NEW YORK — DirecTV CEO Chase Carey sounds sincere when he says he has "no bone to pick with TiVo." But that isn't stopping him from turning the No. 1 satellite company — until recently TiVo's most important ally — into the digital video recorder (DVR) pioneer's potentially most dangerous rival.
For the first time since 2000, DirecTV has stopped encouraging its 14.7 million customers to buy receivers equipped with TiVo DVRs, which can record and pause live TV. In October, it will urge them instead to snap up units featuring a product developed in-house: the DirecTV Plus DVR. The new DVR "is at the center of a lot of DirecTV's strategies and plans," Carey says. (Related item: How DirecTV, TiVo DVR services compare)
The new DVR is designed to blend in with his company's new interactive features, including those that let users view local weather reports and maps, watch several channels simultaneously on one screen and call up a day's football highlights. It also will make it possible for DirecTV to offer pay-per-view movies on demand.
"We want to create a DirecTV experience," he says. "In the past, there've been too many variations."
DirecTV, which is controlled by Rupert Murdoch's News Corp., had hoped to have its DVR on the shelves in the spring. Even now, with the company tweaking the software, Carey says that "October is not a precise date" for the launch, although he adds that he doesn't think he'll miss the target.
There's no doubt he takes this DVR offensive seriously. He plans to introduce in early 2006 a model that can record in high-definition, can instantly transfer shows to other TVs in the house and can hook up to home computer networks.
Big impact for TiVo
This DVR is a big deal for DirecTV. But it may affect TiVo even more.
About 64% of TiVo's nearly 3.3 million subscriptions are through DirecTV. The satellite service accounts for 77% of TiVo's new sales. Without DirecTV's help, TiVo's subscriber growth now "is likely to dwindle down to a trickle," says Friedman Billings Ramsey analyst Alan Bezoza. As cable companies roll out their own DVRs, "TiVo has some significant challenges ahead so it doesn't become a dinosaur."
TiVo declined to comment before its quarterly earnings report on Wednesday.
TiVo long has pointed to its DirecTV-fueled subscription numbers as evidence of its popularity. It also has said that its growing audience will entice advertisers to pay for special services, including data about subscribers' viewing habits.
So it's no surprise that TiVo's new CEO, Tom Rogers, is scrambling to interest cable operators in a deal like the one with Comcast. Beginning in late 2006, Comcast will license and offer TiVo service to customers for a premium over Comcast's in-house DVR service.
In fact, DirecTV's decision to go its own way could "pave the way for more partnerships with cable companies" looking for an edge in DVRs, First Albany Capital's Richard Baldry says in a report.
But others are less sanguine.
"It comes back to this equation: Do operators want to give up revenue (to TiVo) if they don't have to?" says Leichtman Research Group President Bruce Leichtman.
To be sure, DirecTV's D-Day won't immediately blow a hole in TiVo's income statement. Most of the $116 million in revenue TiVo recorded in the year that ended Jan. 31 came from its independent customers who pay about $12 a month, or a one-time charge of $300, for each of its 1.2 million stand-alone DVRs.
TiVo gets only about $1 a month from the $5 a month (raised in August to $6 for new customers) DirecTV charges each of its customers with a TiVo subscription.
And DirecTV isn't pulling the plug on TiVo. Current customers still will get the programming data they need to make their TiVos work. The satellite company also still will sell TiVo subscriptions to customers who ask for them.
Yet DirecTV doesn't appear to expect many takers: It stopped ordering TiVo-equipped receivers. "We have an inventory that serves our purposes," Carey says.
DirecTV's marketing muscle will be behind its new DVR. It will offer rebates enabling DirecTV subscribers to pick up receivers with its DVR virtually for free.
The rebates also will apply to TiVo-equipped models, but the older receivers don't handle DirecTV's interactive services; the new ones do.
Renewal of TiVo deal in doubt
That discrepancy raises doubts about whether DirecTV will renew its five-year contract with TiVo that expires in February 2007.
"It doesn't make sense to have a third party providing something core to our experience," Carey says, although he rules nothing out.
If the agreement is not renewed, the contract stipulates that DirecTV can continue to provide TiVo's service to customers who've been getting it without any payment to TiVo. It can no longer, however, sell new subscriptions.
For now, DirecTV will simply try to get people to switch to its DVR by touting it as faster, easier to use and more versatile than TiVo's. "(TiVo) is a great interface for watching what's been recorded," Chief Technology Officer Romulo Pontual says. But, he says, it's "not so great for live TV," because it frequently tries to switch channels to record something it thinks the viewer wants — and makes the viewer take action to stop it.
Carey blasts that as an example of TiVo's "Big Brotherish interface." He adds that DirecTV will "focus on making it easy and friendly to use and not junk it up."
DirecTV's dual-tuner receiver and DVR are supposed to work together seamlessly. For example, both use the same programming guide and on-screen menus. There's also a page with all of the information about the system that a repair person would need to know when there's a problem.
DirecTV will reserve about 60 hours' worth of disc space for its own purposes, leaving consumers space for 100 hours of shows. The DVR has an on-screen bar showing how much recording time is left.
The company will load some of its reserved space with pay-per-view movies so they're available any time viewers want. There is no charge unless they watch the flick.
DirecTV also will make available special programming, including collections of highlights from all of a day's NFL football games. During a game, viewers will be able to call up scores from other matchups, as well as player statistics.
TiVo will undoubtedly give DirecTV's DVR a close look to see whether it might violate any of its patents. TiVo has already challenged EchoStar's DVR in a case that goes to a federal district court in Texas this fall.
