2011

AUTHORS

Tim Bodden

Elaine Christ

GK Katari

Peter Molina

Nina Zippay

4/13/2011

TiVo – STRATEGIC PROJECT

2

Table of Contents Executive Summary ....................................................................................................................................... 4

Introduction .................................................................................................................................................. 5

Strategic Analysis .......................................................................................................................................... 6

External Analysis ....................................................................................................................................... 6

Industry Competitive Review ................................................................................................................ 7

Porter’s Five Forces Analysis ................................................................................................................. 8

Value Net – Complements .................................................................................................................. 11

Conclusion ........................................................................................................................................... 11

Internal Analysis ...................................................................................................................................... 11

Organizational Vision and Goals ......................................................................................................... 11

Corporate Governance ........................................................................................................................ 12

Intellectual Assets ............................................................................................................................... 13

Financial Analysis ................................................................................................................................ 13

Competencies and Competitive Advantage........................................................................................ 16

Conclusion ........................................................................................................................................... 17

Strategy Formulation .................................................................................................................................. 17

Issues ....................................................................................................................................................... 17

Strengths & Opportunities ...................................................................................................................... 18

Weaknesses & Threats ............................................................................................................................ 18

Key Strategic Issue .................................................................................................................................. 19

Strategic Alternatives .............................................................................................................................. 20

Exit from Manufacturing of DVR Set-Top Boxes & Create License Agreements with Set-Top Box

Manufacturers .................................................................................................................................... 20

Expand into Internet-Based Content Devices by Acquiring Roku ....................................................... 20

International Expansion of Current Product Line ............................................................................... 21

Evaluating of the Alternatives ................................................................................................................. 22

Recommended Alternative ..................................................................................................................... 23

Strategic Implementation ........................................................................................................................... 24

Financial Feasibility ................................................................................................................................. 24

Changes to Vision, Mission, and Goals ................................................................................................... 24

Corporate Governance ............................................................................................................................ 24

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Organizational structure ......................................................................................................................... 25

People and Skills ..................................................................................................................................... 26

Leadership ........................................................................................................................................... 26

Divestment and Restructuring of Hardware Systems ......................................................................... 26

Software Design Hiring and Skill Set ................................................................................................... 26

Marketing and Sales Skill Sets ............................................................................................................. 27

Culture, Reward, and Control Systems ................................................................................................... 27

Reward Systems ...................................................................................................................................... 28

Changes to Systems and Processes......................................................................................................... 29

Balanced Scorecard ................................................................................................................................. 29

Conclusion ................................................................................................................................................... 30

Appendix ..................................................................................................................................................... 32

Summary of Interview with Mathew Zinn, Chief Privacy Officer - TiVo, Inc. .......................................... 33

Balanced Scorecard ................................................................................................................................. 35

Bibliography ................................................................................................................................................ 36

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Executive Summary As a pioneer of the Digital Video Recorder (DVR) industry, TiVo entered the market in

the late 1990’s and quickly rose to the status of technological leader. Despite protracted costly

litigation over intellectual property rights it has held its ground making it difficult for other

companies to compete for its premium position in the market. Meanwhile, new technology has

been invented around its patents creating an increasingly commoditized market of DVRs.

Further, consumer trends in television viewing has shifting dramatically such that viewing a

movie, television show, or other content is done via the Internet, on demand, or from other

sources. These events and trends have caused a downslide in leadership position for TiVo with

market share decreasing, and subscriber rates steadily declining over time.

With revenues on the decline and its technology becoming increasingly commoditized

TiVo must re-think their current strategy to re-gain its leadership status. To succeed, TiVo must

change its current business model of selling both hardware and software subscription services. It

must move away from the hardware (set-top box) sales model coupled with software

subscription to re-branding itself solely as a software subscription company. It will need to first

phase-out hardware sales as the expenses in this revenue stream are high compared to software

sales. This will allow TiVo to focus on the differentiated features such as easy interface and

multiple sources of integration (on-demand video, smart search, recording capabilities, and

transferability of recorded programs to personal computers and notepads). It will further allow

for a focus on becoming the premium platform for DVR software in the industry and build

strategic partnerships with cable network providers via licensing arrangements.

