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 CURRENT PRODUCTS

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)

MY CORE COMPETENCY

DISTINCTIVE CORE COMPETENCIES

Software Development R&D (IPR)

SWOT ANALYSIS

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

The technology s-curve by Richard foster

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)

Final Alternative- Get Acquired

TiVo on verge of “Lock-Out” on account of high switching costs