SAN FRANCISCO (CNN/Money) -
Need a jolt to wake you from your post-Thanksgiving haze? How about this: The world's leading seller of personal video recorders (PVRs), those nifty set-top boxes that allow users to pause live TV and record shows on a hard drive, isn't TiVo, the brand that's synonymous with the technology. In fact, it's EchoStar's Dish Network, a satellite television provider.
In its most recent filing, TiVo (TIVO: Research, Estimates) listed approximately 510,000 subscribers. EchoStar reported 500,000 PVR subscribers in the spring of 2002, according to a representative, and Forrester Research estimates that EchoStar has already passed the 600,000 mark.
Greg Ireland, an analyst with IDC, says the total PVR market will reach 1.5 million units by the end of this year, with 1 million of those coming from satellite and digital cable services.
Despite its Kleenex-like brand association, TiVo now finds itself in the unenviable position of watching the industry it created migrating to other manufacturers and service providers.
But getting beaten by a relative newcomer -- EchoStar started offering PVR devices to subscribers in 1999, TiVo in 1997 -- is but one of TiVo's worries.
The short list: The company must move quickly to license its technology, but it must also balance the need for short-term cash with the desire to establish a subscription model that provides long-term, recurring revenue.
TiVo has long insisted on maintaining its independent status, pushing its own consumer-friendly brand instead of moving aggressively to license its technology to other manufacturers -- a strategy that was adopted by competitor SonicBlue with its Replay TV.
A funny thing happened on the way to the bank, however: Cable and satellite providers decided they wanted to muscle into the PVR business as well. Rushing to court these deep-pocketed patrons were companies such as Motorola (MOT: Research, Estimates) and Scientific Atlanta, which offered basic PVR functionality at low cost.
The result? Hundreds of thousands of non-TiVo boxes perched atop TVs all over the United States, and even more on the way.
A representative from Time Warner Cable (which, like CNN/Money, is owned by AOL Time Warner (AOL: Research, Estimates)) claims that its initial PVR tests with customers have been one of the company's most popular rollouts ever.
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TiVo hasn't been completely left out of the licensing game, however. The company recently struck deals with Sony (SNE: Research, Estimates) and Toshiba to supply technology for their set-top plans, and it licenses its technology to Direct TV, which sells a PVR to consumers for $199, plus a $4.99-per-month service fee.
But some analysts believe that the Direct TV relationship accounts for half of TiVo's subscriber numbers, lending further urgency to the need for TiVo to de-emphasize its stand-alone goals. Even on its own merits, the Direct TV deal has problems, since Direct TV manages the customer relationship and collects the monthly fees -- effectively cutting TiVo out of the revenue picture.
Nevertheless, the Direct TV partnership has been a godsend for TiVo, in that it boosts subscriber numbers and paves the way for other licensing deals. It has also forced the company to alter its business model, which had previously relied heavily on $10-per-month subscription revenues.
"The rate at which TiVo will generate money from subscriptions will change," says IDC's Ireland. "It remains to be seen where subscriber growth balances with the prospect of collecting less revenue per subscriber. Everyone's watching the company's cash position."
TiVo raised $25 million two months ago by selling securities to institutional investors, but with the markets remaining tight, how often can it expect to repeat that trick?
A final thought: TiVo supporters are quick to emphasize the rabid loyalty TiVo users display once they've been exposed to the service. It's true that small but fervent followings have ushered once-marginal technologies (like Linux) into the mainstream, or kept marginal technologies (like Apple's (AAPL: Research, Estimates)) in the marketplace.
The problem with applying that model to TiVo, however, is that the company's users have rallied around the wrong technology: television. Television's "lean back" approach keeps TiVo users from using the Internet's "lean forward" nature to rally one another, form communities, and spread the gospel.
For all of its technological prowess, TiVo is still attached to the ultimate dumb terminal. And that means the company can't rely on the Internet to expand the scope of its marketing efforts.
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