Et Tu TiVo?

Whether you follow the company or not, you have to admit that TiVo's (Nasdaq: TIVO  ) got a pretty cool product. A digital video recorder that can pause live TV comes in awfully handy when nature or your mother-in-law calls. But investors know better than to get too excited over the low-margin world of home-entertainment hardware.

That's why the real gravy for TiVo is its budding subscriber service. TiVo truly struts its killer-app stuff with its ability to download localized programming and then record shows you like -- and even shows it thinks you might like based on the shows you like.

So investors might forgive TiVo for posting a wider second-quarter loss last night, given that the company landed another 90,000 subscribers and plans to top the million-user mark over the holidays. That's the scalable sweet spot right there, folks. Forget the hardware, beyond the fact that it facilitates the service revenue. Just $8.1 million of the company's $26.7 million in revenue this past quarter came from hardware sales.

TiVo has learned to let others do the dirty work of getting enabled devices into homes. In addition to the Hughes (NYSE: GMH  ) DirecTV-TiVo systems that are already selling briskly thanks to a big marketing push from Hughes, Pioneer (NYSE: PIO  ) and Toshiba are rolling out DVD players with TiVo recorders. All told, holiday shoppers should have 10 different TiVo-related products to choose from later this year.

Last week, our own Lou Lofton pitted TiVo against Netflix (Nasdaq: NFLX  ) in a classic duel. Always open to the possibility of a win-win, David Gardner recommended both -- first Netflix, then TiVo -- to subscribers in Motley Fool Stock Advisor.

And for all their differences, both climb the same wall of worry toward (and, in the case of Netflix, beyond) the million-subscriber mark. Netflix is now profitable, and while TiVo expects to post another loss here in the third quarter, high-margin subscriber growth has a way of kick-starting the bottom line.

TiVo wouldn't mind following Netflix into market-darling land. When it does, it might just be tempted to hit pause and savor the moment.

Have a TiVo testimonial to share? Is it really a television-viewing revolution or are digital video recorders overrated? Will TiVo rise and kiss the single digits goodbye -- forever? All this and more -- in the TiVo discussion board. Only on Fool.com.


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