-tuner version of the current box (probably with a faster processor and a bit more memory, and maybe with built-in ethernet). Such a box would fit in much better with TiVo's focus on the analog cable market than the box you describe, and would be very versatile.

TiVo ultimately came out with a box like this and not the sort envisioned in that thread. They also implemented a (disappointing) new marketing plan; launched KidZone, Product Watch and TiVoCast; and won a big patent judgement. I won't bother readers now with a review of my comments regarding marketing and KidZone, etal.

The DT and KidZone, at least, were suggested to lead to analog cable deployment deals. IP strength was expected by many to enhance those negotiations. But there are no deployments in sight. Management's last comments (1Q07 Conf. Call) were as weak as you can get on the impact IP is having on the negotiations, and didn't provide any confidence that they were getting anywhere in general.

With a recent sale on 3yr contracts ($100 off) and no further comments, frankly there is no information lately to encourage optimism about SA ads.

So I continue sitting here in a funk over the prospects for TiVo even with all the new initiatives, and maybe tomorrow night I'll dream about an announcement of the next CEO.

---------------------------

08-02-2006

Time Warner's DVR related cable sub numbers for Q2:

Quote:

Basic video cable subscribers increased 18,000 during the quarter
- the fourth straight quarter of growth and the largest second-quarter
gain since 2002. Digital video subscribers rose 171,000 over the
previous quarter for a total of 5.8 million, also marking the largest
second-quarter increase since 2002. Digital penetration of basic video
cable subscribers reached nearly 53% at the end of the quarter.
Digital Video Recorder subscribers climbed 157,000 to end the quarter at 1.9 million subscribers, representing 32% of digital video
customers.

-----------------

Quote:

Originally Posted by rorion

It looks like the argument that the cable DVR costs more because you need digital cable is getting pretty weak. 53% have it so far, and it's growing at a much faster rate than analog. And a substantial portion of those who stick to analog basic cable are probably doing so largely for cost reasons so many of them are probably not in the market for a subscription-based DVR of any kind.

Yes, when I did a comparison about six months ago, TWC was in the lead on Digital Cable penetration, but Comcast was right up there. Another striking thing about Cable DVR is the enormous (marginal) penetration of DVR per Digital Sub; at one point for TWC it was over 100% (!), and even this QTR it was over 90%.

And, yes, the analog cable market is not going to be a big one for DVR - especially TiVoes at the prices today. But that's just an obvious statement of reality. The analog market initiative is no brighter than any other TiVo has undertaken. However, in terms of TiVo's very small size, a properly structured marketing initiative might have yielded results significant to TiVo.

-------------------------

TiVo's old Pricing was Profitable (03-09-2006)

Quote:

Originally Posted by TiVoOpsMgr

We're no longer a scrappy startup, but we're still scrappy and we have to be a profitable company. Some of the same people criticizing us here in this thread for removing Product Lifetime also ding us in other threads for not being profitable. As Tom said in today's conference call, the new pricing goes a long way to making TiVo a more healthy and successful company.

TiVo's Financials
I know TiVo's financials very well. TiVo makes money on subscribers at the old pricing levels, including the $299 Lifetime w/$69 for an 80hr box. Indeed on past earnings calls, when TiVo's all-in costs were higher, the Net Present Value of a subscriber was described as quite positive. So TiVo can't tell me, or the others in this Forum that TiVo needed one more dime per subscriber to make a profit.

TiVo's Profits per Subscriber
On a twelve month basis, in FY05 it cost $2.99/mo to service a subscriber. That number FELL to $2.25/mo per sub in FY06. That's right, what it costs TiVo to provide service to a customer FELL $.74/mo this past year vs. last year. An 80hr with Lifetime for $368 up front cost maybe $160 for the box - TiVo's average cost of hardware sales per gross sub addition - plus $2.25/mo for service and falling. At a constant $2.25, TiVo still makes money up to 92+ months out on a subscriber/box. That doesn't count the fact TiVo had the $368 from day one and paid the $2.25/mo over 92 months.

TiVo's Break-even Subscriber Level for FY06
In fact, TiVo made enough money per subscriber under the existing price regime, that if it had had an average of less than 450,000 more SA subs in FY06, the entire company would have broken even. And that includes monies spent on the patent litigation. TiVo's ARPU was $8.83/mo in FY06. Subtracting the $2.25/mo in service cost, the marginal profit per additional sub was $6.56/mo. Dividing this into a 12 month loss of $34.4M means with under 450,000 additional SA subs, The entire TiVo company is break-even. TiVo would have been break-even for FY06 if it had averaged 1.71M instead of 1.27M subs.

TiVo's problem is not its pricing, its problem is its number of subscribers is insufficient to pay for the whole company's costs.

$999 for Lifetime?

Quote:

Originally Posted by TiVoOpsMgr

Really? Even if it was, say, hypothetically, $999? Our testing for the new price (not $999, but I can't tell you what it would have to be to be profitable) showed that it was not at all popular.

What drugs are y'all on over there?

Under the new plan if I bought a box for 36 months for $469 and then bought a box 3 years later for $469, I'd be up to $938. It would take 5 more months at $12.95 to get to just over $999.

Now that doesn't take into account that TiVo would not get $999 day one, but $469 would come in 36 months later and the other $65 would come in months 73-77. AND TiVo would be out the cost of TWO boxes instead of one AND really I'd buy a 3rd new $469 box in month 73 anyway, so by the time TiVo collected $999 it would be out the hardware cost of three boxes. By the time TiVo recovered the cost of the TWO EXTRA boxes (in total dollars over time - not up front,) TiVo will be out to something like month 95-100.

So TiVo is saying it would rather get $1400 in three installments (years 0,3,6 - provided they keep the customer) for three boxes for 9 years of service, than get $999 all upfront for one box that lasts on average 6-7 years - and with the changes in technology will in all likelihood not be in use after 6 years, even if it does still work. Take away the $300+ cost of the extra two boxes and you're down to a speculative $1100 vs $999 over 9 years even if the lifetime box survives that long! By the way, TiVo's accounting takes a 4 year life on its boxes.

Evangelizing TiVo's New Pricing

Quote:

Originally Posted by TiVoOpsMgr

The most popular option, and one that you will see marketing around, is a free 80-hour box for only $16.95 per month with a three-year commitment. They tell you they don't want a monthly fee? You reply with the fact that they can get a box and a year of service for just $224.

You don't have to go through EVERY option for every pitch you make to your friends.

As far as the new pricing regime and evangelizing it, I cannot in good conscience tell prospective new TiVo customers that a TiVo is as good a deal as it was. I can't tell people who don't want to pay a monthly fee that they can get a box with no monthly fee for $224 when I know after 12 months they're going to pay a monthly fee. I can't tell people who want to pay monthly that $16.95/mo is as good a deal as $12.95/mo was - even if they are getting the higher capacity box for $69 less than before. I can't say an extra $48 per year is worth saving $69 up front.

I was very supportive of the business models of both all upfront and all monthly pricing, but the prices TiVo has picked exceed my ability to endorse. Furthermore, TiVo has not adopted an all upfront model - marketing speak aside.

In conclusion, I cannot support the new pricing initiative as TiVo has constructed it. I was very enthusiastic in advance of the idea, and would have been a strong advocate going forward under different circumstances.

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