The Business of TiVo

Various Postings on the Subject of TiVo’s Business Performance

 

(October 27, 2006)

Although their track record isn’t encouraging, I’d like to wait and see how TiVo reacts pricing in the next month before I pronounce judgement. There are already signs of S3s being available for substantially less than $800 (ie. TCS for $680 ) I don’t reject the $800 initial price, but I would reject keeping it in that area ’til T-Day.

I want to see how they couple November’s price reductions, advertising, and software release to be more effective.

I do think that price reductions will make big differences in volume. $599 will be meaningful. $499 a good increment above that. At $300 (box fee, ie. about $369) I think the SAC about equals the S2 SAC. At $369 adoption will be impressive by TiVo’s standards (assuming the S3’s bugs/irritations are worked out.) One reason I say the above, is that the S3 really does provide impressive quality video, especially in its recording and scaling SD analog content. Its a very nice addition to a quality A/V system.Personally, I’ve been sold on keeping it for $680 via TCS.

(October 23, 2006)
The table below shows the marketing efficiency achieved by TiVo in recent quarters. The conclusion is that TiVo has had to step up their SAC spending substantially for any given level of sales. It looks like Rogers’ strategy has coincided with the deterioration. The Q3 and Q4 2007 estimates assume significant improvement in efficiency. If that does not pan out, SAC could be exceed $270 for FY07. I am defining effieciency as the difference between Gross Adds and SAC, in percentages.

FY07 Gross Adds SAC Total SAC T-SAC yoy SAC yoy GA yoy T-SAC eff SAC eff
Q1

91

232

21112

35.3%

54.7%

-12.5%

-47.8%

-67.2%

Q2

74

320

23680

42.4%

48.1%

-3.9%

-46.3%

-52.0%

Q3

90

400

36000

27.0%

29.9%

-2.2%

-29.2%

-32.0%

Q4

240

180

43200

24.5%

14.6%

8.6%

-15.9%

-6.1%

495

123992

FY07 SAC est

250.4889

FY06
Q1

104

150

15600

18.9%

-6.3%

26.8%

7.9%

33.1%

Q2

77

216

16632

-0.4%

0.9%

-1.3%

-0.9%

-2.2%

Q3

92

308

28336

-13.4%

12.0%

-22.7%

-9.3%

-34.7%

Q4

221

157

34697

-10.2%

12.1%

-19.9%

-9.7%

-32.1%

FY05
Q1

82

160

13120

0.0%

0.0%

Q2

78

214

16692

0.0%

0.0%

Q3

119

275

32725

0.0%

0.0%

Q4

276

140

38640

0.0%

0.0%

(October 22, 2006)

What about TiVo management’s comments that the subs acquired under the new pricing plans have a higher net present value than those under the traditional plan despite the higher SAC? TiVo’s management has absolutely no idea what the NPV of the bundles is going to be. Its all a guess based on assumptions. Those assumptions, like most of what TiVo has done with their business, are unlikely to work out as favorably as TiVo “hopes.” Its all a convenient spin for 12-18 months which will be followed by some new story. This is a scenario that has been repeated time and time again.What about TiVo’s claim that the new plans are an easier sell (as shown by the increase in online sales relative to retail), and an overall improvement?
 
I don’t agree that there is net improvement. Change in channel mix has resulted in weakening retail sales to a greater extent than the improvement in direct sales. It is definitely possible to put together a marketing strategy with the numbers I advocate. Best Buy and Circuit City are not joining the bundle plan because they know what they are doing. It is TiVo that doesn’t, and to listen to them is to go awry.All planning goes awry in the real world. How can you say TiVo’s planning for the S3 launch was poor? No battle plan ever survives contact with the enemy.  As far as the planning, there is typical imperfection and there is gross imperfection. TiVo consistenly leans toward the later. No battle plan of TiVo’s has ever survived the enemy. If TiVo ever has a good QTR, I will write it up as such. If they have two, I’ll start to change my perspective. If TiVo ever announces a good strategy, I’ll write it up that way and change my assumptions. I was high on the marketing concept last year, I only became negative when the actual plan was revealed to be seriously flawed.
 

