TiVo Goes Direct Again

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I know; you love your TiVo (Nasdaq: TIVO). And it loves you, too. After all, what other device do you know that tries to learn what you like and then get it for you, as TiVo does by recording television shows similar to those you already watch? The snuggly little digital video recorder wants to be your pal so that you can't imagine life without it. More than 3 million people have taken the bait. Now comes the switch.

Like a significant other who swears to love you for who you are only to try to change you the minute the relationship gets serious, TiVo, once an enabler of commercial-free TV, is doing everything it can to sell ad space. Indeed, this morning, the company announced an extension of an advertising services deal with satellite broadcaster DirecTV (NYSE: DTV). The agreement calls for each company to sell and distribute TiVo's advanced advertising capabilities on DirecTV digital video recorders featuring TiVo service. Both companies will retain revenue generated from such sales.

Most interesting to me is that TiVo only just recently began testing pop-up ads that appear while surfing through other commercials. We don't yet know the results of the tests. But who cares? Subscribers will have to deal with ads. Ask yourself: Would new partner Comcast (Nasdaq: CMCSA) want to have anything less than the same terms as satellite rival DirecTV? TiVo needs distribution partners. Distribution partners need ads to broadcast content. Therefore, TiVo needs to be able to carry ads to win distribution partners. It's just that simple -- and complicated.

The right question for TiVo now isn't whether ads are coming or when they'll arrive. Nope. The correct question is how. How will TiVo bring ads to its loyal but bound-to-be-disappointed subscribers? One theory I've propagated suggests the firm will ape the Google (Nasdaq: GOOG) model of targeted search by creating ads built around targeted channel surfing. That could still be, or something similar could emerge. But whatever it is, the footprint had better be small. The come-ons can't be of the bright lights Vegas variety, either. Continuity with the programming will be key.

In the end, TiVo is a software and marketing company, not a box provider. Though the evolution has been slow, TiVo, like Bambi, is now wobbling about on all fours. Advertising is the sustenance it needs to grow and thrive. Yet the form it comes in could bring it life or kill it. Now how's that for reality TV?

For related Foolishness:

• The Comcast deal made for one heck of a TiVo party.
• Wouldn't it be nice if management had just a little more confidence?
• TiVo wants to open up to you.

TiVo is one of David Gardner's many picks for Motley Fool Stock Advisor . Curious about which other companies have made the cut? Subscribe today with the benefit of a six-month money-back guarantee.

Fool contributor Tim Beyers is annoyed enough by ads in movie theaters. But on TiVo? Yeesh. What's your take? Share your thoughts with other Fools at the TiVo discussion board. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.