TiVo Inc.: TIVO VS. CABLE AND SATELLITE DVR; CAN TIVO SURVIVE? (Case 14) Oleh : Bagus Adi Luthfi, MSM • TiVo was founded as a company on August 4, 1997 by Mike Ramsay and Jim Barton. TiVo was a Pioner DVR Technology. • The stock fluctuated around $6–$8 per share in 2006 and closed at $5.35 on January 31, 2007, the end of the company’s 2006 fiscal year. The company followed a policy of declaring no cash dividends TiVO Situation • During the 2006 fiscal year ended January 31, 2007, the firm had a net loss of $47.8 million. TiVo had a positive cash flow of $3.8 million for the year of 2006 thanks to $64.5 million raised from the sale of 8.2 million shares of its common stock • TiVo-owned subscription gross additions for the fiscal year 2007 were 429,000—down 13% from fiscal year 2006 • TiVo had not earned a profit in the 10 years since it had been founded or in the eight years since it went public • Investors have a limited amount of patience. A nodividend policy made sense for a fast-growing entrepreneurial company, but a low, volatile stock price was not going to be acceptable for long Corporate Structure Current Strategy • Offer an increasingly differentiated service • Diversify our sources of revenue to include more advertising • Integrate TiVo technology with third-party DVR platforms to provide TiVo service • Extend and protect TiVo’s intellectual property • Promote and leverage the TiVo brand through multiple advertising and marketing channels • Extend the TiVo product beyond the U.S. market into countries such as China and Mexico • As people’s daily life became busier and they demanded more convenience in watching TV, digital video recorders became the tool to satisfy that need (Socio CulturalLifestyle) External Environment Analysis: Societal Environment • Approximately 16 million households had DVRs and this number was expected to increase to 56 million by 2010 in US (Economic-Market Size) • DVRs could be the subject of future regulations relating to copyright law or evolving industry standards and practices (Law & Regulation) • Market opportunity in international wide (Economic-Market Size) • Where technology was involved, there were always incentives for hackers to challenge the system (TechnologySecurity) External Environment Analysis: Task Environment • We face intense competition from a number of sources, which may impair our revenues, increase our subscription acquisition cost, and hinder our ability to generate new subscription • Barrier’s to entry is low and rivalry among competitors is high External Environment Analysis: Task Environment • Despite TiVo’s many alliances, the company was faced with the difficult challenge of working with cable and satellite operators who offered their own digital video recorder (Several options of product subtitution) • We depend upon a limited number of third parties to manufacture, distribute, and supply critical components, assemblies, and services for the DVRs that enable the TiVo service. We may not be able to operate our business if these parties do not perform their obligations (bargaining power of suppliers is high) • People really want to take control of television, and if you give them control, they don’t want you to take it back (bargaining power of consumers is high) DirecTV, the satellite service provider, had served as TiVo’s backbone in its early years. This service partner had fueled most of TiVo’s early growth. TiVo’s current 4.4 million subscribers had mostly come from its partnership with DirecTV . DirecTV decided in 2005 to develop its own DVR device in cooperation with the NDS Group. EFAS Matrix External Factors Opportunity Demanded more convenience in watching TV Weight Rating Weighting Score 0,2 3 0,6 Growing market size in US 0,2 2 0,4 International Market 0,1 2 0,2 Comments TiVO has a DVR product to answer consumer needs The TiVo-owned churn rate per month was 1.0% for the fiscal year ended January 31,2007, compared to .9% and .7% for the fiscal years ended January 31, 2006, and 2005 Have limited experience in providing service and operations internationally Threats Competition 0,2 2 0,40 Technology security 0,1 3 0,30 Law & Regulation 0,1 4 0,40 Third Party Dependency 0,1 2 0,20 Total Score 2,50 The TiVo-owned churn rate per month was 1.0% for the fiscal year ended January 31,2007, compared to .9% and .7% for the fiscal years ended January 31, 2006, and 2005 In the latest version of TiVo, improved encryption of the hardware and software made it more difficult for people to hack the systems. TiVo licensed its patents through several of its trusted partners Depend upon a limited number of third parties to manufacture, distribute, and supply critical components, assemblies, and services it can be said that TiVO can’t deal with external environmental risks and challenge. • TiVo’s brand trust among regular users scored 4.2 (out of 5 possible), while its brand potential among aspiring users scored an “A” with 11.1 million potential users (strong brand image) Internal Environment Analysis • According to the April 2007 issue of PC World, TiVo was third on its list of 50 best technology products of all time. Series 3 TiVo provided the ability to record two shows at once. (strong technology) • According to a survey reported on the TiVo Web site, 98% of users said that they could not live without their TiVo (high customer loyalty) • TiVo had 85 patents granted and 117 patents pending, including both domestic and foreign patents (strong R&D) • The company had never experienced a work stoppage or strike and management considered employee relations to be good (good culture & people management) • TiVo hardware could also work alone as a normal DVR. It was thus possible for TiVo users to keep the TiVo hardware but cancel their TiVo subscription. This, of course, could seriously damage TiVo’s revenue stream (weakness on hardware) Internal Environment Analysis • TiVo’s relatively expensive hardware could jeopardize the company’s ability to compete with cable or satellite service providers that offered their own DVRs at a lower price or free. Cable operators like Time Warner Cable and Cox Communications offered built-in DVR capability in set-top boxes and provided the equipment free to subscribers (weakness on cost structure) • According to Business Week, $5 million in additional positive revenue was recognized because nearly half of TiVo’s 100,000 new subscribers failed to apply for a $100 rebate. This slippage, known to marketers as the “shoebox effect,” was very helpful to TiVo’s revenues (bad marketing strategy) • TiVo’s hardware revenue was subject to a chicken and egg problem. If management dropped the price of TiVo hardware, more people would buy TiVo DVRs and subscribe to the TiVo service. It would then, however, be selling hardware at a significant loss. The TiVo device also allowed users to watch their programs without having to watch the commercials. This feature was very attractive to consumers, but not to television networks and advertising agencies (uncompetitive business model) IFAS Analysis Internal Factor Weight Rating Weighting Score Strength Corporate Brand 0,1 4 0,4 Customer Loyalty 0,15 2 0,3 R&D 0,1 3 0,3 People & Culture Technology 0,1 0,05 4 4 0,4 0,2 Weakness Business Model Hardware Problem Cost Structure Marketing Strategy Total Skor 0,15 4 0,1 2 0,15 2 0,1 2 0,6 0,2 0,3 0,2 2,9 Comments TiVo’s brand trust among regular users scored 4.2 (out of 5 possible) 98% of users said that they could not live without their TiVo but company can't manage churn rate TiVo had 85 patents granted and 117 patents pending good environment TiVo was third on its list of 50 best technology products of all time chicken and egg problem, uncomptitive business model TiVo hardware could also work alone as a normal DVR. It was thus possible for TiVo users to keep the TiVo hardware but cancel their TiVo subscription TiVo’s relatively expensive hardware could jeopardize the company’s ability to compete shoebox effect From the data, it can be seen that TiVO has sufficient internal strength to grow. Nevertheless, we do not turn a blind eye to some of critical weaknesses in adapting to the market. • TiVo management must focus on improving the performance of its core business in generating profits and stock returns. • This can be followed up by growth strategy such as market development product diversification, or exploitation of general business opportunities Recommendations • TiVo must change its business model by finding alternative sources of revenue (ex: selling a stand alone box, lowering TiVO price and subscription contract ) • Co-operation may be a reasonable choice to reduce costs by building partnership direct and indirect competitors to boost sales and market share • Collaborating with local business players, primarily related to the availability of capital and knowledge about local requirements.
