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TiVo Working Hard to Woo Operators

TiVo needs cable more than the other way around — and now it has uncorked a concerted campaign to convince operators of the benefits of embracing the company synonymous with the digital video recorder.

The DVR maker, which announced its new cable push at the Cable & Telecommunications Association for Marketing Summit last week, has a three-point plan to make its case for why it's the industry's friend, and not its foe.

First is a lower-priced, high-definition DVR: the TiVo HD box, which at $299 is nearly one-third the price of the $799 TiVo Series 3 high-definition DVR. Scheduled to be available in retail channels in August, TiVo HD includes support for multistream CableCards — the point is it's designed “exclusively for cable,” according to the company, and will help drive digital-cable subscriptions.

TiVo also has established a dedicated CableCard-support group, which will field front-line calls from customers who have questions or problems installing CableCards.

“All of TiVo's product development right now is oriented toward cable,” said Jeff Klugman, senior vice president of TiVo's service-provider and advertising engineering division. “As a company, we are focused on supporting the cable industry.”

Added Klugman: “None of our product development is going to satellite.”

The third prong of TiVo's cable strategy is exemplified by the existing agreements the DVR maker has with Comcast and Cox Communications, which are both getting ready to roll out TiVo-branded boxes later this year. In August, for example, Comcast plans to start offering TiVo boxes, running on Motorola hardware, in Boston and other areas in New England.

'ENORMOUS VALUE'

But why is it in a cable operator's interest to actively support TiVo devices?

After all, cable companies offer their own digital video recorders, for which they're able to charge a premium over a standard monthly set-top fee. And TiVo will potentially eat into operators' incremental video-on-demand revenue, through the over-the-top video-download service it offers in conjunction with Amazon.com.

According to Klugman, the reason cable operators should embrace TiVo is simple — they will end up with happier customers, who are less likely to defect to satellite or telco services. Plus, he said, TiVo's “large-scale retail presence in the United States” promotes cable services as the exclusive way to hook up their DVRs, including the new $299 box.

“There's an enormous amount of value that accrues to cable operators,” Klugman said, adding that most TiVo users are probably premium cable subscribers.

It's about offering customers options, to hear Klugman tell it. “For those subscribers who want a set-top box they can own themselves, we're providing another choice,” he said.

TiVo is banking on the new HD DVR to be a lot more popular than its previous pricey foray into high-def with the Series 3. The company was able to cut the price partly through ongoing cost-reductions, Klugman said. The “little brother” also has less storage than the Series 3, holding about 20 hours of high-definition content versus 32 for the Series 3.

The lower-cost HD DVR “is for anyone who was hesitating to buy the Series 3 because of the price,” Klugman said.

The reason TiVo is courting cablers is clear. For the near future, all of TiVo's subscriber growth will come via cable, as erstwhile partner DirecTV no longer deploys TiVo DVRs.

FUTURE TIED TO CABLE

As of April 30, TiVo had 2.6 million subscribers through DirecTV, down 10% from 2.9 million a year earlier. It had 1.7 million “TiVo-owned” customers, which are virtually all cable subscribers, compared with 1.5 million in April 2006. (Asked whether TiVo has approached telcos like Verizon Communications and AT&T about partnerships, Klugman said, “There's nothing we've discussed publicly.”)

The company's cable push comes as there's new evidence that cable companies are now the top provider of residential DVR service and that TiVo is likely to see its share dwindle over the next few years.

According to a study released earlier this month by The Carmel Group, 52% of DVRs in use are provided by cable providers, with 38% provided by direct-broadcast satellite operators.

The Carmel Group estimated that DVRs will be in 52.5 million households by 2010, 46% of the expected universe. Of those, 61% will be provided through the cable operators, followed by DBS with 32% of the market, 6% by telephone companies — and just 2% by TiVo and others.

Today, cable's DVR penetration is 17.6 million homes, or about 30% of cable households. DBS-provided recorders are in 10 million homes, translating into a 40% penetration rate, according to The Carmel Group study.

To stay in the game, TiVo is throwing more resources toward supporting its devices in cable networks.

That means getting CableCard to work. With the TiVo Series 3, the first HD DVR with CableCard support, the company experienced “the challenges that any new product will experience,” Klugman said.

And, he pointed out, to the extent that a CableCard installation doesn't work well out of the gate, it requires an additional visit from the cable tech. “Anytime you have to go out to a customer again, that's not a happy customer,” he said.

TiVo has claimed its DVRs represent the majority of CableCard installations to date — about 259,000 cards have been deployed by major operators, according to the National Cable & Telecommunications Association. Klugman said the company has gained the experience of being the first one to dive into the pool.

With the lower-cost $299 HD DVR on the way, TiVo has reached out to all the major operators to ensure that they can collaboratively support subscribers, according to Klugman. “We've had a lot of behind-the-scenes conversations with operators about this.”

TiVo has established procedures with big operators about escalating technical-support issues. These are not technically reciprocal support agreements; rather, TiVo has identified the appropriate customer-service contacts at each operator. (Klugman declined to say how many employees are on the TiVo CableCard-support team.)

CableCard has been a politically charged issue, and many operators are still adjusting to the Federal Communications Commission's fiat that they use the cards in their own set-tops starting July 1.

But Klugman said TiVo wants to fix CableCard-related issues collaboratively with operators. “We've been a very good actor,” he said. “We could have gone to government agencies and complained. Instead we're saying, 'Let's work together and get this to work right.' ”