Digital video recording pioneer and Motley Fool Stock Advisor recommendation TiVo (NASDAQ:TIVO) might have an answer for cheap DVR competition: Give the DVR away, and charge for the TiVo service.

Hey, don't laugh. I like this approach. In fact, I think TiVo really understands what's most valuable about its products. It's the software, not the hardware, that captures customers and keeps them locked into the service.

Reuters is reporting that fairly soon, CEO Tom Rogers will test free new boxes in exchange for higher-priced and longer-term plans -- while also not ruling out the possibility of testing zero-cost upfront plans, too. To clarify, TiVo's free offer is not the one on its web site now, which promises a free "factory-renewed" DVR for customers who agree to spend $155.40 for one year of TiVo service.

To my observation, TiVo has two assets. First, there are 4 million customers and a low churn rate (the percentage of customers who do not renew their subscriptions) that has historically been at 1% or less. Second is the software. Besides building a large intellectual property portfolio of its own, TiVo purchased six DVR patents from IBM (NYSE:IBM) a year ago.

Included in the IBM patents is one that integrates TV signals and the Internet. Don't be surprised if the company that allows you to bypass commercials might in some way enable customers to enhance and broaden their media experience via the Web, and perhaps expand advertisers' access to its members in the process.

TiVo has plenty of detractors. In The Motley Fool's recent Winter Olympics-inspired investment competition, TiVo won the gold medal in the biggest disappointment competition, beating out such underachievers as Blockbuster and TASER. In a recent duel, fellow contributor Rich Smith highlighted the company's inability to turn a profit since going public and its 14%-per-annum growth in outstanding shares.

But Comcast (NASDAQ:CMCSA) will be offering its 21 million customers TiVo service through a partnership later this year, although it is unclear how much money each subscriber will add to TiVo's coffers. TiVo certainly needs the customers, since its partnership with DirecTV (NYSE:DTV), its biggest source of subscribers today, will expire in 2007.

TiVo has two fronts open that could finally get enough of its software into America's homes to let the company turn a profit. The Comcast deal prospectively brings a large customer base to the table, while the possibility of free hardware bundled with long-term upfront subscription sales might help build market share at a faster pace.

I like what TiVo is doing, especially with its patent portfolio. Its debt-free balance sheet, with $90.5 million in cash, gives it enough financial flexibility to determine its own destiny, without financing, for at least the next year. The stock trades at about $5.56 a share; it's a speculative investment right now, but it's starting to look interesting.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.