Old flames never die. In the DVR realm, they can be paused, rewound, and played back.
TiVo (Nasdaq: TIVO) and DirecTV (NYSE: DTV) are rekindling their amorous ways with this morning's announcement of a high-def DVR partnership. By the second half of next year, a TiVo developed box will be marketed to DirecTV customers, making the most of the satellite television provider's broadband-enabled programming.
It's at this point of the awkward smooch where a nostalgic flashback should kick in. DirecTV was TiVo's main squeeze in the early years, accounting for most of TiVo's monthly subscribers. TiVo wasn't getting the same kind of scratch that it could make by selling its systems directly to subscribers, but DirecTV's broad reach among couch potatoes was good enough to bring millions of subs to TiVo's front porch with minimal overhead.
Things soured after DirecTV began to market its own DVR boxes, but it let older TiVo users keep their existing systems. This dynamic has led to the gradual erosion in TiVo's subscriber base, despite its own direct marketing efforts as it brokers technology licensing deals with cable providers like Cox and Comcast (Nasdaq: CMCSA).
Now that even a renegade Dish Network (Nasdaq: DISH) has to play nice, TiVo is positioning itself to be the patent-rich tollbooth operator of the DVR superhighway. After surprising the market with back-to-back profitable quarters, TiVo may be gradually evolving into a cash flow powerhouse.
It's not perfect, of course. It still has to find a way to grow its own subscriber base. It needs to keep striking the type of content deals like it has in the past for subscribers to stream clips from Google's (Nasdaq: GOOG) YouTube, play music subscriptions through RealNetworks' (Nasdaq: RNWK) Rhapsody, and shop for television-featured products through Amazon.com (Nasdaq: AMZN).
Over the past few years, TiVo has been one of the coolest stocks to trade consistently in the single digits. If the good news keeps coming, those single digit share price days may be deliciously numbered.
There's no harm in having old girlfriends call you, TiVo. Just make sure that DirecTV knows that you're a swinging single now, doing better on your own now that you can play the field.
Other "thumbs up" reads to kill time until the earnings report:
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