OK, you got it. Now what are you going to do with it?
Not long after kicking its old digital-video-recorder partner TiVo (Nasdaq: TIVO ) to the curb, DirecTV (Nasdaq: DTV ) has gone out and bought most of the assets of competing DVR specialist ReplayTV. It's not entirely clear what the satellite-slinger gains from this deal, though.
When the DirecTV DVR was an honest-to-goodness TiVo, nearly everyone got the best possible deal. It was the most refined hardware and software available, backed by the dish dudes and their massive resources. But DirecTV didn't agree with the value proposition, backing out of the deal after just a couple of years. Its DVR boxes now carry the DirecTV brand, and old DirecTiVo set-tops are supported until 2010. That's also when the mutual nix on patent lawsuits -- like the one TiVo is winning against EchoStar Communications (Nasdaq: DISH ) -- runs out, which would give DirecTV some additional incentive to renew the deal again.
Again, why buy ReplayTV, then? There's no looming lawsuit that would encourage DirecTV to grab a handful of DVR-related patents and licenses. Replay stopped making hardware two years ago, switching to selling video-recording software for your PC instead.
OK, so maybe the satellite guys wanted better DVR software? That would make sense if the acquired property was known for a great product -- but it wasn't. SONICblue couldn't make any money off ReplayTV, and it ultimately went bankrupt. D&M Holdings, which owns the prestigious Denon, Marantz, and Boston Acoustics brands, obviously just gave up on a four-year quest to make something out of the property. And now it's DirecTV's turn.
There's no word on how much this deal cost, but it can't be much. It seems like money down the drain, regardless of the amount. Think of it this way: If DirecTV just wanted a better service, it could have gotten the best there is, on the cheap. TiVo's enterprise value today is less than $750 million, or about 84% of the $888 million in free cash flow DirecTV generated over the last four quarters. I can't think of a better defense against the likes of Comcast (Nasdaq: CMCSA ) , Verizon (NYSE: VZ ) , and AT&T (NYSE: T ) stealing DirecTV's subscribers than providing a premium service like that.
But the company is going in a different direction, and it doesn't make any sense to this Fool.