Column: Call it YahooVo?

by Mathew on November 8, 2005

Here’s a column I posted at globeandmail.com about rumours that Yahoo might acquire TiVo:

“In what was no doubt a welcome ray of sunshine for shareholders of TiVo, the maker of personal video recorders announced a deal with Internet portal and search engine company Yahoo, which will allow TiVo owners to click a TV listing on Yahoo’s pages and automatically record shows on their PVR. This gave a small boost to TiVo’s somewhat beleaguered shares, but unfortunately the warm glow of the deal didn’t last for very long — the shares lost ground on Tuesday, the day after the announcement, and are still down by more than 50 per cent from their peak early last year.

Not surprisingly, the deal with Yahoo renewed the speculation that TiVo might be an acquisition target — if not for Yahoo then for Google, or Microsoft, or AOL, or maybe your Aunt Phyllis (that last one is just a joke). It might be stretching things a little to say that behind every TiVo takeover rumour there stands a disgruntled shareholder, but at this point an acquisition of the company seems to be about the only thing that might breathe some life into the share price. Although it more or less invented the PVR market, TiVo hasn’t been able to capitalize on that “first-mover” advantage, and so has been forced to watch the world pass it by.

Would a takeover by Yahoo, Google or Microsoft make things better? No doubt it would for TiVo shareholders. But will it happen? Anything seems to be possible in the tech sector at the moment — just look at the similarly unlikely $4-billion (U.S.) deal between eBay and Skype — but the odds of a rich takeover of TiVo coming any time soon don’t seem particularly high, despite the latest arrangement with Yahoo.

One of the reasons why news of the deal failed to spark much cheering could be that TiVo has offered users a similar service for more than two years, either through the company’s own website or through a deal with America Online that TiVo signed in 2003, which offers similar features to the deal with Yahoo. Neither one of those has produced much in the way of added revenue or profit for the PVR maker, which is what makes some analysts skeptical of the bottom-line impact from the arrangement with Yahoo.

Susquehanna Financial Group, for example, said in a research note that while it sees the Yahoo deal as positive for TiVo, “we believe these announcements are more likely to increase customer satisfaction as opposed to attracting a material number of new subscribers.” Doing the latter, the brokerage firm said, is “critical to TiVo’s future growth.” Susquehanna said that its rating on the stock remains “negative.”

The companies mentioned that as part of the deal, users would be able to get access to other things from Yahoo on their TiVos, such as photos (Yahoo bought Vancouver-based photo-sharing service Flickr earlier this year), traffic reports and weather. But it wasn’t clear when those services would be coming, or how much TiVo would have to pay for them. As a result, Susquehanna said it would be “more of a churn reducer than a subscriber acquisition vehicle.”

As for a takeover, there has been plenty of talk but nothing more. In February, TiVo’s stock soared by 17 per cent in a single day based on a rumour that Apple was going to buy the company. Cable and entertainment companies have also been rumoured as potential acquirers, including Time Warner, Comcast and Liberty Media. Why someone would want to buy the company when they can get the same benefit more cheaply by doing a licensing deal with TiVo — the kind of deal Comcast has already done, and that DirecTV used to have — is never really explained.

The rumours and speculation about Yahoo, Google and Microsoft seem to be based on the idea that these companies could turn the PVR company into a kind of WebTV-style portal to the Internet, blending the television with the Web. Apart from the fact that trying to do just that with WebTV has been an unmitigated disaster for Microsoft, which has poured hundreds of millions into the effort for virtually no return, it’s not clear how buying TiVo — as opposed to designing their own TV box or doing deals with cable companies (several of which Microsoft has invested in) — would help them make that kind of strategy work.

One of the alternative theories is that Yahoo, Microsoft or Google might be able to use TiVo as a kind of TV portal for Internet video content — which all three companies have been trying to become the leader in indexing — by allowing users to find video clips on the Web and then play them through their TiVo boxes. But then, people can do that already using their computers without paying an extra fee for a TiVo box, and if they have a media PC they can connect it to their television quite easily. And even if Yahoo or Google had that kind of thing in mind, they still wouldn’t need to buy the entire company in order to make it happen.

Of course, none of this is going to stop TiVo investors from dreaming of a nice juicy acquisition. But they are likely to remain just dreams.”

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