Satellite TV company EchoStar recently decided to spin off its set-top box and other non-broadcast businesses into a separate company, EchoStar Technologies Corp. (ETC), betting that this standalone business will grow with the demand for smart, next-generation set-top boxes. ETC has one big problem, though: It has inherited the bitter patent feud between EchoStar and TiVo. One way to end that feud for ETC — buy TiVo.
The move has more upside than the chance to put an end to the legal drama. It could make ETC, which also includes the recently purchased Sling Media, a set-top box powerhouse.
What got me thinking about this idea was DirecTV’s decision to buy ReplayTV, the other DVR company that started around the same time as TiVo but eventually withered away.
In a statement issued Friday by spokeswoman Jade Ekstedt, DirecTV said the ReplayTV acquisition will allow it to “explore new services” and “the potential of ReplayTV’s (intellectual property)” and patents.
ETC should take a cue from DirecTV. Here is why:
TiVo (TIVO) sued Englewood, Colo.-based EchoStar (DISH) in 2004, alleging that it stole TiVo’s DVR technology for pausing, fast forwarding, and rewinding live TV shows. The Patent and Trademark Office recently sided in favor of TiVo, putting EchoStar at a serious disadvantage. In fact, in documents filed with the SEC, EchoStar listed the TiVo patent case as one of the big risks to spinning off its hardware unit. And it emboldened TiVo:
“This decision by the PTO is final and not appealable by EchoStar. Today’s decision by the PTO brings us another step closer to ending EchoStar’s continued infringement, and we are hopeful that the United States Court of Appeals for the Federal Circuit will uphold the district court judgment of patent infringement.” [Press Release]
This got me thinking: Why doesn’t ETC simply buy TiVo and get rid of the pesky patent case altogether? With a market capitalization of $811 million, TiVo is certainly affordable. Even a 25 percent premium doesn’t sound that bad — the company is expected to pull in about $250 million in sales for its fiscal 2008 period. And although, according to analyst estimates, it’s unlikely to turn a profit for some time, TiVo has a consumer-friendly product and good brand recognition.
TiVo has also started to make headway into the carrier market. It has deals with Comcast and Cablevision Mexico, as well as a recently inked partnership with IPTV provider WindStream Communications. By marrying TiVo with Sling Media and its current set-top boxes, ETC could offer a compelling next-generation device to not only satellite but also IPTV and cable TV service providers.
More importantly, TiVo would enable the EchoStar spinoff to become a player in the consumer electronics space. As TiVo CEO Tom Rodgers, in a press release accompanying the company’s fiscal third-quarter 2008 results, noted:
TiVo and the cable industry have come to an agreement on a blue-print for a retail TiVo DVR using the cable industry’s OpenCable Application Platform that will have full two-way cable service functionality. While the technical specifications are still being worked out, such a set-top box will mean TiVo subscribers will be able to get full access to cable VOD and other two-way cable services. This could also mean that a standalone TiVo offering could fully substitute for a cable operator set-top box.
TiVo, which led the time-shift revolution, missed the place-shifting movement spearheaded by Sling Media. When you combine those two features, and layer Internet downloads (TiVo has deals with Amazon Unbox and several independent video content creators like Rocketboom), digital music and home networking capabilities, you have a set-top box that does it all — minus the clunkiness normally associated with set-top boxes made by Motorola and Scientific Atlanta, or the complexity of Microsoft Media Center. And the Sling and TiVo brands are strong enough to withstand any challenge from newfangled IP set-top boxes being offered by companies such as Amino.
Given the Patent and Trademark Office’s recent decision, this patent fight may not be one that EchoStar can win. So if you can’t beat ’em, why not join ’em?