The Most Important Two Minutes From The TiVo Conference Call (TIVO)

TiVo (TIVO) reported F4Q06 earnings last night -- the company's net loss was 23 cents/share, inline with analyst estimates, and down from 42 cents/share in the comparable quarter a year ago.

Net revenue of $47 million slightly beat analyst estimates of $46.4m. New subscribers totalled 356,000 for the quarter, down from 698,000 Y/Y (total subscribers now 4.4M). TiVo also reported its first positive cash flow quarter in fiscal 2006: $3.4 million in the black on that important metric.

Guidance for the current quarter (F1Q07): Revenues of $48-50 million, net loss of $19-22 million. Analysts were expecting a much smaller loss of $2.1 million on revenue of $50.3 million. TiVo execs explained that 'significant' legal costs for their jury trial vs. EchoStar (DISH) accounts for the wider-than-expected loss.

In the TiVo conference call (view transcript), CEO Tom Rogers gave details and background on a new 'zero up front' pricing structure that bundles its service with hardware, and eliminates their lifetime subscription option:

Now onto the topic of our new pricing initiative which we just announced today, after completing several months of market research and extensive testing in the marketplace. We believe the additional pricing options being created will have a positive impact on driving our subscription base... driving greater scale in our sub base is a critical goal, particularly with stand-alone sales driving a greater part of our growth over the next year, until the Comcast relationship kicks in. Over the past four to five months, we have taken a hard look at our pricing strategy, distribution model and the overall satisfaction of TiVo customers.

Just to remind you, when we tested the direct marketing of these new pricing options by providing longer form, more detailed messaging about the TiVo service, we found that call volume increased, but conversion rates were constrained by disenchantment with having to pay both an up-front fee and a monthly fee. That caused us to test various pricing options that took away the hybrid nature of the offer.

After careful research and testing, we believe that the bundling of the TiVo service together with the TiVo box will be highly appealing to a certain segment of subscribers, particularly analog cable subscribers, which are a prime target for us. We found in testing zero up-front offers we converted subs at a significantly higher rate than our current marketing approach and that result held up through a number of phases of testing. Thus, we will now be offering an all-in-one price based on a one, two, or three-year commitment at $19.95, $18.95, or $16.95 per month, with no up-front hardware cost.

We also found that a number of potential subscribers under no circumstance want another monthly bill to add to their current array of cell phone, cable, Internet and other monthly charges. Therefore, we came up with pricing plans to be responsive to this kind of customer as well. So as an alternative, a subscriber can prepay $224 for one year of service, or $369 for two years of service, or $469 for three years of service for an all-in package that included the TiVo unit and service combined. With this new pricing plan we will no longer be offering a lifetime service option.

Some key questions for TiVo at this stage:

● Marketing: Can they convince consumers to go for the new pricing plan?
● Sales: Does the huge Y/Y falloff in new subscribers illustrate that the market is becoming saturated, and the company will never regain its earlier growth?
● Parnerships: Will the loss of the DirecTV relationship (DTV is switching to another DVR platform) be offset by TiVo's new partnership with Comcast (marketing TiVo to all Comcast cable TV subscribers)?
● Legal: Will the EchoStar court case really cost the company $20M this quarter? And what if the verdict is not in their favor?

More thoughts on the developments at TiVo from the ever-reliable Thomas Hawk.

Related: TiVo: Become a Content Portal, Or Sell the Company