Technology

TiVo’s Costly Sub Drive

8/26/2005 8:00 PM Eastern

While TiVo Inc. is gaining some traction with a handful of small cable distribution deals, the digital video recorder vendor took a hit on Wall Street last week after it warned that increased marketing spending could drain earnings.

TiVo last week posted its first profit, generating $240,000 in net income for the second quarter, up from a net loss of $10.8 million (13 cents per share) during the same period last year.

But with TiVo distributor DirecTV Inc. planning to market its own DVRs in October, along with cable operators hawking their own Scientific-Atlanta Inc. and Motorola Corp. units, CEO Tom Rogers said TiVo must increase its marketing spending to drive new subscriptions.

While Comcast Corp. plans to begin marketing TiVo as a premium DVR option in 2006, TiVo hasn’t yet scored a major cable distribution deal.

Most operators continue to lease set-tops from S-A and Motorola to customers for about $10 monthly.

Cablevision Systems Corp. said last week that it would run a market trial of TiVo DVRs this October.

But Cablevision, which already distributes S-A DVRs to its customers, said it would only offer TiVo receivers to existing satellite customers who agree to order its Optimum triple-play bundle.

Cablevision hasn’t yet determined the pricing for the TiVo service.

TiVo also cut deals during the second quarter with Cebridge Connections and the National Cable Television Cooperative. Cebridge plans to market TiVo receivers to its customers this fall, at a price yet to be determined.

The NCTC agreement would give 1,000 independent operators the ability to offer TiVo, but it has only announced a definitive deal with one NCTC affiliate, Benton Cablevision in Rice, Minn.

TiVo, which closed at $6.12 the day before its earnings announcement, had dropped to $4.90 by Friday afternoon.

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