TiVo Settles Patent Claims for $490M

ENDS DISPUTE WITH GOOGLE, CISCO, TWC; TERMS DISAPPOINT INVESTORS
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Digital video recorder pioneer TiVo closed several big chapters in its protracted patent litigation, settling with Google’s Motorola Mobility unit, Cisco Systems and Time Warner Cable.

TiVo announced Friday (June 7) that it will receive an up-front lump-sum payment of $490 million from Google and Motorola Mobility to settle the score, while also ending its dispute with TWC.

With the latest settlement factored in, TiVo said it has been awarded roughly $1.6 billion in awards and settlements. More than $1 billion has come in from past settlements with Dish Network, AT&T, and Verizon Communications.

But Friday’s settlement was significantly lower than what some analysts were expecting. Earlier estimates figured that the Motorola suit alone would be worth more than $1 billion to TiVo.

“It is surprising that TiVo decided not to take the case to a jury, if this was the best settlement number they could achieve at this point,” Susquehanna International Group analyst Thomas Claps said in a research note issued following word of the settlement.

TiVo investors also weren’t impressed. At press time Friday, TiVo shares were trading at $11.27 each, down $2.44, or 17.80%.

As part of the settlement announced Friday, TiVo has also agreed to enter into certain patent-licensing arrangements with Google, Cisco, and Arris, which closed its acquisition of Google’s Motorola Home division earlier this year. TiVo, Motorola, Cisco, and Time Warner Cable also agreed to dismiss all pending litigation between the companies.

“We’re pleased with the outcome of this case and to see that these claims have been settled,” a Time Warner Cable spokesman said in a statement issued Friday.

Cisco revealed in an 8-K filing Friday that it will pay a lump sum of $294 million to TiVo upon execution of the settlement agreement. As a result, the vendor expects to recognize charges of 3 cents per share to GAAP earnings per share in its fiscal fourthquarter results.

It was not immediately known how much of the balance of the lump sum owed to TiVo will be shared by Google, Motorola Mobility and Arris. Per a condition of its acquisition of Motorola Home from Google, Arris is responsible for no more than $50 million in damages and royalties linked to the TiVo lawsuit.

Although TiVo’s stock is being penalized by the lower-than- expected settlement amounts, resolution should remove legal distractions and enable TiVo to refocus on its core business, its growing service-provider partnership strategy, and maybe quell long-held perceptions that the vendor’s best source of revenues will continue to come through litigation.

Even before the latest round of settlements, TiVo has been making progress on the MSO partnership front, particularly with Virgin Media, the largest MSO in the United Kingdom. TiVo added 277,000 subscriptions through pay TV partnerships in the first quarter, marking its largest quarterly subscription gain in the category in more than seven years. Virgin, now part of Liberty Global, represented 172,000 of those TiVo subscriber gains in the period. Other TiVo MSO partners include ONO of Spain, Suddenlink Communications, Com- Hem of Sweden, RCN, Midcontinent Communications, Atlantic Broadband and Cable One.

Comcast and Cox Communications aren’t leasing TiVo devices, but are instead working to integrate the MSOs’ VOD services with TiVo boxes sold at retail. Cox and TiVo have not completed that work, but Comcast has wrapped up VOD integration with TiVo in more than 20 markets.

TAKEAWAY

TiVo’s lower-than-expected patent-litigation settlement disappointed investors in the DVR pioneer.

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