The rumored TiVo Rovi deal will be a difficult deal to complete. In the product areas, there are many conflicts that will need to be resolved. The combined IP portfolios will lead to a new round of litigation, and TiVo’s retail business seems like the odd man out.
The New York Times broke the news that Rovi is in deep negotiations with TiVo to bring the two companies together in a deal that would see TiVo shareholders owning 30% of the combined company. This is a complicated deal because there are many product overlaps between the two companies.
The most obvious problem is that both companies sell TV guides to pay TV operators. Rovi has been successful in combining its guide and metadata services in an integrated solution for operators. This typically involves integrating the guide on the operator owned STB. However, recently some larger operators have moved to license guide intellectual property from Rovi, build their own guide solutions, and continue to use Rovi metadata services to power them. For example, Comcast has chosen to take that path with X1. That said, most US cable operators use Rovi metadata and guides in at least part of their network.
TiVo has found increasing success with its operator solutions in recent years. Today the company has 5.47M subscribers via operator partnerships and 971,000 subscribers through its direct retail business. However, many of the operator relationships that TiVo has are based on the purchase of TiVo hardware, rather than an integration into a specific operator set-top box. Particularly for smaller operators, the ability to bring a complete multi-screen solution, including hardware and software, has resonated particularly well. TiVo now lists 10 US operators as partners, and possibly their most productive partnership has been with Virgin Media, where over half of the subscribers now have a Virgin TiVo DVR.
Rovi’s recent purchase of Fan TV could suggest that company will turn TiVo to focus on software-only solutions. Fan TV provided an STB and TV remote to create a new streaming experience for pay TV operators, but Rovi quickly shut down the hardware part of Fan TV focusing the group on its streaming services. However, Fan TV never really established any traction with operators for the hardware. A strength of the TiVo operator offering is the hardware and software combination. At least in the short term, the TiVo hardware business will be necessary to maintain value in the solution.
The second big area of competition is in the delivery of metadata services. TiVo recently purchased Digitalsmiths, whose metadata and discovery solutions are in direct competition with Rovi’s metadata services. Both companies are currently pitching discovery and recommendations solutions to operators, which are critical in helping pay TV subscribers get more value from their pay TV subscription. Given the precipitous rise in subscription fees, showing more value to customers is essential to stop them cutting the cord or switching providers.
The greatest alignment between Rovi and TiVo is in their aggressive enforcement of their respective patent portfolios. Here there is no overlap in business goals. Combining the portfolios will allow the combined company to strengthen claims against companies it considers in violation of its IP.
This could bring up a particularly interesting situation with TiVo’s most successful partner, Virgin Media. Rovi has lost a string of 10 patent violation claims against Virgin, with the UK courts ordering some of the Rovi patents in question to be revoked. Rovi has also lost recent IP claims against Amazon and Netflix. The acquisition of the TiVo IP by Rovi will likely embolden the company and lead to further litigation in the courts.
One area of TiVo’s product line that could be the most vulnerable in a Rovi acquisition is the retail DVR business. TiVo has never been able to grow its installed base much beyond 1M subscribers, though it did return that business to growth in the last quarter. Rovi is not a retail consumer company and could opt to sell this part of the business, or simply shut it down. And that would be shame. Tivo continues to create innovative solutions, including the new TiVo Bolt, which do an outstanding job of combining the OTT and pay TV worlds.
Why it matters
The purchase of TiVo by Rovi will be a very complicated deal to complete.
Both companies have competitive guide solutions, though both approaches are different enough to warrant maintaining both in the combined company.
It’s hard to see how the combined company will maintain two competitive metadata, search and discovery solutions in the market.
The greatest alignment between the two companies is in the IP portfolio.
TiVo’s retail DVR business may not survive a purchase by Rovi.