Investors Turn On TiVo

I noticed with curiosity that TiVo (Nasdaq: TIVO) shares were down about 7% earlier today, and wondered what on earth had happened. When I dug further, it seems the drop in the price was predicated on word that DirecTV (NYSE: DTV) will stop marketing the TiVo product by October. For TiVo investors, it may be sad, but it's certainly not shocking, as this has been a dark cloud hanging over TiVo for quite some time, and it had already been disclosed that DirecTV would offer another box this year.

When it comes to Motley Fool Stock Advisor pick TiVo, there have been many periodic bouts of dismay on the part of investors ever since DirecTV pulled up stakes and said it was branching out on its own in terms of a DVR offering for its large subscriber base, provided by NDS (Nasdaq: NNDS). (News Corp. (NYSE: NWS) owns major stakes in both DirecTV and NDS.)

TiVo's arrangement with DirecTV doesn't end until 2007, but it seems investors really thought they could see the writing on the wall today despite the fact that this inevitability wasn't any secret. (Hints that this might be imminent went around the Internet over recent days, as people noticed that DirecTV seemed to be trying to clear its TiVo inventory.)

Anybody who's familiar with TiVo knows that DirecTV provides three-quarters of TiVo's subscribers. However, there is still comfort in the fact that TiVo does have the agreement with cable behemoth Comcast (Nasdaq: CMCSA) that was inked in the spring. That deal not only holds potential for a heck of a lot of new TiVo devotees, but it also sheds optimism on the idea that TiVo can woo other companies that provide television content.

Furthermore, there are some changes taking place in the industry, such as the battle for television viewers brewing between cable providers and telecom providers. Who's to say that the growing avenues for getting television content won't help buoy TiVo's boat?

Don't get me wrong, though: TiVo remains very speculative during these times. Despite its many innovations, including its big plans to improve and enhance its advertising platform and therefore provide another channel of revenue, its biggest issue remains big-time rivalries from other DVR providers and the fact that its moat turned out to be ankle-deep with not even nearly enough crocodiles.

Regardless, today's reaction to the inevitable seems like overkill to me. It also shows that TiVo's tendency toward volatility as it tries to fast-forward its way through trying times makes it a stock for investors with nerves of steel right now.

For more on TiVo, please see the following Foolish content:

• Read about how TiVo is betting on ads.
• TiVo recently got a new head honcho.
• We recently did a recap of events at TiVo.

TiVo is one of the few Motley Fool Stock Advisor picks that is not outperforming the Standard & Poor's 500. To find out more about the service, please click here.

Alyce Lomax does not own shares of any of the companies mentioned.