TiVo’s forgotten legacy still offers upside

April 21, 2011

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

TiVo’s forgotten legacy may still offer upside for investors. Technology has moved on in the more than a decade since the company launched its ground-breaking digital video recorder. It changed television globally by enabling consumers to pause live programming and watch their favorite shows any time they want. Although TiVo is almost ancient history, the DVR remains a household staple and the company just scored another legal victory over an imitator, EchoStar. There may yet be more gains as courts catch up with the trends.

Patience hasn’t been a rewarding virtue for TiVo shareholders. Back in 2000, when the company’s boxes were the coolest thing for couch potatoes, the shares traded at nearly $60 apiece. They haven’t topped $20 in a decade and, as trading opened on Wednesday, they were under $8.50. Since 2008 revenue has been tumbling, and the company has lost money in nine of the last 10 full years. TiVo’s wow factor has long faded thanks not just to the copycat set-top boxes offered by cable and satellite TV providers but also to the likes of iTunes and Netflix.

The legal system is only just catching up. A U.S. federal court has upheld a ruling that EchoStar, now known as Dish Network, infringed TiVo’s patents and is violating an order to disable some of its DVRs. The fight dates back to 2004, but still resonates. Following the court’s ruling around midday on Wednesday, TiVo shares jumped more than a third, adding about $350 million of market value.

There may be more to come. Dish could be forced finally to sit down and thrash out a deal with TiVo. It’s not clear how many DVRs Dish might need to replace, but the company has said the issue is a significant one in terms of subscribers. Sanford Bernstein analysts reckon the infringement could involve as many as 8 million boxes and cost up to $3 billion to rectify. What’s more, TiVo is still pursuing similar claims against AT&T, Verizon and Microsoft and might yet have scope to go after others. That suggests TiVo’s days of disrupting the television landscape — at least financially — aren’t finished yet.

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