Fool.com: TiVo Takes Off [News] June 14, 2000

TiVo Takes Off

By Dave Marino-Nachison (TMF Braden)
June 14, 2000

Shares of digital television recording products and services company TiVo (Nasdaq: TIVO) were this morning's hot item, the stock quickly racing ahead more than 50% on news that online services and media giant America Online (NYSE: AOL) will invest as much as $200 million in the company, also acquiring warrants to purchase even more.

With the official press release containing little in the way of financial details, there's no way to know exactly how much of TiVo AOL actually gets -- nor can we determine how much they paid for it. As such, it's hard to say much about the degree of this morning's pop in share price beyond "Yup." Well, fine -- Fools shouldn't be too concerned about that anyway.

The companies inked a three-year pact in which TiVo will offer AOLTV subscribers access to its "Personal TV" service, a subscription product used through proprietary recorders plugged in between a television and a cable box, satellite receiver, or antenna/coaxial cable. Users can pause live or recorded programs for up to 30 minutes, also rewinding or generating replays; mark favorites for future recording; search a digital program guide; watch recorded shows in any order; and a number of other gewgaws. VCRs can also be attached for archival use.

The companies will also develop AOLTV-branded set-top boxes, for which TiVo will become the exclusive provider of interactive TV features. The device is targeted for delivery early next year. This deal is essentially an expansion of a collaboration agreement announced in August. AOLTV, as noted in an interview with Fool analyst Jeff Fischer in May, was expected to begin hitting the market this summer.

TiVo isn't alone in the interactive TV space: Microsoft (Nasdaq: MSFT), RCA, and DirecTV yesterday said they would create a new set-top box and WebTV service with many TiVo-like features. Sony (NYSE: SNE) has a cut-priced recorder box that uses the TiVo service, and TiVo-like company ReplayTV is nearing an IPO following a goodly cash infusion in March.

The service looks solid, but it's not necessarily a slam dunk. Some cable companies are moving toward "video-on-demand," advancing pay-per-view to the next level by leaving the scheduling to the customer. That technology could complement interactive TV, or get into a scrap with it. There's also some worry coming from broadcasters -- many which invested in one "Smart TV" venture or another -- that increased control over what's being watched might make it too easy to skip through advertisements.

And though the comparison of the advertising-focused television with Web content models is an easy one to make, there is -- for the time being -- a very clear divergence: Internet content is consumed purely on the user's terms, while television has historically been doled out by network and cable schedulers. With the advent of any of the aforementioned systems, that will almost certainly change and it will be up to the broadcasters to adapt.

RomeTV won't be built in a day, though, and it is hardly a hopeless case for the good people who bring you "Ally McBeal." The features and interfaces will provide new ways to get to customers that perhaps include banner ads that can be clicked upon, data collection, sponsorships, and more. CNET's Jim Davis took a look at the matter in an August story.

Investors considering TiVo might also want to keep a close eye on proprietary TV viewing and programming technologies developer Gemstar International (Nasdaq: GMST), which is looking to close on its purchase of TV Guide Inc. (Nasdaq: TVGIA). The companies are still awaiting antitrust clearance, but the deal would create a powerhouse in the electronic program guide space. Those two agreed to merge, ending years of patent litigation.

Gemstar developed VCR Plus, which allows users to record-by-number by entering a program-specific code into special recorders. Chairman and CEO Henry Yuen said in late May that though he hasn't offered to buy TiVo -- another company it's in court with for allegedly equipping its recorders with interactive program listings without permission -- it's something he's considering as his company looks to invest in interactive television companies after the TV Guide deal closes.

TV Guide owns a small TiVo stake, which would be Gemstar's following the merger.

Related Links:

  • TiVo website
  • TiVo discussion board
  • Q&A on AOL, TMF Analyst Interview, 5/18/00
  • America Online, Motley Fool Research
  • Gemstar or Deathstar?, Fool News, 10/4/99
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