Get TiVo for Free

I have a two-step secret for getting TiVo (Nasdaq: TIVO  ) without paying a monthly fee:

  • Step 1: Move to Australia.
  • Step 2: Get a TiVo.

Reports out of Australia this morning claim that TiVo will be offering its namesake digital video recorder without monthly subscription fees in that country. TiVo is teaming up with Aussie media giant Seven Media Group to roll out the service over the summer, with TiVo getting by on licensing revenue instead of its usual monthly membership fees.

It's a bold move -- and perhaps a necessary one in a competitive market where TiVo isn't the first mover -- but would that strategy ever fly closer to home?

The stateside model typically involves having TiVo subsidize part of the hardware purchase, then make up the difference in monthly subscriber fees, which can be as high as $12.95 a month. You can see the same model in practice everywhere from cell phones to satellite radio. Providers take a hit on the razor, because they will more than make up for it by selling the blades.

Still, TiVo's move in Australia has me wondering whether we'll ever see that particular pricing strategy closer to home.

It doesn't seem possible, at least at first. Even with its meaty subscription revenue, TiVo has posted losses in nearly every quarter. Why go free when even rival boxes from cable and satellite television providers also carry monthly fees?

However, TiVo's subscriber growth has been stagnant lately, with the number of TiVo-owned subscribers coming in at a mere 1.745 million in its most recent quarter. The company is scoring licensing wins and courtroom coups, but it would be great to see consumers rally around the namesake boxes.

TiVo doesn't have to make up the subscription fee on each member, if it should scrap the monthly dues. As its user base grows, the company's fixed costs get divided over a wider audience, while TiVo partners and advertisers will pay more to reach the larger audience.

There are hurdles, of course. An ad-supported TiVo would alienate partners such as Comcast (Nasdaq: CMCSA  ) , which licenses TiVo technology. TiVo would be in a pickle over what to do with subscribers who paid up for lifetime subscriptions, too. And there's also the risk that consumers won't buy the boxes at a profitable markup.

Either way, it will be interesting to see how this plays out in Australia. I can't imagine satellite-radio providers XM (Nasdaq: XMSR  ) and Sirius (Nasdaq: SIRI  ) , DVD-buffet specialist Netflix (Nasdaq: NFLX  ) , or music-subscription services such as Napster (Nasdaq: NAPS  ) ever going this route. They have much harder models to monetize beyond the monthly fees. Then again, if even Time Warner's (NYSE: TWX  ) AOL -- a company that charges more than any of these monthly services -- can justify shuttering the tollbooths, maybe the freebie models are just getting started.

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Longtime Fool contributor Rick Munarriz loves his TiVo, and he owns shares in TiVo and Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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