(October 21, 2006)

Does TiVo face any serious competition for dual tuner CC SA HD-DVRs in the next two years, or can TiVo just cherry pick the market until it releases a reduced cost Series3?

 

The competition against dual-tuner CC HD SA DVRs is fierce. Two years from now is a Lifetime. But I don’t accept that TiVo will take 2 yrs to reduce prices to competitive levels anyway. I think TiVo will push sales with lower prices much sooner, but I think their sales goals (and/or results) will remain ridiculously low.

 

Won’t selling the Series3 for $800 reduce SAC?


$800 will push SAC down, but the influence of the S3 will be small. I expect about 90K Gross Adds this QTR, with 10% or less being S3s. With the poor performance of TiVo $tore, I expect large expenses related to returns, etal. Many direct sales at $800 will otherwise be shifted to retail @ around $500; big difference.


 

You talk about escalating SAC, where do your figures come from? What allowance to you make for increased ARPU on the bundle sales?

 

Q1 & Q2 SAC are up $80 & $100 over last year (with the $100 being a full QTR of the current maketing strategy.) We are looking easily at $60-100 more than the $308 of 3Q06. No reason not to figure $40-60 more than 4Q06’s $157.That leaves us with FY07 SAC over $250 vs $191 and $182 in ’06, ’05.It also means $100 more than an alternative strategy of getting SAC below $150 with higher sub adds for the sake of a short-term couple extra dollars per month from new Subs. The $100 is a big and risky investment and, together with lower Gross Adds, reduces the opportunites for other revenues (ie. Ads, TiVoCast)(SAC is an average; it averages SAC from various sales channels. Ultimately we don’t have the data to calculate the higher SACs vs marginal ARPUs for each channel.)Hasn’t some marketing already started, and won’t it to ramp up significantly  through the Holiday Season?

 

That’s the right timeline for advertising based on TiVo’s comments, and I’ll take them as given for now. If they really go big, they’ll drive up SAC more than S3 sales help; if they don’t, Gross Adds will suffer and hurt SAC.Whatever they do, they’ve maneuvered themselves into a strategy with much higher SAC, and I don’t think the hoped for higher ARPU will compensate in the long run.

What do the Series3 shortages suggest about TiVo meeting their sales plan?

The evidence suggests extremely poor fulfilment and other planning by TiVo. There never was an actual global shortage. There are more retail locations than S3s to be sold this QTR, therefore it should be expected to often find individual locations without product. At no time was it not possible to get a Series3 shipped out from somewhere (and at favorable cost) within a day. There was alot of double ordering in the first days. There has been plentiful availability for at least two weeks.

The tragedy is that TiVo will meet their sales goals.

 

Former TiVo CEO sells shares:


 

HOT OFF THE WIRE PORTFOLIO NEWS – from Quote.com

(NASDAQ:TIVO) TiVo Inc.

     Tivo Inc. Director Michael Ramsay Sold 20,000 Shares at $6.7 on

     10/16

     – Oct 17, 2006 05:20 PM (RTTNews)

     – http://www.quote.com/home/news/story.asp?story=61723907

(RTTNews) – Tivo Inc. Director Michael Ramsay Sold 20,000 Shares  at $6.7 on 10/16

Copyright(c) 2006 RealTimeTraders.com, Inc. All Rights Reserved

 

Does TiVo Charge NYS Sales Tax So The CEO Can Commute?    (10-02-2006)


After ordering an S3, I got a confirm page with no sales tax indicated. Four days later I get the order confirm email with NYS sales tax added. Let’s put aside that the billing address is NYS not the shipping address.

We “all” know the CEO lives in NY and keeps an office there supposedly so he can work his NY advertising deals.

So is TiVo charging NYS Sales Tax just to satisfy the CEO’s predilections?

On TiVo’s Web site there is a job posting for an Advertising sales manager. Last I heard all they had was the CEO and a secretary; I’m not surprised they are trying to increase their presence.

Is TiVo Store FUBAR?

 

HDTiVo Blog: The New Marketing Plan is Not Working    (09-03-2006)


 

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: NMP 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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