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?
TiVo has a poison pill in place. If they don’t want to be purchased, it would be rough for the buyer.
I wouldn’t say TiVo has missed place-shifting, that market is still extremely small. TiVo could join that market. But does it make sense to build that into their DVRs and raise the HW costs to provide the capability, when a very small number of users would use it? (And I say that as a TiVo and Slingbox owner.)
There are lots of reasons why Echostar would want to buy TiVo, but what incentive do they have to sell. This is the more important question to be asking because TiVo has a poison pill in place until at least 2010, so they are the ones that get to decide if/who they want to be bought by. By selling themselves to Dish, they would not only be letting go of the company at a dirt cheap price (even with a 25% premium), a merger would also potentially restrict TiVo to only Dish subscribers, instead of being able to forge relationships with all of the cable and satellite companies. It would be one thing, if TiVo was broke and needed the cash in order to survive, but they’ve got a decent amount of cash on hand, are running close to breakeven, they have a plan to raise more money through a debt/equity underwriting and plus they have a $100+ million judgment that Dish will likely be on the hook for. Considering how far they’ve taken their lawsuit, I don’t see how TiVo would benefit at all from selling out at this point. While I would agree that Dish would benefit from buying TiVo, I just don’t see the case for why TiVo would benefit from selling.
OM – a lot of people would like to buy TiVo (or should buy TiVo). But TiVo feels they are worth a lot more than current valuation – and I would suggest, the Pundits agree with TiVo’s assumption. Echostar pulling off a TiVo acquisition is speculative and highly unlikely. TiVo’s IP is worth a whole lot more down the road, as the market matures – and TiVo finetunes its business models.
As I commented in your post when the news of Echostar split first broke (Dec 6, 2007) http://gigaom.com/2007/12/06/echostar-now-dish-network-spins-off-slingbox-set-top-biz/ – “Missing here in this post is the TiVo litigation with Echostar – and most likely the catalyst for spinning off the STB business – and subsequently the primary driver for the Sling acquisition.”.
@G
I think the point I am trying to make here is that these two companies can mutually benefit. I am not sure about the market cap of the new EchoStar, but it could be a good combination.
Can TiVo get a higher valuation in the future? I don’t know. Hopefully it does for the sake of its share holders.
Thanks again for reminding me on that lawsuit stuff.
OM – I agree with you – setting aside the reality of a TiVo acquisition – TiVo/Echostar combination makes a whole lot of sense. It will be more about market share and dominance, less so due to technology – there are many at TiVo who do not think so well of Sling’s technology (that debate will soon arrive on the front pages once EchoStar spinoffs are completed).
However, an even bigger holdup in any deal is the current relationship that TiVo has with operators like Comcast – a hard fought “fight for respect” and pennies on the dollar for service agreements with Cable Cos. Any combination with TiVo would require the the blessings of the “grandmasters” in the Service Provider world – where any sign of a bigger better solution will be beat to a pulp – ie. commoditized for business interests of the Service Providers. However, as the FCC pushes and succeeds in mandating STBs sold in retail stores – a day all of us hope will arrive soon – it will make is easier for the TiVo’s of the world to be masters of thier device domains – where only the consumers matter.
In any case – the “movie” that is “TiVo will be/should be/could be acquired” has many more sequels to come – the final one hopefully in the best interest of the consumer.
Great idea – and would win a lot of hearts from the consumer.
What are TiVo and/or Echostar doing in trying to become “TiVo for Web Video”? I am surprised TiVo hasn’t opened up their platform and struck more deals in this area. Rocketboom happened, then what? It is still too difficult to watch my favorite web shows on a TV (and yes, quality is there if you want it – HD, great shows, etc.).
@Frank Sinton – TiVo Home Media Engine (HME)
http://tivohme.sourceforge.net/ – Been around since 2005 – but limited activity to date –
@G – Yes, i have explored that, but with 2 years between “News” and limited capabilities, it doesn’t exactly make me want to go and download their SDK. Seems more like a token SDK than something they are seriously behind.
As Forrester’s analyst covering TiVo, I have predicted at various times that AOL Time Warner, Liberty Media, and Apple should buy TiVo. All these predictions made sense at the time and I know some bids were made (but not accepted.)
I gave up on this gig but Om, good luck to you. All I can tell you is that logic hasn’t guided this discussion in the last 7 years. Maybe it will work this time.
Dish doesn’t need to buy Tivo to benefit (Tivo wouldn’t sell anyway). All they have to do is sign a deal with Tivo to make an integrated HD Tivo for Dish. There are so many Directv customers that would jump in a heartbeat. Once Directv stopped supporting Tivo (yes, you can still use it, but you can’t watch the new HD programming with it), there are many people just itching to leave. The only thing preventing me from leaving Directv is the NFL Sunday Ticket. But I would move to Dish if they would offer Tivo (Cable? No thanks. Been there. Done that).