TiVo Narrows Loss but Its Shares Tumble 9.6%

By Terril Yue Jones

Nov. 30, 2005 12 AM PT

Times Staff Writer

TiVo Inc. reported a narrower third-quarter loss Tuesday, but shares tumbled 9.6% on fears that the company was overly reliant on DirecTV, which recently introduced a competing digital video recorder.

Of the 430,000 subscribers TiVo added in its fiscal third quarter, 87% came from its partnership with DirecTV Group Inc. The satellite television provider last month began offering its own TiVo-like device, which allows viewers to pause and rewind live TV.

New subscriptions gained by TiVo on its own in the three months that ended Oct. 31 fell to 55,000, slightly more than half the 103,000 it signed up in the same quarter last year.

That prompted worries among analysts that the pioneering TiVo would be unable to compete against cable and satellite companies that offer similar hardware as part of their subscriptions.

TiVo shares, which fell 55 cents to $5.18 during trading Tuesday, slipped an additional 3 cents after hours.

Alviso, Calif.-based TiVo has discounted its recorders aggressively. But that has prevented the company from recording a profitable year, as executives predicted last year. After a barely profitable second quarter -- the first in its history -- TiVo lost $14.2 million, or 17 cents a share, in its third quarter, down from $26.4 million or, 33 cents, a year earlier. Revenue was $49.6 million, up 29%.

TiVo forecast a fourth-quarter net loss of $17 million to $22 million.

“They’re between a rock and a hard place,” said Stephen Baker, an analyst with NPD Group. “They don’t have enough leverage or juice in the market to get to a point where they sell subscriptions or TV boxes without all that marketing. You can’t make money by giving it away, but right now the only way they can grow subscribers is to give their boxes away.”

Chief Executive Tom Rogers called TiVo’s performance reasonable in light of growing competition from cable and satellite providers and its unique marketing relationship with DirecTV. But he said the company needed to find other approaches to gain customers and keep TV advertisers happy.

“They’re growing their subscriber base using subsidies, so I think most investors are not looking just at the bottom line; it’s more about how they got here and where they’re going,” said Rob Sanderson, an analyst with American Technology Research. “This quarter came in lower than expected on an organic subscriber base because they spent less money because they didn’t have to subsidize as many customer acquisitions, and that is not a positive thing.”

One of the appeals of digital video recorders to consumers is the ability to skip over commercials, which worries TV show sponsors. But TiVo is testing ways to allow users to search for commercials. Someone in the market for a sport utility vehicle could assemble SUV ads and comparison shop -- a golden opportunity for automakers, Rogers said.

“Advertisers are looking for new ways to be more effective, and TiVo can help them by putting the right things in front of the right people,” Sanderson said. “It’s what makes search advertising on the Internet so powerful.”

Although it’s not a short-term solution, “I think there’s a big opportunity over a multiyear period,” he said.