Just because you develop a popular new technology, there's no
guarantee you can control its destiny. Digital video recorder (DVR) pioneer
Tivo (Nasdaq: TIVO) convinced cable companies it's program-recording devices would revolutionize viewing habits, as it was far more functional than a plain-old VCR.
Since its founding in 1997, the company quickly gained traction, hitting almost $100 million in sales by fiscal (January) 2003, roughly $275 million by fiscal 2008, with expectations of reaching $500 million in annual sales by the current fiscal year.
But cable operators had another idea. Time Warner Cable (NYSE: TWC) and other large cable companies decided to go with cheaper DVR devices made by firms such as Cisco Systems (Nasdaq: CSCO) and Motorola Mobility Solutions (NYSE: MMI).
As a result, Tivo's sales have been falling ever since, and investors began to wonder whether the company would even be around a half-decade from now. Well, that obituary was premature. Tivo recently delivered a surprisingly strong quarter, fueled by better-than-expected new subscriber gains.
In the quarter ended October, Tivo showed sequential gain in net new subscribers for the first time in almost two years. And analysts say the numbers will look even better in the quarters to come.
A shift to the second tier
Tivo grew frustrated in its dealings with the largest cable operators (known as MSOs), which were hammering the company on price. A refusal to cut prices sharply led to terminated contracts, so Tivo's management decided to focus on second-tier MSOs. Smaller MSOs lack the engineering resources to deliver the robust technology Tivo has developed. The move seems to be paying off now.
For example, United Kingdom's Virgin Media, which has more than 2 million subscribers, has paired up with Tivo.