Shares of TiVo soared 8% yesterday after the DVR pioneer reached a settlement with Google's Motorola Mobility unit, but the stock's getting slammed this morning after the amount that it will be receiving will be far less than what was originally projected.
Janney Montgomery Scott analyst Tony Wible was quoted by Bloomberg as suggesting that six years of damages by Motorola's DVRs would add up to $939 million in the settlement, but this morning TiVo is clarifying that it's actually just an initial sum of $490 million from all of the three parties named in the patent infringement case that was supposed to start next week.
That's still a lot of money, but Google isn't the only company that has been forced to cut TiVo a big check. Various premium TV providers have either lost or settled with the company that invented the DVR. TiVo has won $1.6 billion in total judgments over the years, and that doesn't include future royalties.
TiVo's enterprise value opened just shy of $1 billion this morning. Why doesn't Google just pay an acceptable premium above that and snap up all of TiVo?
Google has the money. It's likely going to pay TiVo. Why do that when it could have snapped up TiVo, collect fat royalty checks from others in the entertainment industry, and pave the way for wider acceptance of its fledgling Google TV platform and possibly give Android devices a leg up in home entertainment?
An argument against a purchase is that TiVo's losing money. Its flagship business -- providing DVRs and services directly to consumers through TiVo-branded boxes -- has fallen to just a million subscribers, and only a little more than half of them are still paying. As small as TiVo may be these days, antitrust regulators may give Google a hard time in closing the deal.
All of this is true, but -- then again -- this is also why TiVo is trading so cheaply. TiVo's trading for less than the money that it stands to collect for licensing its technology because the popular opinion is that TiVo will only squander any after-tax proceeds that it does receive.
Google may not be able to fix that, but it would be able to use its ownership of TiVo's juicy DVR patents to get Hollywood to play along with Google TV. The search giant has struggled to get Google TV going as a result of its failure to negotiate streaming rights with TV studios and broadcasters when it rushed the platform to market. Owning TiVo would change a lot of things. It could steer DVR owners to Google TV, or at least have a better working relationship with the cable and satellite television companies that saw Google TV as a threat instead of an opportunity. Then we get to what's possible with DVR abilities on Android tablets and smartphones at a time when Big G is riding high in mobile computing.
Tech giants have made pretty of dumb acquisitions over the years. Here's a smart one that Google should've made -- but didn't.
Longtime fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.