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Introduction TiVo, a United States corporation based in Alviso, California was formed in 1999 and

became synonymous with the digital video recorder (DVR) market in the early 2000s. Its DVR

systems can digitize and compress video from any source (antenna, cable, or direct broadcast

satellite) and can be integrated with the set-top boxes of satellite and cable providers throughout

the United States. TiVo’s offerings are distinguishable by its patented, sophisticated software.

The software can automatically record programs - both requested and other programs that a user

is likely to be interested in - and allows the user to use a “trick play” feature on the remote that

allows a viewer to pause live television, rewind, and play up to a half an hour of recently viewed

television. TiVo’s popularity also comes from the ability to skip through commercials easily - an

innovation that revolutionized the way television can be watched throughout millions of

households. TiVo’s DVRs can also be connected to computer local area networks allowing for

the download of information, video programs, music, and movies from the internet. In the

United States market, TiVo revenue streams derive from the sale of its DVRs, which range from

$100 to $400, and a monthly subscription service starting at around $12.99 a month.

TiVo’s mission is to “redefine home entertainment by providing consumers with an easy

and intuitive way to record, watch, and control television and receive videos, pictures, and

movies from cable, broadcast, and broadband sources.” While TiVo’s innovative hardware and

software subscription business model was pioneering at the outset, the influx of generic DVRs

has caused a decline in TiVo subscriptions and market share. Thus, TiVo faces a strategic issue

common to technology companies encountering mature growth in a domestic market - how to

maintain premium market share in an industry that has become increasingly commoditized.

This paper will begin with an in-depth strategic analysis of TiVo, followed by a review of

three strategic alternatives, a recommended approach, and suggested implementation plan that

will create a new strategic direction for the company. The focus of this paper is on TiVo’s

presence in the United States market. While global expansion is occurring, the authors believe it

will only be a matter of time until TiVo faces similar issues in other markets. Consequently, if

the strategic recommendation succeeds domestically, there is a strong possibility to implement it

globally with the appropriate modifications.

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Strategic Analysis Any technology company operating in the heart of Silicon Valley understands that their

external environment is anything but static or stable. TiVo is no exception to this rule.

Recognizing the constant changes at play in the external environment and the industry at large,

this strategic analysis begins by looking at the general environmental factors TiVo is facing,

followed by a competitive analysis of the industry in which it competes, and finally an analysis

of Porter’s Five Factors.

External Analysis

The general environment has many issues which can impact TiVo’s strategic direction.

The following areas are considered: demographic, socio-cultural, political/legal, technological,

economic, and global.

Demographic & Socio-cultural

The United States’ largest growing population age is over 45 years old and is not as

technologically savvy as generations below it. The biggest consumer demographic of TiVo

products are 25 - 45 year olds and TiVo specifically focuses on the 35 year old market when

designing products and services. Since TiVo’s inception in 1999, this age group has developed

into a very sophisticated technology user which has, in turn, led TiVo to increase the depth and

breadth of technology in their products and services.

Technological

DVR usage and understanding is widespread throughout the United States, with other

countries still in the introductory phase. Technology has made even the average home computer

able to imitate the basic DVR functionality. Also, the television purchase cycle has shortened

due to updates in technology, types of offerings, and faster price declines. The technology

offered within a stand-alone television unit often mirrors functionality found in a computer

system.

Economic

Economically, most of the world is in a recession, which means less disposable income

for a luxury item such as a DVR. TiVo products are categorized as luxury items because a DVR

is not needed to use or watch a television, video on demand, or access internet content. As noted

above, a consumer needs to invest at least $100.00 in the actual device and then subscribe on a

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monthly basis to the service at an average rate of $19.99 per month. If purchased through a cable

provider, the subscription price is around $2.95 per month, on top of the normal DVR purchase.

