By David Russell

The bulls tuned into TiVo (TIVO) on Friday as the digital recording service ripped to a new 5-1/2 year high.

On Tuesday, TiVo and Blockbuster announced that consumers who have a Series 2 or Series 3 TiVo unit can now rent movies from Blockbuster. The service, which was originally announced in March, went live yesterday with movies costing between $2.99 and $3.99 a piece. While the release says that "subscribers can now rent hot new release movies", I couldn't find any movies to rent that I would call "hot new releases". The "new releases" section contained movies like "Shrink", "The Last Resort", "Dance Flick" and "Battle For Terra". As of this morning, there were 658 movies available to browse and Blockbuster said that "in the coming weeks," it will expand the number of movies available and provide a "select" number of HD titles.

Frankly, I don't understand Blockbuster's strategy with TiVo. While it makes perfect sense to bring their content to the device, why launch with a service that's only half baked? One of the biggest arguments made by Blockbuster on why they have an advantage over Netflix is that they have rights to first-run movies, something Netflix does not have. But then they launch the service with no first-run movies and don't even offer anything in HD quality.

Over the past 12 months, we’ve seen a lot of new content offerings announced by companies like Netflix (NFLX), Amazon (AMZN) and YouTube (GOOG) as they look to directly target the living room via entertainment devices. Indeed, the adoption rate of hardware devices like the Xbox 360, PS3, TiVo, Roku, VUDU, Apple TV and broadband-enabled Blu-ray players and TV sets will be crucial in determining if content owners can make money delivering video to the TV.

But despite all these new offerings, that content still only reaches a few million customers, a number largely unchanged from this time last year. Such low adoption rates in the face of so much effort leads me to think that while the market of delivering content to the TV will grow, it is unlikely to do so at the rate that many in this industry would like to believe. In fact I don’t think we’ll see these devices having a combined impact in any measurable way for at least another 3-4 years.

To be sure, the company’s original “Time Warp” patents, which are at the center of the battle, are important, but the big asset looks like subsequent patents.

TiVo Inc. (NASDAQ:TIVO) has had a shaky foundation for much of its life. While it revolutionized the entertainment industry with its digital video recorder that first hit the markets in the late 1990s, it has not been as fortunate as other tech trailblazers, often leaving industry observers to wonder if its story will end in bankruptcy.

The problem for TiVo is the harsh reality that almost all satellite and cable companies now offer their own similar, and less expensive, generic DVR service. For example Time Warner Cable Inc. (NYSE:TWC) utilizes devices from Cisco System Inc.'s (NYSE:CSCO) Scientific Atlanta, and Verizon Communications Inc.'s (NYSE:VZ) FiOS TV service uses Motorola Inc. (NYSE:MOT) boxes.

