TiVo Eyes Cash-Flow Break-Even

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In a year-end earnings call late last Thurdsay, TiVo Inc. executives told Wall Street analysts the company expects to become cash-flow positive within its current fiscal year. The company plans to reach the milestone through a combination of increasing subscriber revenues and eliminating hardware subsidies.

Earlier this month, TiVo announced it would raise its monthly service fee for subscribers from $9.95 to $12.95. Customers who own a combination TiVo digital video recorder and DirecTV Inc. direct-broadcast satellite receiver are exempt from the price increase.

Under a limited-time promotion, existing TiVo customers can opt for lifetime service for a fee of $199.95, a spokeswoman representing the company said last week.

TiVo chairman Mike Ramsay said that while it's too early to predict whether the "relatively modest" 30 percent price increase will lead to subscriber churn or slower sales of new TiVo units, he believes the DVR service provides "ample value for the price point."

Perhaps more importantly, the price increase will help TiVo in its "financial quest for profitability," Ramsay said.

In its early days, TiVo spent heavily to build itself as the leading brand in the DVR category and to subsidize its way into consumer electronics stores. In the future, the company plans to avoid subsidizing the cost of consumer hardware.

TiVo signed 100,000 new subscribers in the fourth quarter ending Jan. 31, 2002, ending the fiscal year with a total of 380,000 subscribers. The company projected it would sign between 250,000 and 300,000 new customers this fiscal year.

Ramsey told analysts that TiVo will still have a place in the DBS world if EchoStar Communications Corp. completes its proposed merger with DirecTV parent Hughes Electronics Corp., even though EchoStar has chosen to use its own DVR technology.

He said TiVo's software could provide added value if the DBS company used it in its own DVR as a promotional tool.

Even if EchoStar decided not to use the DVR company's software, TiVo's new agreement with DirecTV includes a minimum-volume commitment that would kick in if EchoStar merged with DirecTV but chose not to use TiVo in the future.

Even in a worst-case scenario, Ramsay said, the DBS merger would not impact TiVo this year and shouldn't be a factor in the company reaching its break-even goals.

TiVo also last week announced a deal with Best Buy in which the national consumer electronics retailer would sell TiVo DVRs exclusively. In exchange, Best Buy gets a share of subscriber revenue from new customers acquired through its stores.

Although reductions in component costs have driven down the expense associated with building the hardware, Ramsay said he expects the retail prices to stay relatively stable as TiVo stops subsidizing the hardware.

"We believe the stabilization of prices isn't a bad thing," Ramsay said.

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