A new report from The Diffusion Group proposes TiVo's new plan to seek "mass deployment" of the TiVo service through cable service providers, while likely to help boost revenue, will do little to generate profit. According to "Can TiVo Survive? A Case Study in the Perils of First-to-Market Innovations," former CEO and co-founder Mike Ramsay warned board members and fellow execs in January that licensing deals with digital TV operators would not be the best way to grow TiVo's business. In fact, said Ramsay, "...the economics are not very attractive."

"A key reason for TiVo's recent shift in leadership was disagreement regarding to what extent TiVo should be courting video service providers," said Scott Kipp, research analyst with The Diffusion Group and author of the report. "As DirecTV phases out shipments of TiVo DVRs, TiVo will be forced to come to terms with an increasingly competitive market flooded by free DVRs from video service providers. Although TiVo will look to new cable and satellite relationships to fill the gap, these dealings will generate far too little revenue to sustain the company for the long-term."

Kipp gives two specific challenges with this service provider-centric strategy. First, TiVo will have limited control over end users and likely end up with gross revenue of around 1 dollar per subscriber per month. Similar to how DirecTV controls its subscribers, cable operators will seek to retain control of the DVR and not let TiVo download movies to the set-top boxes. Video service providers will not cede control of this aspect of their business to TiVo, thus relegating TiVo to a secondary position in such relationships.

Second, the report cites cable companies are planning to base their set-top box implementations on CableLab's JAVA-based OCAP standard while TiVo features a proprietary Linux-based implementation. These differences can be overcome, but significant integration effort is required for compatibility at the application layer. TiVo will have to thoroughly redesign their software to work with OCAP, changes which many in the cable industry doubt that TiVo will undergo given its "stubborn ways and proprietary leanings." It will take several man-years of software development to make its DVRs compatible with the cable industry, the report concluded.

RBR observation: Why would MSOs need TiVo when they have their own technology and DVR offerings? Most new subscribers will opt for the easiest way to DVR - - whatever the cable company offers as part of their package. Why would the subscribers or MSOs need a "DVR middleman"? Brand appeal will only get TiVo so far, and we think we've seen how far already. TiVo's best chance for revenue seems to be its recent interactive additions for advertisers (7/19 TVBR #140).