F2Q10 Earnings Call

August 26, 2009 5:00 pm ET

• Looser rules for bank buyouts. Following intense lobbying, the FDIC voted 4-1 in favor of easing the restrictions on private-equity groups interested in buying failed banks. However, some private-equity groups said the FDIC still hasn't adequately loosened its requirements, as buyout firms must still hold on to failed banks for at least three years and maintain elevated capital ratios at the failed banks. (Read the FDIC's statement)
• Fed asks for disclosure delay. The Federal Reserve asked to delay the enforcement of a ruling that would require it to publicly disclose information about emergency loans made to financial firms. The Fed has until August 31 to disclose the details of its lending, but wants to stay the ruling until it can file an appeal in court.
• Taxing the financial sector down to size. Adair Turner, head of the U.K.'s Financial Services Authority, said he supports the idea of new global taxes on financial transactions in order to shrink a 'swollen' financial sector that has grown too large for society. Turner called the backlash over bonuses a 'populist diversion' distracting attention from the need for more drastic measures to shrink the industry's size. He also raised doubts about the value of being a leading financial center, claiming London's financial sector is a destabilizing force in the U.K. economy.
• Tribune bondholders go to court. Tribune Co. bondholders have asked a bankruptcy judge to let them investigate Sam Zell's 2007 buyout of the media firm. In a filing made late yesterday, bondholders called the $8.2B transaction a 'fraudulent conveyance' that left Tribune insolvent and accused senior lenders led by JPMorgan Chase (JPM) of completing a deal they should have known would push the company into bankruptcy. Bondholders are trying to stop, or at least slow, a bankruptcy exit plan that will likely see JPMorgan and other banks owning nearly all of Tribune in exchange for $8B of debt forgiveness.
• Goldman gets subpoenaed. In the latest development regarding Goldman Sachs' (GS) trading huddles, Massachusetts' chief financial regulator has subpoenaed the firm for additional information and internal documents. The concern is that the huddles may have disadvantaged some of Goldman's clients, and the investigation may be expanded to look at practices at other firms.
• Xbox 360 gets a price cut. Microsoft (MSFT) is cutting the price of its high-end Xbox 360 game console by $100, following a similar price cut last week by Sony (SNE) for its PlayStation 3. Microsoft is also set to announce today that it's phasing out the mid-range version of the console. Nintendo's (NTDOY.PK) Wii is now the only console that hasn't yet had a price cut ahead of the holiday shopping season.
• Dollars-for-dishwashers. Cash-for-clunkers was seen as a broad success but appliance makers and retailers are less certain about a similar rebate program planned for household appliances. With a budget of $300M, the program is seen as too small to provide significant gains to appliance makers like General Electric (GE) and Whirlpool (WHR). The program also lacks consistency, as the size of rebates can vary on a state-by-state basis. In light of the uncertainty, manufacturers have been reluctant to ramp up production.
• China iPhone release one step closer. Apple (AAPL) is moving closer to an iPhone launch in China, one of its last untapped phone markets, after a prototype modified for the local market received a technical license required by the government. With 687M subscribers, China is the world's largest mobile market, and an iPhone release there could lead to explosive sales growth for the product.
• GE may sell its security unit. General Electric (GE) is reportedly looking to sell its security unit in a deal that could be worth $2B. Possible buyers include Tyco International (TYC) and United Technologies Corp. (UTX), and GE may sell the unit in parts if it can't find a buyer for the whole business.
• TiVo files suit. TiVo (TIVO) filed a lawsuit against AT&T (T) and Verizon (VZ), claiming the companies infringed three of its patents. TiVo is seeking a permanent injunction to force the two companies to shut off their DVRs. The action is similar to one taken against Dish Network (DISH) and its sister company EchoStar (SATS) in what is becoming a protracted legal battle over digital video recording.
• Thrifts post small profit. Savings and loans institutions broke a six-quarter losing streak in Q2 by posting a $4M profit, up from a $1.62B loss in Q1. John Bowman, acting director at the Office of Thrift Supervision [OTS], said "the industry essentially broke even," but "despite some encouraging signs, the industry’s performance remained uneven. The bottom line is that the industry is not out of the woods yet.” (Read the OTS press release)
• Durable goods rise. Durable Goods Orders rose 4.9% in July, compared to consensus of +2.5% and last month's -1.3% (revised). The increase was the largest jump in two years. Net of transportation, orders rose 0.8%.
• Home sales improve (.pdf). New Home Sales totaled 433K in July, a 9.6% increase from June and better than the 390K that was expected. Sales were down 13.4% from the previous year. The median home price in July was $210,100, up from June's $206,200. Inventory of 271K homes represents a 7.5 month supply, down from 8.8 months in June.

Earnings: Thursday Before Open

• A-Power Energy Generation Systems (APWR): Q2 EPS of $0.14 misses by $0.06. Revenue of $57.5M (-12.5%) vs. $73.7M. Shares -5.8% premarket (6:50 ET). (PR)
• Toll Brothers (TOL): FQ3 EPS of -$2.93 misses by $1.14. Revenue of $461M (-42%) in-line. While the results "reflect continuing challenging housing market conditions, we do see signs for optimism... We believe declining cancellations and more solid demand indicate that the housing market is stabilizing. We are reducing incentives and raising prices in selected communities..." (PR)

