Fast Forward

Just a few weeks ago, it appeared that TiVo's luck had run out. Sure, the company boasted leagues of enthusiastic users. But suddenly, it seemed that those fanatical consumers were cheering for a brand with a very short lifespan.Troubles have plagued the Alviso, Calif.-based digital video recorder maker this year. Financial woes led the company's top brass, CEO Michael Ramsay and president Marty Yudkovitz, to announce they were leaving. DirecTV dumped its exclusive deal with TiVo. The stock price slumped, rumors of an Apple takeover spread, and the brand looked to be in serious turmoil. "TiVo was well on its way to becoming a minority player," recalls Josh Bernoff, principal analyst for Forrester Research of Cambridge, Mass. But a recently announced deal with Comcast that will have TiVo providing technology for the cable operator's set-top boxes has put TiVo back in business, it seems. "They were on deathwatch," says Van Baker, analyst for the Gartner Group. "This rescues them." Experts value the seven-year deal to be worth between $10 million and $30 million. And it might even mean that other cable companies will follow suit. Many thought TiVo was a goner after DirecTV announced in January that it would start marketing a competing DVR device from NDS Group. Forrester's Bernoff says that DirecTV may have second thoughts as a result of Comcast's recent move: "Cable operators tend to move as a pack." The venture looks to be a win for Comcast and TiVo. Cable companies know that the demand for digital video recording is growing. One in 40 U.S. households reports owning a DVR, according to Forrester. TiVo counts just over 3 million users. Scarborough Research found that more than 5.5 million people were planning to purchase a DVR this year. And as cable rolls out DVRs, penetration is expected to double this year to 7 percent and rise to close to 50 percent by 2009. With the deal—which begins sometime in 2006—Comcast can offer its subscribers the machine that's become a household name, and the brand that's become synonymous with DVRs. "TiVo has great brand recognition and user loyalty," says Comcast spokeswoman Jenni Moyer. "Now we'll be able to give consumers everything in one box and give them a truly 21st century TV experience." Experts say this could help the cable operator retain customers. "The battle for the cable guys has always been churn, and TiVo will cause people to be loyal," Baker says. "TiVo has amazing retention, around 95 percent."While DVR users universally say they enjoy the technology, Forrester research indicates that TiVo users love their equipment the most, some maintaining that TiVo has "changed their lives.""It's like the advent of cars and people are deciding between a Rolls Royce and a Chevy," says Bernoff. "People are like, 'You mean I can drive anywhere I want?' Right now, people just care about skipping, pausing and recording. But in time, people will see TiVo is the Rolls." And with cable being the new battleground—where experts say the largest number of DVRs will be deployed—the Comcast deal is a lifesaver for TiVo, which last year spent $26 million on advertising, reports Nielsen Monitor-Plus. TiVo now can focus on software as its brand name benefits from the marketing muscle of Comcast, which spent $140 million on advertising in 2004, according to Nielsen. "The hidden winner in all this is Motorola," Baker says, because it is Comcast's hardware of choice."We are box-agnostic. That's a huge shift," says Matt Wisk, TiVo's chief marketing officer, who learned during his tenure at Nokia that the user experience is more important than hardware. "Now we are being seen as a software solution," he says. "We are moving more toward being like Windows or 'Intel inside.' We are an ingredient brand with tremendous applications and a user interface that everybody loves." He says TiVo will be sold as a stand-alone box and as a component, much like Bose sells its speakers.The agreement also brings TiVo to more households, giving it access to Comcast's 21.5 million customers, including 8.6 million digital cable customers who can take advantage of DVRs. "With Comcast, we've gone from being a company with 3 million users to one with an audience of 3 billion," Wisk says. The agreement couldn't come at a better time, because the race is on. Hardware makers and satellite and cable providers all are scrambling for a stake in the DVR marketplace. The list of players includes Sony, Samsung, LG, Panasonic, DirecTV, EchoStar, Time Warner, Cox Communications, Gemstar and others. The question: how to keep viewers and advertisers happy in this brave new world of TV viewing. The company that revolutionized TV in 1999 by giving viewers the power to zip through ads must now figure out how to keep commercial-skipping consumers happy while placating brands with budgets. TiVo is rolling out a beta version of its "Icon" ads, billboard-like messages that pop up as viewers fast-forward through ads. It remains to be seen how customers will react to this invasion, and how advertisers will respond with their dollars. Diane Anderson is the technology reporter for Brandweek.

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Diane Anderson