British Invasion: TiVo Adds Net Subscribers For First Time In Four Years

After four years of continous subscriber losses, TiVo gained 117,000 net subs for the quarter ended Oct. 31 -- thanks entirely to the rollout of a TiVo-based box by the U.K.'s Virgin Media -- and beat revenue and net loss expectations. TiVo is hoping to keep the momentum going with other operators, noting that Charter Communications is expected to launch TiVo's Premiere digital video recorders shortly and that DirecTV will debut DVRs with its software next month in limited test markets. In addition, the company said, deployment rates at RCN and Suddenlink Communications are accelerating. "This was a great quarter and represented a significant step in our growth strategy," TiVo president and CEO Tom Rogers said in announcing the results. TiVo's total revenue for its fiscal third quarter 2012 climbed 27% in the quarter, to $64.8 million, versus the year-ago period. It posted a net loss of $24.5 million, compared with a net loss of $20.6 million in the same quarter last year; however, the company noted the net loss in the most recent quarter beat its previous guidance of a net loss of $27 million to $29 million. The company's service and technology revenue (which excludes hardware sales) was $51.8 million, up 25% year-over-year, exceeding TiVo's prior guidance of $49 million to $51 million. TiVo ended the period with 2.04 million total subscriptions, up 117,000 sequentially -- but still down 10% year-over-year, from 2.27 million a year ago. Moreover, "TiVo-owned" subscriptions from boxes sold at retail continued to fall, with the company dropping 30,000 in the quarter to stand at 1.14 million. TiVo's overall subscriber gains in the period were attributable to Virgin Media. The British cable operator had deployed its TiVo offering to more than 220,000 subscribers as of the end of October, up from 50,000 three months prior. About 40% of the MSO's TiVo subscribers are new to Virgin Media. "Our mass deployment efforts are proving successful and gaining momentum with pay-TV operators worldwide," Rogers said. "These operators... are increasingly turning to TiVo because of TiVo's proven advanced television solution that enables them to extract more value out of the television experience by joining traditional linear TV channels with broadband delivered content while vastly upgrading the user interface." Charter, Suddenlink, Grande Communications and Spain's ONO collectively represent more than 10 million homes "that we now have the ability to reach as an exclusive or primary [DVR] product offering," Rogers said. "Additionally, DirecTV has informed us that they intend to initiate the launch of the TiVo-DirecTV product in select markets in December with a nationwide rollout to follow early next year." TiVo has been steadily losing share as pay-TV operators roll out their own DVR offerings. In 1999, TiVo struck its original distribution deal with DirecTV but five years later the satellite TV operator said it would market its own DVR, developed by NDS -- leading to a steady erosion of DirecTV customers using TiVo boxes. Meanwhile, Comcast and Cox Communications abandoned plans to introduce TiVo-based DVRs. Instead, both are shifting to open their VOD services to retail TiVos. Touching on TiVo's pending patent litigation, Rogers said, "We are pleased with how our case against AT&T and Microsoft in the U.S. District Court for the Eastern District of Texas is progressing after receiving what we believe is a positive claim construction and with trial currently scheduled to begin in January." TiVo also has lawsuits pending against Verizon Communications and Motorola. In May 2011, TiVo reached a $500 million settlement with Dish Network and EchoStar over a key DVR patent, seven years after TiVo originally filed suit. Of that, $300 million was paid immediately and the remaining $200 million will be paid out in annual installments through 2017 leading up to the expiration of TiVo's Time Warp patent in 2018. For the fourth quarter of fiscal 2012, TiVo expects service and technology revenues of $48 million to $50 million and a net loss of $31 million to $33 million. Included in the Q4 guidance is higher expected litigation expense relating to the AT&T/Microsoft case, "where significant activity is scheduled in December and January," as well as increased hard drive costs because of the effect of flooding in Thailand (which TiVo said it expects will be less than $1 million in the fourth quarter). TiVo added that it expects litigation expenses to be lower in both the first quarter and the full-year fiscal 2013.