TiVo & Comcast Sign Multi-Year Deal

News Analysis
TiVo & Comcast Sign Multi-Year Deal
The cable operator will begin offering the DVR service next year.
By Phillip Swann

Washington, D.C. (March 15, 2005) -- It looks like the Wall Street analysts got it wrong again.

Comcast and TiVo announced today that it has signed a multi-year agreement for the cable operator to offer TiVo's Digital Video Recording service to its cable customers. Comcast is expected to add TiVo by mid to late 2006.

Financial terms for the deal were not announced. However, it calls for TiVo to provide a customized DVR service for Comcast subscribers. TiVo's stock jumped approximately 75 percent today on the news.

"The strong TiVo brand, the clear track record of customer loyalty it has and its cutting-edge features make this a terrific partnership and exciting new product for Comcast," Steve Burke, Comcast Cable president, said in a statement

The deal is a huge victory for TiVo, which had failed to land a major cable licensing agreement until now. The DVR service has generated approximately three million subscribers, but its future growth was suspect due to a shaky partnership with satcaster DIRECTV.

However, with Comcast offering its service to its 22 million subscribers, TiVo can count on a steady steam of customers regardless of what happens with DIRECTV.

TiVo and Comcast came close to signing a licensing agreement last summer. However, TiVo CEO Mike Ramsay nixed the deal after it was negotiated by company president Marty Yudkovitz, according to sources. Ramsay believed that it gave Comcast too much control over the company's subscribers.

After Yudkovitz resigned on February 1, some Wall Street analysts said that it signaled that TiVo was no longer interested in securing a cable agreement.

"While this is not good news, it is clear that TiVo is going in a new direction and focusing on the (retail) business," William Blair analyst David Farina pointed
out in a note, according to TheStreet.com's George Mannes. "Mr.Yudkovitz's departure further increases the company's dependence on the (retail) business, as Mr. Yudkovitz was the company's best hope of finding a
cable partner, in our view."

Farina's sentiment was shared by other analysts who appeared influenced by a faction within TiVo that believed it could succeed without a cable deal

However, on the day of Yudkovitz's resignation, I wrote: "Yudkovitz's departure today does not signal that the company is no longer interested in a cable or satellite deal." Noting that TiVo had also announced that Ramsay would soon be replaced by a new CEO, I added: "Ask yourself: Why would TiVo's board go through the trouble of persuading Ramsay to step aside if the new CEO would simply follow in his path and focus on retail rather than cable and satellite licensing pacts?"

Today's announcement would seem to confirm my analysis. TiVo -- and, particularly, its board of directors -- clearly concluded that it needed a major cable licensing deal to survive. And now, after the Comcast agreement, TiVo can focus on more deals that will help diversify its revenue and customer base.

And it shouldn't be underestimated how important it is for TiVo to secure more deals, whether it's with cable operators, satellite providers or the new video services from the telephone companies. TiVo doesn't want to be at the mercy of one company, as it has been with DIRECTV over the last few years.

I also believe that TiVo will still entertain offers to sell the company. This TiVo story is just beginning.

And for Comcast, the TiVo agreement has an interesting twist. Let's say that Comcast starts offering TiVo in late 2006 or early 2007. That's when DIRECTV is expected to stop carrying TiVo. (The DIRECTV-TiVo marketing agreement is scheduled to end in 2007.)

Don't you think that Comcast would love to run a TV commercial in 2007 telling TiVo's DIRECTV customers that they should now switch to cable so they can still get TiVo?

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Phillip Swann is president and publisher of TVPredictions.com. He has been quoted in dozens of publications and broadcast outlets, including CNN, Fox News, Inside Edition, The Chicago Tribune, The Associated Press and The Hollywood Reporter. He can be reached at swann@tvpredictions.com or at 703-505-3064.

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