NEW YORK (CNN/Money) -
With the new fall television season just over a week away, some couch potatoes are dreading this choice: watching the second season of ABC's critically acclaimed "Lost" and the Jerry Bruckheimer-produced Pentagon drama "E-Ring", set to air at the same time on Wednesday nights on NBC.
Others don't have to -- thanks to TiVo.
Since its launch in 1997, TiVo has changed the way we watch television. The company's digital video recorder (DVR) allows viewers to not only record one show while watching another but also fast-forward through commercials and pause their favorite programs. The technology has helped win TiVo a loyal base of fans.
But even though the company has a knack for wowing customers, things aren't exactly looking up for TiVo and its investors.
Over the past three months the stock has lost a quarter of its value, despite the company posting the first quarterly profit in its history, albeit a slim $240,000.
Analysts are worried about intense competition from cable and satellite companies as many of them offer DVRs from TiVo rivals. On top of that, analysts don't expect TiVo to post its first profitable year until 2007 as the company continues to spend heavily on marketing to win more subscribers.
"I don't think there are any huge opportunities going forward," said Todd Mitchell, an analyst with New York firm Kaufman Brothers. "At this stage of the game, there's too much uncertainty."
So while TiVo has advanced us into the future of television, all signs are that the company's stock may be stuck on pause.
The cable connection
One of TiVo's biggest sources of subscribers in recent years has been satellite television provider DirecTV (Research). Of TiVo's nearly 3.6 million subscribers, analysts estimate that some two-thirds came aboard with DirecTV's help.
But that partnership is set to expire in 2007 and DirecTV's biggest shareholder, News Corp. (up $0.16 to $17.43, Research), is looking to British firm NDS Group (Research), another News Corp.-controlled company, to provide that same technology to DirecTV customers.
Once the changeover takes place, TiVo could be in jeopardy of losing a large portion of its subscriber base as DirecTV tries to migrate customers to its corporate cousin's system.
Adding to TiVo's worries is the growth of competitors such as Scientific Atlanta (up $1.17 to $39.70, Research) and Motorola (up $0.35 to $23.01, Research), which offer their own DVRs and have linked up with big cable providers such as Cox and Time Warner Cable, which, like CNN/Money, is owned by Time Warner (Research).
Besides offering the convenience of folding the cost of DVR service into a customer's monthly bill, cable companies typically charge $8 to $9 a month and you don't have to buy the box. If you bought TiVo yourself, the current monthly rate is $12.95.
Still, TiVo has partnered with cable companies as well. In March, it announced a deal with Comcast (Research), the nation's largest cable company. Comcast will begin offering set-top boxes with TiVo software installed on it next year. And last month cable provider Cablevision (up $0.13 to $31.33, Research) said it will test-market DVRs from TiVo beginning in October.
But Alan Bezoza, a cable and media analyst with Friedman Billings Ramsey, remains skeptical that the Comcast and Cablevision deals will add that many new subscribers or boost TiVo's revenue substantially.
One of the biggest complaints that investors have hurled at TiVo is the company's inability to stick with a business plan.
Several times the past few years, the company has shifted from trying to convince people to buy their DVRs directly from retailers to partnering with cable and satellite providers and even trying to pump up revenue from advertisements.
Now with the company's looming split from DirecTV, Tom Rogers, TiVo's new CEO and a former executive with the cable units of NBC, is leading the push to woo retail customers again.
TiVo kicked off a rebate program on Tuesday that offered as much as $100 off its DVRs, bringing the price down to about $50 from $150. The marketing campaign is scheduled to last through November.
Many analysts have criticized this approach because of the low profit margins associated with retail subscribers. If TiVo attracts more customers from rebate programs, that could delay the company's chances of profitability even further, said Mitchell at Kaufman Brothers.
In fact, analysts have recently slashed their forecasts for this year and next year for TiVo. They now expect TiVo to report a loss of 43 cents a share this fiscal year, which ends in January, compared to a forecast of an 11 -cent loss a month ago. And analysts are forecasting a loss of 14 cents a share next year while just a month ago they expected TiVo to post a annual profit of 21 cents a share.
Trying to stay ahead of the curve
TiVo is in a tough spot. It is behind its competitors in number of subscribers, according to Friedman Billings' Bezoza, even though the industry all but bears its name. Most people refer to using a DVR to record a show as "TiVo-ing" something, even when they're using a cable company's DVR.
But TiVo has managed to stay ahead of competitors from a technological standpoint by keeping its DVRs user-friendly, offering services such as TiVo ToGo, which allows subscribers to transfer recorded programs to a desktop PC, laptop or mobile device. Users can also make programming changes on their computer.
But that might not satisfy Wall Street, said Fred Moran, analyst with Stanford Financial Group. "They certainly are innovative and cutting edge," said Moran. "(But) it's not enough to drive the stock in the near term."
With all that in mind, it might be worthwhile for investors to put down the remote and not press play on TiVo.
The analysts quoted in this story do not own shares of TiVo nor do their firms have banking relationships with the company.
Is it time to change the channel on DirecTV stock? Click here.
For more about TiVo's deal with Comcast, click here.