TiVo's Patent Prospects

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By appeal2
August 14, 2007

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This past week would have been a down week for me, but for the fact I purchased a nice block of TiVo shares 10 days ago. I was watching the WSJ's video site and there was an interview with Rogers. I personally don't think much of the bloke, but this interview was enlightening. Rogers was crowing about a new deal TiVo reached with Cox and Comcast. Under this deal, subs, for an extra 3-5 bucks per month can download TiVo right on to their existing DVR. I have owned two TiVos. One when I used to have DirecTV and now that I have cable. At first I tried the Cablevision Scientific Atlanta DVR. If you have ever used a TiVo then you know that generic DVR's are garbage in comparison. TiVo has so many patents that block anyone else from using Wishlists, Season Ticket and much more. Even their fast forward and fast reverse is covered by patent.

In addition, TiVo has achieved the holy grail of computerdom. They have created an almost ideal platform for multi-media content. You can download or stream podcasts from a variety of sources. You can download Amazon movies through Unbox and you can watch your pics on Yahoo and buy movie tickets, although I don't know if that's really an important market or not. Point is that with TiVo's seamless internet integration, it is far superior to the Apple movie gizmo. And Apple is not a DVR.

TiVo's main problem is that it is a technology company trying to become a mass consumer marketer. They don't have enough resources on their own to pull this off. They put all their eggs in the DirecTV basket and Directv was out to screw them for the get go. Now DirecTV isn't owned by Murdoch anymore so who knows. An agreement was reached to allow all owners of Series 2 boxes to update to later TiVo features. This doesn't sound to me like an alliance that is going to fall off the planet soon and may be ripe for expansion.

Let's look at the litigation. They stand to get 200mm from Echostar if the appeal goes TiVo's way. In addition, Echostar will be left with 4,000,000 useless DVR's in their customer's living rooms. Someone is going to be very pissed. So if TiVo wins they will get 200mm from Echo plus they will get exclusive rights to Echo's 4mm customers currently using DVR's. If they realize just $5 bucks a month from the newly acquired customers, that's $20mm per month in incremental revenues. In addition, while they have let DirecTV off the hook, they have not let Motorola or Cisco/Scientific Atlanta off the hook to my knowledge. These two are the original infringers of the patents and could be on the hook for billions.

Cisco knows this. They can go out and buy this company for 1 billion now and basically get the company for free or as an offset against their future litigation exposure.

I'm an attorney and I know that the courts are the ultimate crapshoot we have going in the states. However, most appeals are thrown out and the original decision affirmed. There are a number of TiVo patents at issue here. If all the patents get tossed by one, TiVo wins. I highly doubt that every TiVo patent at stake is invalid. But to double my money in three months or perhaps more than double it. What are the odds TiVo is going down to nothing in the next year. My downside is quite low and my upside is very high. This makes TiVo not necessarily a no-brainer but a sound speculation.

Downside, they lose the suit and their patents are invalidated. All their new services bomb. They go out of business 24 months. However, one last fact that makes this a potential home run. Their new Series 3 HD DVR. You plug in a cable card into the box and no more cable adapter necessary. On July 1, 2007 the FCC said it's okay to own your own Cable box. Now TiVo can do away with the cable box and you have only one box on your TV. This is big or could be. Hopefully TiVo will spend their potential windfall wisely and build a billion dollar company. The company is ten years old. Their box is 7-8 years old and amazingly enough, there is still nothing that compares on the market.