Theory of TiVo-lution

Are we not Zen? We are TiVo! The Interactive TV leader is getting leaner in order to avoid the need to panhandle later this year. Toiling away in an exciting, yet highly unproven, niche is a demanding task. TiVo's fan base is growing and its partner list is impressive. But Wall Street appears only interested in immediate results and TiVo is still mired in deficit reruns. The market just doesn't have the patience to wait for the film at 11.

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By Rick Aristotle Munarriz (TMF Edible)
April 6, 2001

Gotta love that TiVo (Nasdaq: TIVO). As the leading maker of digital television recorders, TiVo users are able to do everything from pause live television to scroll back to something they might have missed the first time around. Subscribers also have "Thumbs Up" and "Thumbs Down" buttons where you can opine on what you're watching so TiVo can ferret out similar shows that you might like.

Unfortunately, you can't pause corporate reality. Layoffs are the programming of choice lately, and last night TiVo said 25% of its work force will be receiving the "Thumbs Down" rating and shown the door.

The company is actually performing well by several measures. TiVo was able to hit its target for subscriber growth in the April quarter just two months into the current period and new fiscal year. With losses mounting and the stock market hesitant to subsidize additional funding, however, the company is rolling out measures to reduce expenses and avoid the need for further financing in FY 2002.

TiVo is not alone in the lively underbelly of interactive television. Personal, interactive TV is moving from the turf of early adopters and into the mainstream as TiVo and ReplayTV remain fast climbers in the home video appliance arena. More engaging experiences are also being doled out by companies like OpenTV (Nasdaq: OPTV) and ACTV (Nasdaq: IATV). Probably the most ambitious project is AOL Time Warner's (NYSE: AOL) AOLTV, with which TiVo itself is a partner.

But is a generation of couch potato slackers who refuse to learn how to rid themselves of the blinking "12:00 am" on their VCRs ready for a more immersive viewing experience? Despite Microsoft's (Nasdaq: MSFT) might, WebTV has been a marginal failure. Now the company is working to develop Ultimate TV, which was heavily advertised during the NCAA basketball tournament.

TiVo has only generated revenue of $4.7 million over the past year, but its subscriber base of 154,000 is growing rapidly. Beyond the layoffs, the company wants to shave expenses by 35% through initiatives like leveraged marketing and a higher-margin platform design.

It sounds feasible, but then again just one of the half-dozen analysts covering the company is rating the company higher than a "hold." With just a solitary Wall Street finger on the "Thumbs Up" button, either the rarely critical -- but well-connected -- analyst community knows TiVo's chances to succeed are slim or this is a good, against-the-grain opportunity in the making.

Either way, hook up your TiVo and watch how this plays out. You won't want to miss a thing.    

Rick Aristotle Munarriz has owned a TiVo for a few months now. He finally got around to plugging it in earlier this month. He does not own TiVo stock -- or any of the related companies cited in this story. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.