TiVo’s decision to reorganize and push ahead on plan to direct more resources on MSO growth and international expansion, and less so on retail, continues to be justified by its financial results.
TiVo said it added 318,000 subs through MVPD partnerships, a small decline from 324,000 adds in the category in the year-ago quarter. The company also added 19,000 TiVo-owned subs, in its fiscal Q4.
TiVo ended the period with 6.80 million cumulative subs, comprised of 5.47 million via MSO partnerships and 971,000 TiVo-owned customers.
TiVo said “traditional” MSO service revenue grew 45% in Q4 driven in part by strong growth with Vodafone in Spain and increased deployments in North America with operators such as Cogeco.
“We are very bullish about the future prospects of the operator parts of our business,” TiVo CFO and interim CEO Naveen Chopra, said in an interview.
Though the sweet spot of TiVo’s traditional DVR product has been mid-sized operators, particularly in the U.S., the company’s product portfolio has diversified in the past year or so with non-DVR products, mobile offerings, as well as cloud-based search and discovery (via Digitalsmiths), giving it access to a broader market.
“That really opens up the ability to work with operators of all different shapes and sizes,” Chopra said. “I think there are some interesting opportunities to use parts of that portfolio with some of the larger operators."
Chopra also expanded on how TiVo’s retail strategy will look amid the company’s restructuring. It’s not abandoning retail, but it retail-facing spending levels will come down.
“I think we've had to make an honest assessment that some of the money we've invested from a marketing perspective has not really generated the kind of subscription growth there that we would’ve liked to have seen,” Chopra said.
Though TiVo has seen its retail business grow in small increments, the plan now is to spend less money trying to acquire retail subs and to spend more on “different classes of products that go beyond the traditional DVR,” the exec said, noting that TiVo will be announcing more details toward the end of 2016.
Even with that revised focus, TiVo, Chopra said, remains supportive of an alternative to the CableCARD, which the FCC is now pursuing through proposed new rules designed to “unlock” the set-top box and apply to different types of MVPDs, and not just cable operators.
But TiVo’s support for that effort, he said, is “not purely because of our role in the retail business. We believe the evolution to a next-generation standard that is used by all operators is critically important for the work we do with the mid-tier operators."
Chopra said TiVo and Comcast are still pushing ahead on a plan to develop a non-CableCARD approach that would enable TiVo’s retail products to access Comcast’s full lineup of linear programming as well as the MSO’s video-on-demand service.
That effort is “still moving forward,” he said, but acknowledged that it’s a “somewhat complex process” to figure out exactly what the implementation will be. “But I think both we and Comcast view that as an opportunity to demonstrate to the industry what an appropriate solution…that addresses both the operator and parties like ourselves can be. "
On the financial front, TiVo said Q4 service and software revenues climbed 11%, to $101.7 million, and GAAP net income of $0.2 million, which included $12.8 million of CEO transition costs offset by $7.7 million of related tax benefits.
TiVo has also moved to an annual guidance format (versus providing guidance only on a quarterly basis). For fiscal 2017, TiVo said it expects service and software and technology revenues to be in the range of $400 million to $420 million, anticipating double-digit service revenue growth in operator-focused areas spanning MSO revenue, Cubiware (a middleware platform acquired last year that gets TiVo into more international markets), and Digitalsmiths.
It also expects single-digit percentage declines in retail service revenues, and decreased technology revenue from both lower IP licensing and professional services revenues.
TiVo is also forecasting adjusted EBITDA for FY 2017 to be $145 million to $155 million, citing higher service and software and tech revenue growth, reduced operating expenses (not including restructuring), lower TiVo-owned subscription acquisition costs, and an MSO hardware margin drop of about $10 million as TiVo continues to transition to third-party hardware.