TiVo: Become a Content Portal, Or Sell the Company (TIVO)

by: Andrew Schmitt

Tivo (NASDAQ:TIVO) announced their new partnership Thursday. It’s called KidZone -- essentially a TV Nanny. My previous prediction is looking a little silly, though I wouldn’t rule out seeing more carrier partnership announcements. Thomas Hawke is excited because of the moral implications and I would agree the features make a great political statement. I’m not interested in political statements unless they enhance financial statements and it isn’t clear how this announcement (or other minor ones made in the past year) will do so.

Tivo’s greatest differentiator is its software front end and back end software infrastructure, and features like KidZone continue to enhance that position. If their objective is to be the leader in the DVR operating system business, adding new features like KidZone is a great strategy. It’s yet another reason why the carriers should stop developing their own DVR interface software and simply license it from Tivo.

The problem is those same carriers would never allow the broadband enabled Tivo service to be an alternate mechanism for distributing content. Why? It would catalyze the destruction of their content broadcasting business.

The only significant growth path I see is for Tivo to become a content portal, not just a DVR. Tivo should be aggressively courting content providers as a distribution platform that eliminates middlemen and guarantees content security. Otherwise, Tivo is destined to be a niche provider of consumer electronics software to the set-top-box industry.

Unless Tivo starts moving in this direction, more sophisticated products and content portals from Apple (NASDAQ:AAPL), Sony (NYSE:SNE), Microsoft (NASDAQ:MSFT) are going to enable broadband content distribution. This is the end game, and Tivo cannot compete against the kind of capital, in which case the company should be sold to one of the above. Other bit players like Netflix (NASDAQ:NFLX), Yahoo (YHOO), or Google (NASDAQ:GOOG) might be interested as well.

If the company was put up for sale, any of the above companies would pay a significant premium to secure the Tivo Brand and 1.4MM loyal subscribers. Those subscribers would provide the critical mass needed for getting the attention of content owners to implement a broadband based distribution strategy.

If no one stepped up to the plate, a carrier/broadcaster (Comcast / Verizon / AT&T / DirecTV) would buy Tivo to differentiate their service from the other carrier. “Don’t buy Verizon FiOS TV because only Comcast has Tivo!