Strategic Inflection TiVo in 2003

By Group 5: Santosh H R Prashant P Mitul B Shruti P Kritika Cheeyanna

ABOUT ME
Vision 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. 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.

Introduced in 1999 was premier leader of DVR

Y Founded in 1997 by Ramsay and Jim Barton Y DirectTV first partner DirectTiVO

Software, hardware, & services

Live TV, internet video, VOD

ABOUT ME

Industry first UK in 2000 Aus in 2008 Partnerships Revenue

Multi-Room Viewing, PC hook up, third party apps integration 2003 with British Satellite Broadcasting, 2010 with Virgin Media, Australia in 2008 with Hybrid Television Services Charter, Comcast, Cox, DirecTV,. (Virgin Media, Cablevision) Consumer Service, TV Service Providers, Media Services

MY DEVICE

A DVR unit is a set-top box that performs three different main functions JTivo and live television Pause / rewind live T.V, Suggestion engine, Fast Forward through ads, "Season Pass & Wish List , Parental control, Showcases JTivo and recording Program library-- storing movies/ programs on its hard drive. Timewarp-simultaneous viewing and recording, timeshift JTivo 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
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Subscribers (millions) 0.28 0.35 0.92 2.31 4.17 4.43 4.12 3.63 2.76 2.51
Subcriptions (millions)
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
1 0 2 0 2 3 0 2 4 0 2 5 0 2 6 0 2 7 0 2 8 0 2 9 0 2 1 0 2

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

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

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)

Threats Low barriers of entry Generic DVRs 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

VRIN ANALYSIS

VRIN Analysis
Valuable? Rare? Difficult to Imitate? Yes, Patents for TiVo DVR technology. No,other DVR technologies exists No, Only special features are inimitable

Difficult to Substitute? No, New cheaper technologies coming up

PORTERS 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) 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.

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 Suppliers (Low)

Threat of Substitutes

(High)

Threat of forward integration by suppliers

Microsoft Xbox, APPLE TV, Telecom operators, Broadband penetration. TV-PC integration (LG), cloud based remote/virtual DVR.

FINANCIAL ANALYSIS
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revenue (m U.S $) 19.39 96.01 141.08 172.01 198.12 258.92 272.67 249.7 237.6 219.6 Net profit (million US $) -160.73 -82.26 -32.01 -79.84 -36.99 -47.7 -31.5 103.6 -23.9 -84.5 EPS ($) -3.74 -1.61 -0.48 -0.99 -0.44 -0.53 -0.32 1.01 -0.23 -0.74

Revenue (U.S $ in MILLION)

NET PROFIT (U.S $ IN MILLION)

Net profit
1 50 1 00 50 0 -50 -1 00 -1 50 -200 -1 60.73 2001 2002 -32.01 2003 2004 -36.99 -31 .5 2005 2006 2007 2008 -47.7 -79.84 -23.9 2009 201 0 -84.5 1 03.6

-82.26

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 ANALYSIS
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
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 TiVos 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 Sales Net income Profit margin EPS P/E Market cap Share price Employees 219.61M -84.51M -38.48% -0.74 -12.22 1.08B 9.00 611 Cisco 42.36B 7.58B 17.89% 1.32 13.69 95.19B 18.07 70,700 AT& T 124.28B 19.08B 15.61% 3.35 9.54 181.54B 30.71 265,410 Verizon 106.57B 2.55B 9.59% 0.90 41.91 105.62B 37.76 194,400 EchoStar 2.35B 204.36M 8.69% 2.39 15.20 3.13B 36.81 2,300 Motorola 11.46B -86.00M -0.69% -0.30 -82.86 7.01B 23.78 19,000

WHAT HAPPENED TO ME?

The first mover advantage The superior technology The markets were growing

But

They couldnt 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

Parameter Subscriber Acquisition Cost ARPU/month (Standalone TiVo subscribers) ARPU/month (DirecTV subscribers)

Jan 2003 347 7.45 6.06

Jan 2004 106 8.57 2.57

Jan 2005 182 8.76 1.52

Jan 2006 196 8.83 1.15

Jan 2007 267 8.78 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
How to maintain market share (8% in 2011) in an industry that has become increasingly commoditized ?

hosen Alternatives
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

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