Pontual says, though, "We don't think we're doing anything that infringes on a patent."
For the first time since 2000, DirecTV has stopped encouraging its 14.7 million customers to buy receivers equipped with TiVo DVRs, which can record and pause live TV. In October, it will urge them instead to snap up units featuring a product developed in-house: the DirecTV Plus DVR. The new DVR "is at the center of a lot of DirecTV's strategies and plans," Carey says. (Related item: How DirecTV, TiVo DVR services compare)
The new DVR is designed to blend in with his company's new interactive features, including those that let users view local weather reports and maps, watch several channels simultaneously on one screen and call up a day's football highlights. It also will make it possible for DirecTV to offer pay-per-view movies on demand.
"We want to create a DirecTV experience," he says. "In the past, there've been too many variations."
DirecTV, which is controlled by Rupert Murdoch's News Corp., had hoped to have its DVR on the shelves in the spring. Even now, with the company tweaking the software, Carey says that "October is not a precise date" for the launch, although he adds that he doesn't think he'll miss the target.
There's no doubt he takes this DVR offensive seriously. He plans to introduce in early 2006 a model that can record in high-definition, can instantly transfer shows to other TVs in the house and can hook up to home computer networks.
Big impact for TiVo
This DVR is a big deal for DirecTV. But it may affect TiVo even more.
About 64% of TiVo's nearly 3.3 million subscriptions are through DirecTV. The satellite service accounts for 77% of TiVo's new sales. Without DirecTV's help, TiVo's subscriber growth now "is likely to dwindle down to a trickle," says Friedman Billings Ramsey analyst Alan Bezoza. As cable companies roll out their own DVRs, "TiVo has some significant challenges ahead so it doesn't become a dinosaur."
TiVo declined to comment before its quarterly earnings report on Wednesday.
TiVo long has pointed to its DirecTV-fueled subscription numbers as evidence of its popularity. It also has said that its growing audience will entice advertisers to pay for special services, including data about subscribers' viewing habits.
So it's no surprise that TiVo's new CEO, Tom Rogers, is scrambling to interest cable operators in a deal like the one with Comcast. Beginning in late 2006, Comcast will license and offer TiVo service to customers for a premium over Comcast's in-house DVR service.
In fact, DirecTV's decision to go its own way could "pave the way for more partnerships with cable companies" looking for an edge in DVRs, First Albany Capital's Richard Baldry says in a report.
But others are less sanguine.
"It comes back to this equation: Do operators want to give up revenue (to TiVo) if they don't have to?" says Leichtman Research Group President Bruce Leichtman.
To be sure, DirecTV's D-Day won't immediately blow a hole in TiVo's income statement. Most of the $116 million in revenue TiVo recorded in the year that ended Jan. 31 came from its independent customers who pay about $12 a month, or a one-time charge of $300, for each of its 1.2 million stand-alone DVRs.
TiVo gets only about $1 a month from the $5 a month (raised in August to $6 for new customers) DirecTV charges each of its customers with a TiVo subscription.
And DirecTV isn't pulling the plug on TiVo. Current customers still will get the programming data they need to make their TiVos work. The satellite company also still will sell TiVo subscriptions to customers who ask for them.
Yet DirecTV doesn't appear to expect many takers: It stopped ordering TiVo-equipped receivers. "We have an inventory that serves our purposes," Carey says.
DirecTV's marketing muscle will be behind its new DVR. It will offer rebates enabling DirecTV subscribers to pick up receivers with its DVR virtually for free.
The rebates also will apply to TiVo-equipped models, but the older receivers don't handle DirecTV's interactive services; the new ones do.
Renewal of TiVo deal in doubt
That discrepancy raises doubts about whether DirecTV will renew its five-year contract with TiVo that expires in February 2007.
"It doesn't make sense to have a third party providing something core to our experience," Carey says, although he rules nothing out.
If the agreement is not renewed, the contract stipulates that DirecTV can continue to provide TiVo's service to customers who've been getting it without any payment to TiVo. It can no longer, however, sell new subscriptions.
For now, DirecTV will simply try to get people to switch to its DVR by touting it as faster, easier to use and more versatile than TiVo's. "(TiVo) is a great interface for watching what's been recorded," Chief Technology Officer Romulo Pontual says. But, he says, it's "not so great for live TV," because it frequently tries to switch channels to record something it thinks the viewer wants — and makes the viewer take action to stop it.
Carey blasts that as an example of TiVo's "Big Brotherish interface." He adds that DirecTV will "focus on making it easy and friendly to use and not junk it up."
DirecTV's dual-tuner receiver and DVR are supposed to work together seamlessly. For example, both use the same programming guide and on-screen menus. There's also a page with all of the information about the system that a repair person would need to know when there's a problem.
DirecTV will reserve about 60 hours' worth of disc space for its own purposes, leaving consumers space for 100 hours of shows. The DVR has an on-screen bar showing how much recording time is left.
The company will load some of its reserved space with pay-per-view movies so they're available any time viewers want. There is no charge unless they watch the flick.
DirecTV also will make available special programming, including collections of highlights from all of a day's NFL football games. During a game, viewers will be able to call up scores from other matchups, as well as player statistics.
TiVo will undoubtedly give DirecTV's DVR a close look to see whether it might violate any of its patents. TiVo has already challenged EchoStar's DVR in a case that goes to a federal district court in Texas this fall.
Pontual says, though, "We don't think we're doing anything that infringes on a patent."
