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Strategic Inflection TiVo in 2003
By Group 5:
Santosh H R
Prashant P
Mitul B
Shruti P
Kritika Cheeyanna
ABOUT ME
• Introduced in 1999 was premier leader of DVR Founded in 1997 by Ramsay and Jim Barton DirectTV first partner – DirectTiVO
• Software, hardware, & services– Live TV, internet video, VOD
“Leading provider of technology and services for advanced television solutions, including digital video recorders and in the future non-DVR set-top boxes and connected televisions.”
Vision
Mission
“Redefine home entertainment by providing consumers with an easy and intuitive way to record, watch, and control television and receive videos, pictures, and movies from cable, broadcast, and broadband sources.”
ABOUT ME
Industry first Multi-Room Viewing, PC hook up, third party apps integration
UK in 2000
Australia in 2008 with Hybrid Television Services
2003 with British Satellite Broadcasting, 2010 with Virgin Media,
Aus in 2008
Partnerships Charter, Comcast, Cox, DirecTV,…. (Virgin Media, Cablevision)
Revenue Consumer Service, TV Service Providers, Media Services
MY DEVICE
A DVR unit is a set-top box that performs three different main functions Tivo and live television
Pause / rewind live T.V, Suggestion engine, Fast Forward through ads, "Season Pass” & “Wish List” , Parental control, “Showcases”
Tivo and recording
Program library-- storing movies/ programs on its hard drive.
Timewarp-simultaneous viewing and recording, “time-shift” Tivo Home Media Option
Save a program on living room T.V & transfer it to bedroom T.V,
Remote scheduling through internet, Transfer of music and photo files between T.V and PC
Merits: No conflicts, Sifting through 100s of channels made easy.
MY REVENUES
• Service– Through advertisers
Audience research to evaluate consumer demand and advertising campaign effectiveness.
Sale of advertising (Advertainment & Infomercials with Opt-In feature)
Monthly subscription fees
• Technology– Through licensing and engineering service agreements with
strategic partners such as Comcast, DirecTV, and Seven/Hybrid TV.
• Hardware
MY DEAR ONES
YearSubscribers (millions)
2001 0.28
2002 0.35
2003 0.92
2004 2.31
2005 4.17
2006 4.43
2007 4.12
2008 3.63
2009 2.76
2010 2.51
00.5
11.5
22.5
33.5
44.5
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Subcriptions (millions)
MY COMPETITORS
EchoStar NDS (builds the DVRs for DirecTV) Apple TV Verizon AT&T with Microsoft Moxi Scientific Atlanta (owned by Cisco Systems) Motorola LG (DVR built into TV)
STRENGTHS
First mover advantage, core competence of software development
Highly loyal and satisfied customers (churn rate of <1% per month)
Patents (>85)
Brand recognition/ Equity
Multiple sources of revenue (advertising, consumer research, subscription
fees, license fee)
Unique and distinguishable software (cryptography), difficult to hack
WEAKNESSES
Stand-alone systems are not readily accepted as TiVo expected.
Do not have Board members from companies that influence future of DVR
industry. i.e. Cable
Single supplier (Broadcom) for key product components
Over reliance on partners
High R&D expenses (16% of revenues)
Separated from customers by partners
High long term debt load, accumulated losses, high patent infringement
lawsuit costs
OPPORTUNITIES AND THREATS
Threats
Low barriers of entry
Generic DVR’s such as Comcast and EchoStar's units
Bargaining power of satellite and cable companies
The stand alone box becoming obsolete
Competition from IPTV, Google/Apple/Microsoft
Opportunities
Unique promotional and advertising capabilities
New relationships with cable companies
The Global market (Asia & Africa)
Expansion of DVR households (25% to 40% by 2012)
VRIN ANALYSIS
VRIN Analysis
Valuable? Yes, Patents for TiVo DVR technology.
Rare? No, other DVR technologies exists
Difficult to Imitate? No, Only special features are inimitable
Difficult to Substitute? No, New cheaper technologies coming up
PORTER’S 5 FORCES
Threat of new of entrants (medium)
Low in 1997, Now high: Cable operators, Satellite operators, Telecom companies (IPTV by Verizon), IT players (Apple, Google, Microsoft)
Rivalry among existing players (High)
Tough competition from DVR players like EchoStar, Replay TV (“send show” and “ad skip”)
MSOs (Multiple service providers)-DirecTV, Comcast, Time Warner and Cox.
Bargaining Power of Buyers (High)
Only discerning customers (10%) can differentiate between TiVo DVR and other low cost substitutes.
Several MSOs providing Set Top Boxes with basic DVR features.
Bargaining power of Suppliers (Low)
Threat of forward integration by suppliers
Threat of Substitutes (High)
Microsoft Xbox, APPLE TV, Telecom operators, Broadband penetration.
TV-PC integration (LG), cloud based remote/virtual DVR.