Earnings: Wednesday After Close

• CNinsure (CISG): Q2 EPS of $0.27 beats by $0.08. Revenue of $42M (+33%) vs. $46M. (PR)
• Coldwater Creek (CWTR): Q2 EPS of -$0.05 in-line. Revenue of $225M (-7%) vs. $222M. (PR)
• Guess? (GES): Q2 EPS of $0.64 beats by $0.20. Revenue of $522M (+1%) vs. $485M. (PR)
• Jo-Ann Stores (JAS): Q2 EPS of -$0.13 beats by $0.26. Revenue of $419M (+4%) in-line. Sees full-year EPS of $1.35-1.50 vs. $1.10 and full-year same-store sales flat to up 1%. (PR)
• Sigma Designs (SIGM): Q2 EPS of $0.28 in-line. Revenue of $51M (flat) in-line. (PR)
• SWS Group (SWS): FQ4 EPS of $0.25 beats by $0.05. Revenue of $99M (+13%) vs. $103M. (PR)
• TiVo (TIVO): Q2 EPS of $0.03 beats by $0.08. Revenue of $49M (-9%) in-line. (PR)

Today's Markets

Asian markets closed mostly down, and European markets are showing modest losses. U.S. futures are largely unchanged.

The anticipated growth of internet-enabled TVs in the next four years would likely increase the popularity of digitally downloaded movies, TV shows and video games while dampening sales related to DVDs, blu-ray discs, video game discs, and other physical content formats, according to Retailer Daily.

Below is a chart outlining the 2009 year-to-date performance of the sectors within the Russell 2000 (based on the sector classification of The Applied Finance Group). The Consumer Services sector has led the way thus far, while Utilities and Financials have dragged down the overall performance of the index.

Several years ago, I proclaimed my kids - then ages 4 and 7 - to be pioneers of the TiVo generation. I even wrote a newspaper story about it, complete with pictures of these little kids managing the remote and demonstrating the ability to pause and rewind live television.

Fast forward to today and the Diaz household now has three digital video recorders, though only one is a TiVo-branded device that comes with a few extra bells and whistles. The others are DirecTV’s not-as-good-as-TiVo DVRs.

Before I attempt to answer these questions, let’s review what’s happened since TiVo won a major victory over Dish/Echostar on June 2nd, which included Hon. Judge Folsom finding Echostar guilty of contempt.

Don't be fooled by reports that the partnership between Best Buy Co. Inc. (BBY) and TiVo Inc. (Nasdaq: TIVO) announced today is nothing more than a marketing alliance through which the big box retailer will more heavily promote a dying product in its stores.

The tie-up is actually about Best Buy being able to sell digital content directly to high-definition televisions (HDTVs) and other broadband-connected products -- and now it has all the pieces in place to do so.

