TiVo beats forecasts, but questions linger

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After TiVo reported record quarterly profit Tuesday, CEO Tom Rogers focused on a looming "crisis" in the television-advertising industry.

The crisis is that, in the near future, "two-thirds of the households that most advertisers care about will be avoiding the commercials."

Rogers was telling analysts that TiVo's advertising and audience research businesses are the cure to the crisis that TiVo created by introducing ad-skipping DVRs a decade ago.

As for TiVo's fiscal third-quarter financials, they mostly beat expectations. Its record net profit of $100.6 million came courtesy of a $105 million court-ordered payment from EchoStar for damages TiVo incurred when the satellite TV company infringed some patents.

Without that, TiVo would have lost a penny a share, but that still would have bested analysts' predictions of a 6-cent loss per share.

Revenue declined 15% to $64.5 million, and service and technology revenue fell 11% to $51.7 million.

But revenue was expected to fall because TiVo has been losing DirecTV subscribers at a fast clip. TiVo ended the quarter with 3.5 million total subscribers, nearly half of which were the more profitable "TiVo-owned" variety that generated $8.34 average revenue per user, per month.

The remaining subscribers come primarily by way of an old DirecTV relationship, with a smidgen coming from new deals with Comcast, Cox and some international TV companies.

A year ago, TiVo boasted 4.1 million total subscribers.

Besides touting TiVo as a way to beat an advertising crisis, Rogers bragged that it's one of the cheapest ways to enjoy a variety of content on TV screens, especially now that it has deals with Netflix, YouTube, Amazon and other Internet companies.

And he boasted of TiVo's having $200 million in cash with no debt, an especially advantageous position to be in considering a faltering economy in which credit is tough to come by.

He warned, however, that consumer electronics products, including TiVo boxes, might not sell well this Christmas season because of the troubled U.S. economy. A bankruptcy at Circuit City — a primary retailer for TiVo — won't help matters, either.

During the conference call Tuesday, some analysts seemed anxious about the EchoStar situation. Although TiVo has won every step of the way, the legal question remains as to whether DVRs from EchoStar, now known as Dish, still infringe TiVo's patents.

Either way, TiVo is due more money from Dish/EchoStar, but how much depends on what a judge has to say after a hearing scheduled for February.

Investors have grown weary of the nearly 5-year-old case, and when an analyst asked Tuesday whether it could be dragged out further by more EchoStar appeals, TiVo general counsel Matthew Zinn said that it could. He added, though, that damages could accrue under that scenario, setting the stage for another hefty payment for TiVo in the future.

TiVo shares closed 5% lower Tuesday to $4.43 and are off 47% so far this year. (partialdiff)
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