TiVo's Rogers: Content Deals And Cable Partners Will Save Us

TiVo (TIVO) turned in a slightly-better-than expected quarter, good by TiVo standards, but still pretty dismal by the standards of most companies in the business of selling goods or services and making money. In a nutshell, TiVo turned in a profit by cutting back marketing spending, but that will swing back to a loss next quarter. The company still loses money on each box it sells.

On the call, CEO Tom Rogers wouldn't say when TiVo will start gaining subscribers again, but he does talk a lot about the company's potential as a partner to cable operators and the advertising industry, and as an all-media hub in the home. The goal is to sign deals to make TiVo more appealing, such as today's announced deal with Disney, and with partners willing to spend to market TiVo such as Tribune. Some news: Comcast is going to introduce TiVo in a another New England state (beyond Massachussetts and New Hampshire).

Call notes:

Tom Rogers: Talks about improving financial performance, protecting intellectual property, and setting the stage for growth.

Comcast has rolled out TiVo as a feature in New England. Additionally, the TiVo trial on Cox will launch in New England later this year. Working with the cable industry to allow TiVo to continue recieving video with switched video technology.

Our committment to focus on reducing marketing spend was a success. Our subscriber acquisition costs are down. We are also working with leading retailers to bundle TiVo with HD television sales.

We are continuing to weave our way into the media industry. New example is partnership with the Chicago Tribune, allowing users to download the Trib's recommendations to the TiVo. The Chicago Tribune TV section will promote TiVo and tell readers how to sign up. We are increasingly entering into agreements that allow the marketing dollars of others to accelerate our growth.

TiVo HD is priced with a far smaller hardware subsidy. TiVo.com Web site has been relanched. Initiated our social networking application on Facebook. The YouTube deal expected to launch in the next few months. Broadband TiVo subs will have millions of videos available per month. This is one way TiVo differentiates from a typical DVR.

We want users to think of TiVo as a device to manage all digital media in the home. Engadget and Wired love us. TiVo is leading the charge on macro trends defining the television landscape. Put this together and we have a solid foundation of growth.

TiVo's overall sub base 3.8 million, down from 3.95 million last quarter. CFO says TiVo will continue losing DirecTV subscribers, and will be EBIDTA profitable in 2009.

Q & A begins:

On subscriber acquisition costs, why were they so low this quarter?
Rogers: We are not projecting what SAC will be going to forward but we are going to manage it down. HD boxes have lower subsidy attached so the more HD boxes, the lower SAC. We think we've gotten more efficient in terms of driving our subs. We think TiVo.com contributes to that efficiency--and we are looking to work with third parties who spend their marketing dollars on us.

What properties are included in the Disney deal? Just movies or ESPN content? Can Disney help out on the advertising front?
Rogers: This is a deal with Disney studios--does not include other properties. It does include all product that is available digitally--both new releases and library content. We now have access to all their studio product for our download service. We are having discussions with them, but won't comment on how this deal might relate to future talks.

Can you give us a sense if there have been settlement talks with Echostar?
Can't comment. That's confidential.

On net ads on the standalone service ... when are you going to start growing again?
Rogers: I don't want to make a projection. We think our relationships with third parties will help our standalone sales. Bundling with HD sets, working with retailers to bundle TiVo, and content partners which have incentive to see TiVo sales driven. Chicago Tribune deal includes promotion of TiVo to subscribers.

Comment on your strategy for selling standalone boxes?
Rogers: The offering of lifetime service will be offered to new subs. That is one piece of broader strategy to drive standalone business forward while reducing marketing spending. The reason for re-introduction is we have more flexibility on pricing. We need to subsidize these subscribers less, and can take on upfront cash payment for the TiVo hardware and service.

We believe TiVo be viewed as more that a DVR, but it hasn't really been built out yet. You can get any song you want on TiVo. Increasingly its an all-video service, with Disney and YouTube. We are building toward any song, any movie, all television. It starts to make TiVo look like a good deal against cable or satellite DVRs.

Can you provide metrics on take-up rates among Comcast subscribers?
Comcast is focused on doing so--they are looking to roll it out it multiple markets. I don't have metrics to offer. That is information Comcast is not providing. We're about done working out the bugs with Comcast. Their enthusiasm for TiVo is great. Comcast says they will introduce TiVo in another New England state (beyond Massachussetts and New Hampshire).

Why will you swing to a loss in Q2?
Rogers: Heavier marketing spending. More boxes sold at retail--meaning more hardware subsidies. Higher litigation costs with Echostar.

Average revenue per subscribers are down in the quarter, why?
Rogers: The lifetime accounting change was the biggest factor. We have more subscribers taking non-monthly (lifetime) plans. New subscribers come on with average monthly revenue well in excess of our average. We expect average a revenue per subscriber to go up next quarter.

Echostar says they're going to appeal this all the way to the Supreme Court. What would the timing be?
The chances of the Supreme Court taking a case like this is less than 1%. This is not an issue of national significance and its unlikely the court would hear it.

Do you feel the uncertainty around the litigation is prohibiting you from doing deals you might otherwise have done?
Rogers: The ongoing discussions with cable operators we don't have deals with focus on how our Comcast relationship is going. The litigation is something people are aware of--but one of several factors. Upholding of our intellectual property will enhance the value we bring to the table.

We are pleased with our quarter and the progress we are making with our Tribune and Disney deals. We are making progress on the product front--one remote, one box, one user interface, all content.

Earnings summary:

TiVo (TIVO) reported a higher Q1 profit and beat analysts' EPS estimates on revenue that was mostly in line with expectations. But Q2 revenue guidance is below the Street's consensus, and TiVo expects to swing to a loss.

Higher-than-expected Q1 profits were a result of lower marketing and R&D spending. We'll listen to the conference call to determine what impact reduced spending had on TiVo's tiny customer base -- and for details about Q2.

Fiscal Q1 2008:

EPS: $0.04 per share vs. expected loss -$0.01
Revenue: $54.9 million vs. $55.62 million average estimate
Outlook: For Q2, TiVo expects revenues in the $53 million to $55 million range -- below the Street's $57 million consensus -- and a net loss of $2 million to $4 million.

Related: TiVo Adds Disney Films, Newspaper Reviews
TiVo Bites Back At Apple TV With YouTube Deal