Rogers on March 12

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Tom Rogers’ message sounded to me like, ‘We don’t have the products or marketing strategy to really grow our business cost effectively,  so we are going to cut back for 6, 12, maybe 18 months until such time as we do.’ Having an ineffective marketing strategy and a poorly positioned product offering is not a badge of acheivement for Rogers, but a further sign he has taken the company in the wrong directions.

Rogers spoke at length about the coming year and I have some commentary:

Better Financial Results:

Cutting losses is not a complex feat. TiVo plans to improve its bottom line and cash needs this year by cutting back on its SAC related expenses which also involves accepting lower unit sales. TiVo already did this two years ago. Mathematically, there is no argument to this working out for short term financial appearances, but TiVo is not doing this from strength.

TiVo will lower hardware/rebate expenses and raise advertising expenses: TiVo will lose less per box from hardware/rebate lines and sell less boxes, which will drive that expense down substantially. TiVo will spend more dollars on advertising – but less than the savings from hardware/rebates. Advertising SAC will therefore go up substantially.

Rogers commented that Q4 results were better than expected. However, if you take out the change in legal expenditures, the bottom line was worse than last year. Furthermore, take into account 50-60K less Gross Adds and that’s another hit of over $7M.

Climbing ARPU:Climbing ARPU is supposed to help TiVo climb out of its financial difficulties, but how much and how soon?

TiVo says ARPU on new subs is in the $12-13/mo range. They noted APRU @$8.99, which is up $.17 from last year. Ad sales were said to have had a nice improvement. Taken together, this doesn’t show much of an advance from higher priced new subs. Factor in low Gross Adds this year, and ARPU increases may be long in developing.

Advertising:

TiVo will increase the amount it spends on advertising, probably starting in Q2. TiVo believes they now have more to advertise in terms of features (like Unbox) and can get value from doing so. I think just the opposite. The ad money will blow out the window and be lost for nothing. TiVo has not created good advertising in the past, including just last quarter, and I don’t expect the same team of people to do better this year. In Q4 TiVo spent plenty on ads and Gross Adds were terrible. When sales don’t materialize advertising hurts TiVo financially – unlike box subsidies which are only incurred if sales are made.

Downloadable Content:

TiVo sees this as an area that adds value to being a subscriber and may bring in some revenue in the future. No question about that in my mind. Will TiVo really show Amazon it was worth hooking up? Also, I don’t know that what TiVo has done and will do advances it relative to the changing marketplace. Not adding Unbox would leave TiVo falling behind relative to things like PC-Media Extenders. Is TiVo just keeping pace or falling behind?

Comcast:

Comcast is coming, but at the rate DTV is fading, will that really matter? I doubt TiVo can bring in enough revenue from CableSoft to make things exciting from a growth perspective any time soon.

HD Product:

The Series 3 has missed the mark because it is too expensive. Rogers uttered the word “disappointing” when getting into the subject, and used the euphemism of not fully participating in the hot HDTV market.

TiVo will need a lower cost HD box to get into position to market in that segment. How the S2DT holds up hasn’t been addressed. Do they need a different analog box too, or do they need to suffer through a falling analog market until they can build an HD business?

While TiVo has a very good subscription business, it is sunk by its marketing costs. I don’t believe their approach this year has any chance of improving that situation. If anything TiVo’s reputation and position may deteriorate this year.

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2 Responses to “Rogers on March 12”

  1. HDTiVo Says:

    Don’t forget CFO Steve Sordello on the 14th.

    http://www.veracast.com/webcasts/citigroup/smallmidcap07/56208376.cfm

  2. HDTiVo Says:

    Sordello on 3/14:
    http://www.veracast.com/webcasts/citigroup/smallmidcap07/56208376.cfm

    Re: Q4

    Pre pays are 50% of new subs.
    3yr pre pay 60% of pre pays -> 30% of new subs
    56% of DT subs connect via Broadband – Total 600K
    Analog 47% of new subs

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