• PPIP finally launched. The Treasury unveiled its scaled-back Public-Private Investment Program, committing $30B of equity and debt to match $10B from private investors, down from an initial plan of buying up to $1T in toxic assets. As expected, BlackRock (BLK), Angelo Gordon and Invesco were named among the nine fund managers. Pimco, the world's largest bond manager and an early supporter of PPIP, withdrew its application because of 'uncertainties' about the plan's design.
• EMC wins Data Domain battle. NetApp (NTAP) dropped out of the bidding war for Data Domain (DDUP), terminating its merger agreement with the company following EMC's (EMC) improved bid earlier this week. Data Domain subsequently signed a definitive agreement to be acquired by EMC for $33.50/share, and paid NetApp a $57M break-up fee.
• AIG talks to MetLife on Alico sale. AIG (AIG) is in talks to sell key business American Life Insurance Company, or Alico, to rival MetLife (MET). A deal could help AIG raise more than $15B to repay the government, but sources say talks are still preliminary and could fall apart, as they did earlier this year, over a disagreement on price.
• G-8 diverge on future stimulus needs. G-8 leaders said the global economic recovery is still too weak to consider reversing stimulus efforts, but disagreed on when exactly those efforts should end. Obama wants to keep the door open for a second stimulus package, while Germany's Merkel is trying to shift the focus to deficit reduction. G-8 leaders agreed to cut greenhouse gases by 80% by 2050, while China and India led developing nations in pledging to set a 2050 goal by December, after balking at calls to set a 50% target without delay. Draft statements from the summit have not yet made direct reference to the dollar or currency exchange.
• OPEC cuts investment forecast. Projecting a steep fall in demand, OPEC cut its five-year forecast for oil investment by around a third, and expects members to invest $110-120B in exploration and production from 2009-2013 instead of the $165B it initially predicted. The International Energy Agency has warned that such a steep cut in oil-development spending could lead to a supply crunch by 2013, and 'huge investment is needed' to meet strong future demand in Asia.
• IMF brightens outlook. The IMF updated its world economic outlook, forecasting a 1.4% contraction this year vs. a previous estimate of -1.3%, and 2.5% growth in 2010 vs. a previous estimate of 1.9%. Though 'vulnerabilities remain,' overall "financial conditions have improved, as unprecedented policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen."
• Alcoa loss narrower than expected. Alcoa (AA) kicked off the earnings season with its third consecutive quarterly loss (see details below), but still managed to beat analysts' expectations thanks to cost cutting. CEO Klaus Kleinfeld said there are 'some pockets of growth' despite a challenging global market and there are signs that weak aluminum demand might be easing. Despite the hopeful outlook, Alcoa still expects a 7% decline in global aluminum demand this year.
• Best Buy ties up with TiVo. Best Buy (BBY) is teaming up with TiVo (TIVO) on a multi-year advertising partnership. Best Buy will heavily promote TiVo products in its 1,100 U.S. stores, while TiVo will develop a version of its digital video recorder that will let Best Buy advertise its products and services to TiVo customers using the set-top box at home. Financial details of the deal haven't been disclosed.
• U.K. wants new risk council. As expected, the U.K.'s Darling proposed tighter regulation for the U.K. banking industry, including the creation of a new council including the Treasury, the Bank of England and financial regulator FSA to deal with risks in the market and at specific firms. Darling said the goal is to "inspire trust on the part of businesses and consumers" and "provide effective mechanisms to deal with failures if they occur."
• Consumer credit declines. Consumer debt fell for the fourth month in a row, declining $3.2B, or an annualized 1.5%. Credit-card debt experienced the biggest drop, falling $2.9B. (Fed's release)

Earnings: Wednesday After Close

• Alcoa (AA): FQ2 EPS of -$0.26 beats by $0.12. Revenue of $4.2B (-41%) vs. $3.9B. (PR)

Today's Markets

Asian stocks were mixed, while European markets and U.S. futures are firmly in positive territory.

-NYSE down 177.3 (2.9%) to 5,776.76.

-DJIA down 223.3 (2.6%) to 8,281.

-S&P 500 down 26.8 (2.9%) to 896.54.

It's been a tumultuous summer for DVR service TiVo (TIVO), with a handful of court rulings that have sent the stock bouncing all over the place. The latest news is sending the stock down. Following a major victory for TiVo in early June, now there's a setback: Dish Network (DISH) subscribers can keep using their DVR service while the court battle wages on, headed to another appeal.

Here's the rollercoaster timeline: In early June TiVo [9.09 -1.68 (-15.6%) ] won a federal patent case against Dish Network [16.10 -0.38 (-2.31%) ] , sending TIVO stock up 53 percent in just one day. The court determined that Dish violated TiVo's technology patent, awarding $103 million in damages and forcing the company to disable about four million DVRs. (This is on top of a $104 payment a jury awarded TiVo from EchoStar (SATS) [15.83 -0.31 (-1.92%) ] in 2006). This ruling lays the groundwork to make other cable and satellite companies pay TiVo to license its service and also makes it an attractive acquisition target.

TiVo (TIVO) (Analyst Report) shares on Monday, June 29, 2009, lost 4.08% and fell $0.45 to close at $10.58. The slide in the price followed the U.S. Supreme Court's decision to permit Cablevision (CVC) (Snapshot Report) and other cable operators to offer network DVR (Digital Video Recorder) service.

