My wife and I hate live TV. We're impatient, and I'll bet you're no different. TiVo (Nasdaq: TIVO ) spoiled you, didn't it? You're not alone, Fool; there are more than four million of you. But that's only one reason to like this speculative stock.
Better pitches on the way
My wife zaps commercials like those weird blue lightning lamps zap flies. As she explains it, "I've no time for commercials. I'm too busy." That's exactly right. I've seen her flip back and forth between her O, The Oprah Magazine, and The Colbert Report as we lie in bed. (Bears? You're on notice.)
But TV commercials aren't going the way of the dodo. They account for far too big a business on Madison Avenue: $148 billion in 2005 alone, according to researcher ZenithOptimedia. Right now, those dollars are being largely wasted.
The Google model pays
That won't last. Instead, the power brokers will come up with a better way to pitch their goods to you. Google (Nasdaq: GOOG ) provides that approach for the Web, and it's become a multibillion-dollar business as a result. TiVo can do the same for TV. In fact, its advertising platform is expected to be a part of new boxes that will be made available through Comcast (Nasdaq: CMCSA ) when it replacesDirecTV (NYSE: DTV ) as TiVo's primary distribution partner -- outside retail, of course.
Even more interestingly, advertisers are more likely than ever to blend TV and the Web for their pitches. Show of hands: How many of you visited GoDaddy.com after seeing its Super Bowl commercial? Thank you. The spectacular inefficiency of stand-alone TV advertising makes the Web a necessary component.
That means you'll soon have Madison Avenue beating a path to TiVo's door, if it isn't already. Why, you ask? One word: patents. TiVo has them, the knock-offs don't. Sure, NDS (Nasdaq: NNDS ) makes a decent box. Can it blend the Web and TV? Not without TiVo's permission. TiVo bought the rights to a patent for mixing TV signals and Internet access from IBM last summer. That's not all: TiVo has more than 70 patents granted, and at least 100 still pending.
All of which means that, if advertisers want to deliver more targeted ads over the tube, and blend those ads with Web content, TiVo holds the keys to the kingdom.
Bah humbug to box-makers
Sure, there's competition, but in the long term, it isn't from the other box makers. The real fight is to combine the Web and TV in a single, well-built player capable of delivering highly targeted, relevant ads. That's TiVo. Right now.
Creating an interactive TV-recording box isn't easy. Otherwise, Apple would have rolled one out during last month's Macworld, as many had speculated. (It didn't.)
Interfaces aren't easy to create, either. But here, too, TiVo has an advantage. It's called HME, a Java programming environment for bringing software to the TiVo device. You know, the kind of software that might allow the Web and TV to coexist on one screen? HME debuted with the broadband-connected TiVo Series 2, and it's since proven popular among users.
Couldn't Apple, Cisco, Microsoft, or even Google do the same? Of course they could. But development, testing, licensing agreements, and the like all take time. Cash is cheaper, and they all have billions of it. In fact, any of them could spend $1 billion for TiVo right now -- a double from here -- and not break a sweat. With $148 billion (and counting) at stake, such an outcome seems very likely to me.
The Foolish bottom line
That's why I'm not surprised David Gardner has kept TiVo in his portfolio for Motley Fool Stock Advisor. The thesis is still intact, and it's worth noting that David has been right much more than he's been wrong. His picks are clobbering the market by more than 25% as of this writing. (If that sounds good, you can be our guest at Stock Advisor for 30 days.)
True, TiVo's popularity hasn't translated into profits. And, yes, the stock is still speculative by any measure. But TiVo today is like, well, a good TV show that has yet to make the network lineup. That makes now a very good time to tune in.
Fool contributorTim Beyerspines for a real TiVo daily. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.