Through The Fly's Eyes: TiVo

from Larry Ramer of Theflyonthewall.com











Don’t Bury TiVo Just Yet

There’s no question that digital video recorder maker TiVo (TIVO) is going through tough times. The company is facing a growing amount of competition from cable companies, phone operators, and new companies that have entered the consumer DVR market. Adding to the company’s woes is that competitors’ prices are substantially lower. Even worse is that the quality of the competition’s products is rapidly improving, according to a note issued by SMH Capital today. “Other DVR service providers have begun to ‘raise the bar’ in terms of technology innovation, a reputation that has been… reserved for TiVo,” wrote SMH. which lowered its rating for TiVo to “Short” from “Sell.”

But there are some issues that long-term investors who are not too risk-averse may want to consider before rushing to dump all of their TiVo shares. TiVo operates in a very fast-growing industry. The Carmel Group, an industry research group, predicts that the number of households with DVRs will double to 52.5M by 2010.

Furthermore, TiVo announced today that it was launching a new cutting edge HD DVR with a sharply reduced price tag. TiVo’s latest product will cost $300, compared with its previous HD DVR, which sold for $800. As a result of this huge price cut, middle class non-techies will be much more likely to buy a TiVo system.

The company is also launching some new initiatives that may yield some impressive results. TiVo is selling advertising at the end of its recorded programming, and cable giant Comcast (CMCSK) is expected to add TiVO’s software to all of its top-end set boxes next year. Incidentally, Comcast was undoubtedly convinced that TiVo’s product is still somewhat superior to the competition, or they would not have chosen to license TiVo’s software for their top customers. Indeed, TiVo still has some features that its competitors cannot provide.

TiVo is also scheduled to bundle its product with Earthlink’s (ELNK) Internet connection services later this year. True, TiVo’s profit margins from these deals won’t be as high as standalone sales, and TiVo recently lost a valuable deal with DirecTV. But the Comcast agreement in particular shows that TiVo may very well land on its feet.

Last, but not least, is the superior value of TiVo’s brand name, which should remain intact for some time, as the word “TiVo” is the common vernacular for digitally recording television.