TiVo narrowed its loss and beat estimates in Q4 mostly by de-emphasising what made it famous: sales of the stand-alone TiVo set-top box at retail stores.
Lower spending on the marketing of boxes, including curtailing box subsidies, helped TiVo turn in a narrower $6.4 million loss compared to $19.5 million last year. TiVo’s $0.06 per share loss beat the $0.11 estimate by analysts polled by Thomson Financial. Net revenue fell to $74.1 million from $76.9 million.
CEO Tom Rogers said that while selling boxes is stilll important, the future of the company depends on selling TiVo as a software upgrade on cable-issued DVR boxes, and branching out into advertising and the sale of consumer data.
One problem: None of TiVo’s new initiatives work if the total base of TiVo subscribers doesn’t keep growing. On that front, TiVo added a mere 33,000 net new subscribers in the quarter, putting total TiVo-owned subscriber roles at 1.75 million. Total subscribers including those through DirecTV, which no longer sells TiVo, came in at 3.95 million.
Q&A from CEO Tom Rogers’ Q4 Conference Call:
Question: Help me understand how to judge your progress. Is it cash flow or earnings per share? Advertising business? International?
Rogers: I dont think there is one metric. We are focused on improving adjusted EBITDA. FIrst quarter is a very different focus for us compared to last year. We are looking to be net-ad positive on standalone subscribers. Owned and operated subs is an important indicator. So is subscriber growth among cable operators. Ad sales won’t substantially increase while our sub base is so low. This year and next audience research business is one–with additional products we can make revenue strides on this business as well.
Question: How are HD boxes doing at retail? Are they new customers or replacement customers?
Rogers: Preponderance of sales at retail are for HD boxes. Going to both existing and new subs. Want both upgrades and new subs. per cent of multi-set subscribers decreased in the quarter. Putting together offers to try to get the lifetime sub userbase to upgrade to HD.
Question: Have you learned anything more about EchoStar’s purported work-around of TiVo’s Time Warp patent?
Rogers: We remain very sceptical of any workaround that EchoStar has put forward. Most of the claims they have made over the course of litigation have been shown to be incorrect.
Question: Why did Cox pick New England to roll out TiVo since Comcast is already there with TiVo boxes?
Rogers: There is some value in having concentrated roll outs in terms of PR. The companies are independent and have their own plans, but “we’re happy to see it.”
Question: Can you talk about subscriber trends. Big uptick in churn and now scaling back marketing spend. Is standalone business going to decline for the year?
Rogers: Negative net ads are not what we’re driving for. The first quarter as we cut back on spending–our primary focus is the HD box at $299. We are looking to drive internet-based sales more efficiently. We’re also heavily exploring bundling options with HD TV. We didn’t tie ourselves into the HD TV trend as well as we would have liked to be. Consumers are buying TVs–the ability of sales person to steer toward bundled sale of TiVo was not part of Q4 strategy.
Rogers says TiVo “is not focused on getting negative net ads on the year.”
Question on Comcast subscriber numbers…
Rogers: The Comcast program started in the quarter so they’re negligible. Marketing for the time being has been limited. Nevertheless, says Comcast excited about the response. Consumers willing to pay the $2.95 upgrade. Seems to be substantial increase in awareness of TiVo in the market.
Question: Why do you continue to focus on a stand-alone set-top business rather than becoming more of a software and service business with those economics?
Rogers: We are devoting more to audience research, international. We are focusing more on those areas relative to the standalone business. Once set-top has the ability to pass through all their interactive services, an opportunity to sell boxes to cable operators. As a general matter, we are loooking to cut back substantially on marketing for standalone box business.
Vision of one-stop media shop only achievable for the time being with standalone box. He says that may change. Right now its the only way we can benefit from that trend.
Question: break-out of HD boxes for gross subscriber additions?
Rogers: Declines to say, but says HD boxes are “dominating” sales at retail.
Conference Call Live Notes:
5:33: Offers guidance of $53 million to $55 million service and technology revenue for Q1. Says net loss expected between $1 million and $3 million.
5:29: TiVo-owned gross additions 109,000. Churn was 1.5% a month. Added 33,000 net TiVo-owned subscriptions.
5:25: Lower net loss attributable to reduced spending on marketing. Ended Q4 with $99 million cash. Does not include $100 million EchoStar judgement
5:24: Technology revenue higher than expected due to technology work completed for Comcast. Subscriber headwinds from DirecTV, which is no longer marketeing TiVo boxes.
5:21: We are the only player out there providing (advertisers) with new forms of inventory as well as research on how people are avoiding commercials. He talks up deals with Omnicom, Interpublic, NBC, etc for set-top data.
5:20: Rogers says DVR penetration to grow to 35% (from 20%) in the next 18 months.
5:18: Wants to be one-stop shop for delivering broadband content to the television, as well as traditional TV. Says most new HD subscribers are connecting TiVos to Internet.
5:17: Working with CableLabs to create a two-way box with switched-digital technology.
5:15: Says TiVo on Comcast is operational, and is being marketed in the Northeast. TiVo compatible with Comcast’s strategy to offer additional services to subscribers. Cox will will also roll out TiVo-powered boxes in New England.
5:12 pm: Rogers says significantly pulled back marketing spend and set-top subsidies. Forward strategy is to deliver digital content directly to the box.
5:10 pm: Says very sceptical in EchoStar’s claim that they have a work-around TiVo’s successfully-protected Time Warp patent.
5:07 pm: Roger says TiVo added 20k movies, 4 million songs, 1,000 music videos, as well as video search on broadband connected TiVo boxes.
5:06 pm: Rogers lists the priorities for the year: bring web-based content to television. Roll out internationally. Launch an HD box. Weave TiVo into fabric of the media and advertising industries. Aggressively protect intellectual property
Q4 Earnings summary:
Set-top box maker TiVo (TIVO) reported a smaller Q4 loss on lower costs as it basks in a recent patent victory over EchoStar. That’s it for the good news.
The bad news: TIVO is dropping subscribers, and revenue is shrinking.
The pioneering set-top maker, attempting to transform itself into a media services company, reported a net loss of $6.4 million compared to $19.5 million last year. Net loss of $0.06 per share beat the $0.11 estimate by analysts polled by Thomson Financial. Net revenue fell to $74.1 million from $76.9 million.
Service and technology revenue came in at $58.1 million, compared to $57.0 for the same period a year ago.
Also in the quarter: a legal victory over EchoStar that could give TiVo added negotiating power with cable and satellite MSOs as they licence set-top software. TiVo says Comcast has launched TiVo-branded service throughout its New England systems, and it has started a trial with Cox Communications.
TiVo-owned subs: + 33,000 to 1.745 million
MSO-owned subs: -155,000 to 2.2 million
Total subscribers: 3.946 million