• Enterprise/Teppco tie-up. After years of merger rumors, Enterprise Products Partners (EPD) agreed to buy Teppco Partners (TPP) for $3.3B in stock, forming a $26B energy partnership that will be one of the largest natural gas producers in the U.S. The combined firm will own nearly 48,000 miles of pipeline. The deal must be approved by Teppco shareholders.
• Jury tells Abbott to pay up. A federal jury ordered Abbott Laboratories (ABT) to pay $1.67B in a patent suit brought by Johnson & Johnson (JNJ) over its arthritis treatment. J&J had alleged Abbott's Humira arthritis therapy infringed on a patent for J&J's rival treatment Remicade. Abbott plans to appeal the ruling.
• Broadcom broadens Emulex offer. Broadcom (BRCM) sweetened its hostile takeover offer for Emulex (ELX), raising its bid 19% to $912M and promising to give up its attempts by July 14 if Emulex doesn't indicate support for the deal by then. Emulex said it will review the new terms 'in due course,' and urged shareholders not to take action in the meantime.
• BG moves into U.S. shale market. BG Group (BRGYY.PK) will pay $655M for a 50% stake in EXCO Resources' (XCO) U.S. shale gas project, and will pay another $400M to fund capital development. This is the latest in a series of BG acquisitions, and follows similar moves by other international oil companies interested in the U.S. oil shale sector.
• Cablevision wins DVR court fight. The Supreme Court ruled that Cablevision (CVC) can bypass set-top digital video recorders and allow its customers to record programs straight onto its servers. Comcast (CMCSA) and Time Warner Cable (TWC) had previously said they would launch similar services if Cablevision's approach was upheld as legal. The news pushed TiVo (TIVO) shares down 4.1%, but the potential impact of the ruling on the DVR set-top firm isn't entirely clear.
• State Street may face SEC charges. State Street (STT) said its State Street Bank & Trust Co. unit may face SEC charges over some fixed-income trading strategies it used in the run up to the subprime crisis. State Street will have a chance to present its defense before any formal decision is made on a civil enforcement action.
• RHJ may steal Magna's Opel deal. RHJ International is apparently close to a deal to pick up General Motors' Opel unit, squeezing out auto parts firm Magna International (MGA). Magna reached an agreement with GM in May, but talks have stalled since then, while RHJ has improved its bid and is being taken 'very seriously' by GM.
• DoJ objects to airline cooperation. The Department of Justice belatedly objected to plans by United Airlines (UAUA) and Continental (CAL) to cooperate on some global routes, and recommended that the airlines form a more limited trans-Atlantic deal instead. The Transportation Department gave the deal preliminary approval three months ago, but the Justice Department said the deal would likely result in higher fares and less competition. Though the Justice Department technically has no jurisdiction over international aviation agreements, its ruling could prompt the DoT to reverse its decision.
• Elpida wins Japanese aid. Elpida (ELPDF.PK), the world's third-largest maker of memory chips, received a ¥30B ($313M) injection from the Japanese government, bringing its total aid to $1.7B. Elpida, which is struggling to compete with larger South Korean rivals, is the first Japanese firm to qualify for a new program which makes public funds available to businesses hit by the global financial crisis.
• Chinalco to buy Rio shares. After being snubbed by Rio Tinto (RTP) over a planned $19.5B investment, Chinalco (ACH) plans to participate in Rio's $15.2B rights issue. Chinalco currently owns a 9% stake in Rio, and intends to subscribe to the rights issue to prevent a dilution of its holdings.
• IEA trims oil outlook. The International Energy Agency slashed its medium-term outlook for global oil demand by 3.7%, forecasting demand of 87.9M barrels per day in 2013, down from a previous 90.25M, and 6.25M lower than its original forecast last July. "The global financial crisis has turned the economic landscape upside down, with huge implications for the oil and gas sector," IEA's Nobuo Tanaka said.
• Madoff heads to prison. As expected, Madoff received an effective life sentence for orchestrating a $65B Ponzi scheme. The judge, who called Madoff's crimes 'extraordinarily evil,' invoked the maximum sentence of 150 years in jail. Sources say another ten people will face federal charges before the investigation is completed.
• U.K. GDP tumbles. The U.K. economy shrank 2.4% in Q1, the largest contraction in over fifty years. The revised figure is considerably weaker than the earlier estimate of a 1.9% decline.

Earnings: Monday After Close

• Apollo Group (APOL): FQ3 EPS of $1.26 beats by $0.14. Revenue of $1B (+26%) in-line. (PR)
• H&R Block (HRB): FQ4 EPS of $2.10 beats by $0.05. Revenue of $2.5B (-3%) in-line. Sees FY10 EPS $1.60-1.80 vs. $1.66. (PR)

Today's Markets

Asian markets closed mostly down, and European markets are modestly lower.