Retailers Mum on TiVo’s Free Hardware Offer on Long-Term Subscriptions

Many retailers we polled said they're suspending judgment until they learn details of a program on these lines that TiVo plans for retail this year. The initial free offer, tested last fall (CED Dec 2 p2), will be available through TiVo’s website starting next week. The strategy debuted as RadioShack signed on to start selling the service later this year. Meanwhile, TiVo’s Series3 HD PVR featuring 2 tuners and a 250 GB hard drive will be out by fall, company officials said, in an apparent delay from plans to have it available by midyear (CED Jan 17 p1).

Subscribers will get PVRs if they contract for service. One, 2 and 3 year plans cost $19.95, $18.95 or $16.95 a month, respectively, or $224, $369 and $469 upfront. Similar packages will be introduced at retail this year, when TiVo can tie into retailers’ IT infrastructures, CEO Thomas Rogers told analysts in an earnings conference call. Tests show conversion rates “constrained” by upfront payments, with a monthly bundle “highly appealing” to TiVo target buyers -- analog cable subscribers, Rogers said. About 1/2 of new TiVo subscribers come from analog cable, he said.

“The added pricing options will have a positive impact on driving our subscription base,” said Rogers, saying securing 3 million stand-alone subscribers is “within our grasp.” TiVo had 1.2 million stand-alone subscribers Jan. 31 plus 2.9 million DirecTV-related customers. If TiVo did get to 3 million subscribers, it would translate to revenue equal to those of a basic cable service with 90 million customers, Rogers said.

“We'll just have to see how this all plays out,” said an executive at a major East Coast retailer. “We don’t typically like to lose a revenue stream” related to hardware “so we're just waiting to see how TiVo will make us whole.” TiVo won’t complete retail plans until “we get a better read” on sales results for the new package on TiVo.com, said Rogers. “We're in discussions with retailers about the various logistics needed to accomplish the implementation of a similar type of offer at retail,” he said. Talks with retailers are aimed at trying to retain current sales incentives, he said.

The giveaway likely will raise acquisition costs $50- $100 per subscriber as TiVo subsidizes the hardware, Rogers said. TiVo’s Q4 SAC was $157, up from $140 a year ago. Part of the rise in Q4 SAC arose from a $50 increase in a mail-in rebate to $150. TiVo lowered the post-rebate hardware price to $49 with a year’s service commitment. The added commitment, put in place in Aug., helped cut monthly subscriber churn to 0.9% in Q4 from 1%, Rogers said.

TiVo sales and marketing costs are expected to rise first quarter from $10.6 million Q4 as TiVo rolls out the giveaway, CFO David Courtney said. To fund the new program, TiVo will “consider financing options” to give it the “firepower that we need to be as aggressive as we need to be,” Rogers said. Tivo forecasts a widening of its Q1 net loss to $19-22 million from a $900,000 profit a year earlier on revenue of $48-$50 million, Courtney said.

TiVo said its Q4 loss shrank to $19.5 million from $33.7 million a year earlier as revenues rose to $$60 million from $$59.4 million. Service revenue jumped to $46.3 million from $32.9 million, while revenue from technology fell to $663,000 from $1.1 million, officials said. Hardware sales dropped to $32.2 million from $50.4 million. TiVo added 183,000 net stand-alone subscribers during the quarter, down from 251,000 a year ago, a drop reflecting a “more challenging environment,” Rogers said. Another 173,000 subscribers were added through DirecTV, which ended its agreement with TiVo last year in switching to a software platform from affiliate NDS.

TiVo remains on schedule for delivering its PVR software to Comcast this year for deployment in Motorola’s DCT-6214 set-top box, officials said. The DCT-6214 features dual tuners and an 80 GB hard drive. Besides Comcast, TiVo has had “solid discussions” with other MSOs, but no agreements have been reached, Rogers said.

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Victory in a patent suit against EchoStar would “enhance our position in the marketplace,” Rogers told analysts. And TiVo has “plenty of other IP” not involved in the EchoStar suit, Rogers said. The trial begins March 27 in U.S. Dist. Court, Marshall, Tex.; a jury was picked this week. At the heart of the case: TiVo time-shifting technology allowing PVR owners to pause live TV and skip commercials.