FINANCIAL ANALYSIS
Year Revenue
(m U.S $)Net profit
(million US $) EPS ($)
2001 19.39 -160.73 -3.74
2002 96.01 -82.26 -1.61
2003 141.08 -32.01 -0.48
2004 172.01 -79.84 -0.99
2005 198.12 -36.99 -0.44
2006 258.92 -47.7 -0.53
2007 272.67 -31.5 -0.32
2008 249.7 103.6 1.01
2009 237.6 -23.9 -0.23
2010 219.6 -84.5 -0.74
Revenue (U.S $ in MILLION)
2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
50
100
150
200
250
300
019.39
96.01
141.08
172.01198.12
258.92272.67
249.7 237.6219.6
Revenue
NET PROFIT (U.S $ IN MILLION)
-160.73
-82.26
-32.01
-79.84
-36.99
-47.7
-31.5
103.6
-23.9
-84.5
-200
-150
-100
-50
0
50
100
150
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Net profit
FINANCIAL ANALYSIS
• It has ample cash and other liquid assets on hand, solvent in short run
• current ratio reveals that three times the amount of current assets compared to current liabilities.
• Financial leverage is high, as they are using 40% debt in their capital structure.
• TiVo has had to take out large loans to provide funds for its ongoing legal battles as well as R&D expenses.
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS
• Asset management at TiVo is mixed. • Inventory management has improved in the last three years, the ability
to collect promptly on receivables has decreased by 20%. This has resulted in over 25 days sales are in receivables in 2010.
FINANCIAL ANALYSIS
• Profitability measures all indicate that TiVo’s profitability has fallen dramatically in the last three years.
• Return on equity fell from a high of 70% in 2008 to negative 50% in 2010.
• In addition, the profit margin is in “free-fall” going from 40 cents profit for every dollar in sales to a loss of nearly 40 cents for every dollar in sales.
FINANCIALS OF TIVO AND ITS COMPETITORS
Direct competitors
Tivo Cisco AT& T Verizon EchoStar Motorola
Sales 219.61M 42.36B 124.28B 106.57B 2.35B 11.46B
Net income -84.51M 7.58B 19.08B 2.55B 204.36M -86.00M
Profit margin -38.48% 17.89% 15.61% 9.59% 8.69% -0.69%
EPS -0.74 1.32 3.35 0.90 2.39 -0.30
P/E -12.22 13.69 9.54 41.91 15.20 -82.86
Market cap 1.08B 95.19B 181.54B 105.62B 3.13B 7.01B
Share price 9.00 18.07 30.71 37.76 36.81 23.78
Employees 611 70,700 265,410 194,400 2,300 19,000
WHAT HAPPENED TO ME?
The first mover advantage The superior technology The markets were growing
But
‡ They couldn’t exploit the advantage of being the first mover, Failure to cash-in on network effects and positive feedback loop
‡ Incurred an operating loss of 500mn from its inception till 2005‡ They could not position themselves clearly with customers.‡ TiVo box was in addition to STB, sometimes resulted in wrong
tuning.
WHAT WENT WRONG ?
Excessive rebates in initial years to cable operators and consumer electronics companies to gain market s hare. (TiVo bet on subscriber base additions even at higher costs-Google model)
TiVo was analog not digital in 2003, sudden hype of HD TV affected sales, TiVo was standalone device not readily extendable/adaptable to multiple STBs.
High reliance on DirecTV for sales which in 2005 stopped supporting TiVo (after being acquired by NewsCorp of Rupert Murdoch)
WHAT WENT WRONG ?
Customers were a narrow segment of tech savvy discriminating enthusiasts between 25 and 45yrs old, household income of 70,000-1,00,000 $. Older customer could not distinguish between TiVo and cheaper versions.
Due to M&A top 5 players controlled content, broadcast and DVR market.
New PCs and laptops had in-built DVR technology (HP, Sony VAIO, Microsoft)
WHAT WENT WRONG ?
• Failure to monetize
ParameterJan 2003
Jan 2004
Jan 2005
Jan 2006
Jan 2007
Subscriber Acquisition Cost 347 106 182 196 267
ARPU/month (Standalone TiVo subscribers)
7.45 8.57 8.76 8.83 8.78
ARPU/month (DirecTV subscribers) 6.06 2.57 1.52 1.15 1.03
Source: TiVo 2007: DVRs and Beyond-David Office & Michael Slind- HBR 9-708-401
WHAT WENT WRONG ?
Sales through Amazon.com & Best Buy highly subsidized (almost free)
Falling market share (20-25% in 2006-07 fell to <8% in 2010-11)
Product became generic (like Xerox)
Failure to enter into mass distribution tie-ups like DirecTV with other players
(Comcast/Time Warner etc.)
Advertisement income only <10% of total revenues.
“Stop Watch” and “Power watch” not fully monetized (McDonald, Nissan, Visa)
High lawsuit expenses, high R&D expenses.
Failed entry in U.K, expansion costs of entering China, Taiwan, Mexico, Australia..
TiVo's Future
Exit Manufacturing (hardware) of DVR Set-Top Boxes and Create more License Agreements/tie-up with Set-Top Box Manufacturers
Provide software outsourcing (development & service) to players. Concentrate on developing broadband based integration software
(PC-TV-Cell phone-STB etc.)
Chosen Alternatives
• How to maintain market share (8% in 2011) in an industry that has become increasingly commoditized ?
CHOSEN ALTERNATIVES
• Bring in top players on board (NBC, Time-Warner, Comcast, DirecTV) use their influence to get into strategic tie-ups.
• Earn more revenues from customized audience research measurement (only competitor- “people-meter” by AC Nielsen)
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