The New Marketing Plan is Not Working

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TiVo’s quarterly results announced last week illustrate the poor performance of their ‘new marketing plan’ (NMP).

Gross Subscriber Additions came in at 4% less than the same quarter last year. NMP was in full effect well before the quarter started and had been in development for at least 6 months prior. Marketing expenses were comparable to last year. The quarter benefitted from the availability of a long awaited unit with dual tuners and more speed.

Most damning of all for NMP, the same quarter last year TiVo purposely attempted to not sell many boxes. Let me restate this because it is important: MNP could not beat a period when TiVo tried not to sell boxes, despite having a long awaited new product on its side.

All this comes as no surprise. I explained why NMP would not work when it was first announced. What is more surprising is that TiVo is still trying to figure NMP out (although I also said TiVo really hadn’t back then.) On their conference call, Rogers admits TiVo is still adjusting the offerings to learn about what will work. This comes over 10 months after initial development and over 5 months after introduction of NMP. TiVo still appears to have months of ‘tweaking’ ahead.

TiVo can do all the ‘tweaking’ it wants; what it is going to come back to is that the pricing isn’t correct and the purchasing mechanics are flawed.

What has TiVo learned so far? According to them, they’ve figured out that if they lower 3yr Service by $100, many more folks pick it (50%?) and total sales increase somewhat!! (I am not sure of the exact meaning or interpretation of the statements made.) Well, there’s nothing about that that a Freshman in Economics, Business or Marketing wouldn’t know without even having to try it.

With NMP TiVo broke something that was already broken. They didn’t fix much, if anything. TiVo is just finding out that they have priced the bundles much too high. They likely have yet to understand that there are problems with the terms which also constrict sales.

TiVo’s strategy with NMP is to increase ARPU more than SAC (ie. NPV of a Sub) and also increase Sub adds. The second part – Sub adds – is not working, and the first part is in much doubt. TiVo claims that NPV is up under NMP; but that is likely based on assumptions not backed up by actual experience, which I doubt are correct. Simply put, my view is that SAC appears to be increasing by over $100 (long term avg.) and ARPU is not likely to compensate. One of the great risks I see going forward is the disposable nature of the box under some NMP offerings.

NMP was supposed to fix the Sub add problem and build the the Service business. TiVo did not have a problem making money with the old offerings, they had a problem not garnering enough Subs to pay for the entire enterprise. Even if TiVo is right that NPV will increase, the decline in Sub adds will hurt more since there will be less overall Service Margin to pay the other bills.

Finally, while TiVo says online sales (now under NMP) have increased relative to retail, with the overall decline in business all that means is NMP is the lesser of the evils. Indeed, NMP itself may be the cause of some of the damage to retail sales.

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