We all know bad TV. Bad TV is, well, bad.
M.A.N.T.I.S.? Bad. Knight Rider? Really bad. Land of the Lost? Awesome! So good, in fact, that I'd TiVo (NASDAQ:TIVO) the show if I could. Alas, I can't; Land of the Lost is a kids' TV drama from the 1970s.
What's any of this have to do with the stock? Read that last sentence again. To the utter disgust of English teachers everywhere, Motley Fool Stock Advisor pick TiVo is still very much alive and well as a verb. We'll find out how much that's worth in 2007.
A fistful of patents
TiVo asserts that it invented the essence of the digital video recorder (DVR) and has the patents to prove it. EchoStar (NASDAQ:DISH), operator of the DISH Network satellite TV service, disagrees. The two have tussled legally for years as a result. All the while, "to TiVo" has established itself as a verb meaning "to pause and record live TV."
You'd think that would be worth something. Not so far. This Motley Fool Stock Advisor pick has failed to create a massive royalty revenue stream from rivals that the company says are copying its invention. News Corp. (NYSE:NWS) subsidiary and DVR box maker NDS (NASDAQ:NNDS) comes to mind.
The courts appeared to side with TiVo in August. But then October came, and a stay of an earlier injunction chilled any hopes of a short-term revenue boost. A federal appeals court in Washington will hear arguments in 2007.
Now, a word from TiVo's sponsors
Analysts remain skeptical of the outcome. According to Capital IQ, Street projections call for TiVo to lose $0.36 a stub on a 17% increase in sales. Not exactly growth-stock numbers.
TiVo, meanwhile, is doing everything it can to broaden distribution and make its players more of a must-have item. For example, thanks to holiday specials, you may be able to get an entry-level TiVo box free after rebate and service commitment. And a deal with Radio Shack (NYSE:RSH) has substantially improved TiVo's retail presence.
Then there's advertising. TiVo's Audience Research and Measurement (ARM) division aims to give advertisers second-by-second viewer data. Marketers are so interested in this service that three of the world's largest advertising holding companies -- Interpublic (NYSE:IPG), Omnicom (NYSE:OMC), and WPP Group (NASDAQ:WPPGY) -- are now clients. Better still, TiVo owns the patent to DVR-driven advertising.
The best show Wall Street isn't watching
While TiVo's breathtaking press announcements always sound good, the numbers never seem to add up. TiVo has just 4.4 million subscribers, 63% of whom are owned by DirecTV (NYSE:DTV), which has 15.5 million total subscribers. EchoStar, meanwhile, has 12.5 million subscribers. And there are 100 million TV-viewing households in the U.S.
As innovative as TiVo is, the company must do more -- a lot more -- to increase distribution if it hopes to become Madison Avenue's gateway to viewers. That's why I'm OK with CEO Tom Rogers deciding to give away some TiVo boxes.
But it's the patents that matter most. My math says that TiVo's time-shifting patent, if it withstands the scrutiny of the appeals court process, is probably worth $422 million. Add in patents for DVR advertising, mixing the Web with TV signals, and close to 100 more innovations in its intellectual property portfolio, and TiVo's asset value could reach into the billions.
Foolish final thoughts
Or not. TiVo, like any good network pilot, is a speculative bet. Investors hoping for payoff are now at the mercy of an appeals court in Washington, D.C. I imagine that's an uncomfortable feeling for more than a few who are still holding shares.
The good news is that TiVo has a rabid fan base of very loyal customers. Forthcoming innovations designed to make it easier to select, sort, and view programming will only help. Meanwhile, TiVo has done the unthinkable by cuddling up with Madison Avenue, and the relationship appears to be getting cozier by the day.
Tune your portfolio in to TiVo? That's a tough call. So far, returns are lacking. But with courtroom drama, thrilling PR, and a steamy uptown-meets-downtown coupling, this stock story remains a ratings powerhouse. Expect the plot to thicken in 2007.
Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.
TiVo is one of the rare losers for David and Tom Gardner in Motley Fool Stock Advisor. Dozens of other winners have allowed the brothers to crush the market by 38% as a result. Get a close-up look at the portfolio with a 30-day free pass.
Fool contributor Tim Beyers, ranked 1,254 out of 17,847 in Motley Fool CAPS, still pines for a real TiVo. Why not just settle, EchoStar? Tim owns shares of Interpublic. Get the skinny on all of Tim's stock holdings by checking his Fool profile. The Motley Fool's disclosure policy lives in prime time.
