Doubts over TiVo’s core profitability

At first blush it would seem that everything in TiVo’s DVR garden is rosy and healthy. After all, the company has just declared record revenue numbers and is sitting on a massive cash ‘war-chest’ of some $740 million, and helped by a series of highly successful patent litigations that have brought in a thumping $1.6 billion in settlements, and a steady income-stream from new IP licences that have followed on from the litigation.

The company also has around $160 million in deferred tax assets to enjoy.

But some are now questioning whether its core DVR business is sufficiently profitable to sustain it beyond being a short-term Dolby-type licensing model. Dolby, of course, has proved that such a model can work very well, but much of TiVo’s recent business wins have been low-fee deals with cable or telco suppliers of content – and NOT through sales or subscriptions to its own TiVo devices.

And there’s a huge difference between the two types of revenue stream. An analyst recently argued that TiVo’s directly-secured subscribers are worth 6 times that of an MSO. And it is with MSOs that TiVo has been successful, growing that segment of its business from 768,000 ‘subs’ back in Q1/2012 to the current 4.4 million.

Happily, TiVo’s most recent quarter did recognise some modest ‘own-subscriber’ growth (and only the second such net-gain quarter in the past 7 years).

While licensing fees are excellent in the short-term, they start expiring around mid-2018. Indeed, CFO Naveen Chopra highlighted this very point in last week’s post-results call with analysts, saying that TiVo wanted over the next few years to generate positive EBITDA “without inclusion of IP revenue”.

TiVo does not shirk from the challenges ahead, and sees its future being a trusted gate-keeper to the slew of programming and content suppliers now proliferating – and buying Aereo might be a useful move as cord-cutting becomes more prevalent.

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