Barron's: TiVo Stock Lacks A Fast-forward Button (TIVO, SFA, MOT)

by: SA Editors posted on: April 17, 2006 | about stocks: MOT / SFA / TIVO

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A weekend article in Barron's retiterated and expanded upon many of the skeptical points on TiVo (TIVO) recently articulated by Seeking Alpha contributor Andrew Schmitt. Excerpts:

With a name that's become a verb, plus great software, TiVo could be acquisition bait. But its share of DVRs is on course to be eclipsed this year by Scientific-Atlanta (SFA) and Motorola (MOT), the two largest cable set-top makers...

Most of its subscribers come from a deal with DirecTV (DTV), the satellite operator, which pays TiVo $1.15 a subscriber, and accounts for nearly 70% of TiVo's users and 20% of its revenue. DirecTV last week extended the deal to 2010. It won't market TiVo's service, but the deal prevents TiVo from losing existing customers.

Last week's jury verdict may boost TiVo's chances to sign up cable operators other than Comcast (CMCSA), with which it already has a deal. Cable guys will find it difficult to work around TiVo's patents, says Terence Clark, a lawyer who heads the national intellectual property practice at Greenberg Traurig. That could force Time Warner Cable and Cablevision (CVC) into licensing deals.

But the case doesn't solve TiVo's most pressing long-term problem. It still has a long road ahead as it tries to win over cable operators with its patent claims...

A buyout may in fact be the best exit strategy for TiVo. In the meantime, selling on Thursday's pop in TiVo shares may be the best exit for investors. What lies ahead are many years of knocking on cable operators' doors, a long, long story with no fast-forward button in sight.

See also our handy one-page summary of this week's Barron's and a flattering commendation of Seeking Alpha from that publication.

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