TiVo's So Cool, It's Cold

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Never judge an earnings release by its headline.

"TiVo reports record profitability for the third quarter," reads last night's TiVo (Nasdaq: TIVO) header. Unfortunately, the company won't be able to squeeze EchoStar (Nasdaq: SATS) for $105 million in lawsuit proceeds every quarter.

Back out the fruits of that three-year legal battle, and the company's "record profitability" would have been a loss of $0.01 a share. Previously, TiVo had wowed investors with honest-to-goodness back-to-back profitable quarters. Service and technology revenue also took a hit, falling 11% to $51.7 million. Meanwhile, Wall Street expected TiVo to post a loss of $0.06 a share, with just $50.7 million on top.

TiVo can't seem to get out of reverse here. It's looking at a steeper net loss during the current quarter, on service and technology revenue weakness compared with the third quarter. Analysts were already braced for that bigger loss, but they were banking on revenue improving quarter to quarter.

What's eating TiVo? Since the DVR pioneer isn't slashing its monthly subscription rates, it must be losing users, right? Bingo. The company closed out the quarter with 3.46 million subscribers, less than the 3.623 million TiVoholics it boasted when the period began, and well shy of its 4.067 million accounts a year ago.

A reasonable number of defections are expected, especially since many of those year-ago users came from DirecTV (NYSE: DTV). The satellite television giant is now promoting an in-house DVR alternative. However, even the number of users that subscribe directly to TiVo is shrinking, from 1.712 million to 1.658 million over the past year.

That's TiVo's real problem. If it can't keep its "TiVo-owned" subscribers, how can it expect to blossom?

The company is doing everything it can to make its box an indispensable home theater appliance, scoring all kinds of recent cool technology deals:

• Netflix (Nasdaq: NFLX) subscribers will be able to stream flicks through TiVo boxes.
• Morgans Hotel Group (Nasdaq: MHGC) is accessorizing all of the rooms at its next new tony hotel with high-def TiVo DVRs.
• Broadcasting giants like Comcast (Nasdaq: CMCSA) and DirecTV are broadening their TiVo-licensed efforts.

Unfortunately, all of those cool points still find more people canceling their TiVo subscriptions. Until that changes, all the sunny headlines in the world won't make TiVo's larger turnaround a reality.

More tales of the TiVo-lution:

• TiVo emerged victorious last month against EchoStar, but there are still loose ends to tie up.
• TiVo Nails the Last Mile
• The Best Company I've Ever Seen