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The value of TiVo’s shares declined over 6% in heavy trading last Thursday, after the news agency Reuters reported that Chase Carey, CEO of satellite TV provider, DirecTV, had stated that his company would cease marketing and promoting TiVo’s DVR service as soon as it launches a DVR of its own later this year (note: the new DVR is currently scheduled to launch in October). Carey was speaking at Reuters’ Telecommunications, Cable and Satellite Summit in New York City. DirecTV’s "DirecTV with TiVo" service currently makes up around two thirds of TiVo’s subscriber base (note: at the end of the first quarter, 2.1 million of TiVo’s subscribers were "DirecTV with TiVo" customers, as were 247,000 of the 319,000 net new subscribers the company gained during the quarter). Although TiVo’s agreement to supply its DVR service to DirecTV extends through 2007, Carey stated that the satellite TV provider intends to offer DirecTV with TiVo only "to the people who would ask," and he would not say whether DirecTV intends to extend the agreement. However, he did not completely rule out the possibility that TiVo and DirecTV could reach some kind of accommodation, under which TiVo could continue to market its DVR service to DirecTV customers after 2007. DirecTV is planning to offer a high-capacity DVR, based on the XTV technology of its News Corp.- stablemate, NDS (which, among other things, powers the Sky+ DVR offered by another member of the News Corp. family, BSkyB). In addition, DirecTV plans to launch sometime next year an ultra-high- capacity version of the new box, which will be designed to enable the satellite TV provider to download a broad selection of encrypted movies and TV programming to its hard drive–thus mitigating (at least to some extent) the competitive disadvantage it faces from the VOD services offered by US cable operators.

The future of TiVo’s relationship with DirecTV has long been in question (which makes the sell-off of TiVo’s stock that followed Carey’s comments somewhat surprising), and the company appears to be conducting a two-pronged strategy to make up for the possible loss of the "DirecTV with TiVo" business. On the one hand, it has been seeking agreements with cable operators: in March, it announced that it had reached a non-exclusive deal with Comcast, the largest cable MSO in the US (see [itvt] Issue 5.95 Part 2), to integrate its service with the latter’s DVR’s (the first Comcast DVR’s with TiVo service are expected to launch in mid- to late-2006); and in early August, it announced that it had signed an agreement with the National Cable Television Cooperative (NCTC), a purchasing organization that represents over 1,000 independent cable operators (which collectively serve around 14 million subscribers), under which it will offer its service through the NCTC as a standalone option to the latter’s member base (note: at the Reuters summit, Time Warner Cable CEO, Glenn Britt, confirmed that his company is also in talks with TiVo). On the other hand, it appears to be hoping to increase the appeal of its "standalone" (i.e. not delivered through a cable or satellite operator) service, by, among other things, transforming it into a vehicle for the delivery of broadband programming services (see article in this issue on TiVo’s trial of a programming download service).

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