TiVo Punches Another Ticket on the Way to $15

TiVo (Nasdaq: TIVO  ) has spent a lot of time in American courtrooms, but this legal tourist is getting ready to shred its passport.

The firm just settled its differences with mega-telecom Verizon (NYSE: VZ  ) . TiVo gets about $100 million to gloss over the damages of Verizon's FiOS service infringing on TiVo's DVR patents, plus another $150 or more in license and service fees over the next six years. The payout gets even larger if Verizon hits certain subscriber count targets along the way.

Furthermore, TiVo is working on ways to inject its digital media know-how into the online media service Verizon is about to launch in cahoots with Coinstar (Nasdaq: CSTR  ) division Redbox. This explains why Netflix (Nasdaq: NFLX  ) shares fell 2.5% on Monday -- TiVo is just about the only sheriff in the digital Wild West that Netflix might fear. At this stage in the online video game, it's all about building a high-quality service that consumers can't resist. TiVo and Netflix have poured unmatched resources into solving that puzzle over the last decade or so.

TiVo has crushed the opposition in every patent suit so far, and there's only one big case left on the docket. The company is still fighting Time Warner Cable (NYSE: TWC  ) by proxy, suing the cable firm's two major set-top-box makers. These cases are scheduled for trial over the next two years. For the record, Verizon would have gone to trial on Oct. 1 if not for this timely settlement.

I recently valued TiVo at $15 per share, based on these legal shenanigans and a high-margin business model being built around technology licenses and software. The stock still has a ways to go before hitting that target, but the roadblocks are falling away one by one. My bullish CAPScall and real-world position both look poised for big gains in the next two years.

The only digital media company more worthy of your investment dollar today is probably Netflix. The Fool's top analysts have even created a premium report on the company, paired with a full year of fresh analysis. Click here to claim your investment edge right now, and thank me later.

Fool contributor Anders Bylund owns shares of Netflix and TiVo, and has also created a bull call spread atop his Netflix shares. He holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix and Coinstar. Motley Fool newsletter services have also recommended creating a bear put ladder position in Netflix. The Motley Fool has a disclosure policy.

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  • Report this Comment On September 25, 2012, at 1:34 PM, mattdavidian wrote:

    Considering what is known about Redbox Instant ("Coinstar CEO Hints At Anti-Netflix Content Strategy For Redbox-Verizon Streaming Service" on FastCompany.com's website) it doesn't sound like Redbox Instant is going to be the NetFlix killer that it's been made out to be by some. In terms of content selection, they are going to compete more with HBO Go than with NetFlix. In fact, a new article out today ("Redbox wants to start streaming before Santa comes" on gigaom.com) likens Redbox Instant more to Amazon's Instant Video than NetFlix.

    I doubt that a vague statement ("We also look forward to working together on a variety of future opportunities as we continue to expand the content choices available to TiVo subscribers.") in the settlement announcement is solely responsible for NetFlix's 2.5% drop on Monday.

    Tivo is a great platform, but it is just one of many many devices that you can use to access NetFlix content. Amazon (also supported by Tivo) likely has more to fear from Tivo possibly adding Redbox Instant support than NetFlix.

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