Although recent economic forecasts have noted that the United States economy is in an upward

trend, growth will be slow to moderate in the coming months and overall year.

Political/Legal

There are still many unsettled intellectual property laws when it comes to being able to

alter delivered shows. There are also outstanding legal issues with the internet and, in particular,

YouTube showing copyrighted material without the permission of the owner. There are current

patent lawsuits going on in technology over patent enforcement and how companies manage to

get around them. Furthermore, there is always the FCC watching the different kinds of

broadcasting and making sure the current laws and regulations are enforced and appropriate, so

companies need to make sure they are compliance. In summary, both the regulatory and legal

climate in which TiVo operates is often in flux and requires constant monitoring and scanning.

Global

Two aspects of the global general environment are intellectual property rights and

emerging markets. Enforcement of copyright and overall intellectual property laws is

inconsistent throughout the global market. The most recent important aspects in this area are

country enforcement of copyright laws as technology is constantly reverse-engineered by people

in countries such as China and then resold on the gray market at a much lower cost. Also, as

emerging markets such as India, China, and Brazil advance, new markets for DVRs may open as

upper and middle classes increase in size and their expendable incomes rise. TiVo needs to be

aware of both trends and issues as they consider the benefits of global expansion weighed against

the risk of the piracy and infringement of their intellectual property.

Industry Competitive Review

At the formation of the company, TiVo’s main competitors were other DVR makers,

often independent companies such as EchoStar or NDS (which builds the DVR system for

DirecTV) or venture groups from broadcast companies. In recent years the competitive

landscape changed as the advancement of technology hardware and ease and speed of internet

access increased. As more consumers are watching broadcast television via different devices or

platforms, the level of viewership may not be changing but the location certainly is. Consumers

now have more platforms than the standard television set to watch their favorite shows. They

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can access media via their computer, iPad, iPhone, or other personal communication device. As

the choice of platform has changed, former competitors have become allies. DirecTV, Cox

Communications and Comcast have partnered with TiVo in the past to provide the DVR box as a

bundled product and subscription service as an option. In some instances, such partnerships have

succeeded, while in others, they have failed. Often these partners are simultaneously selling

competing products and are not necessarily promoting TiVo. These competitors turned allies are

playing a dual role, offering TiVo subscriptions, but renting out a competitor’s DVR hardware

and service.

TiVo is unique in that it has many types of competitors, ranging from direct DVR

manufacturer rivals such as EchoStar, NDS (which builds DVRs for DirecTV), internet-based

content devices such as Roku and Apple TV, and TV manufacturers such Sony, who has

partnered with Google, and Samsung.

Porter’s Five Forces Analysis

Threat of New Entrants – Medium to High

TiVo’s revenue streams are two-fold; hardware revenue and software subscription

services. Because of this, analysis of the new entrants is also two-fold. Capital requirements

remain high for brand new hardware, and TiVo is defending its intellectual property patents

aggressively in court to fend off new entrants in terms of hardware design and technology.

While TiVo’s enforcement of its patents has helped keep the threat of new entrants down,

Competitors in US market (rival substitutes):

EchoStar

NDS (builds the DVRs for DirecTV)

Apple – Apple TV

Verizon

AT&T with Microsoft

Moxi

Scientific Atlanta (owned by Cisco Systems)

Motorola

LG (DVR built into TV)

Any computer company that builds a Media Center PC

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litigation has been costly, time consuming, and the courts have fluctuated in their support of

TiVo’s assertions of patent rights. Meanwhile, as the litigation has progressed, TiVo has focused

its efforts on designing new technology around their current technology.

In terms of software, capital requirements are low and the threat of new entrants is higher

than for its hardware. For example, there is already software on the market that anyone with a

computer can use and hook up to their cable or satellite line for basic DVR service. However,

the TiVo brand has remained strong in the consumer markets and preferences and brand

awareness are currently in their favor.

Partnerships have been a double-edged sword because they open up revenue streams and

customers to TiVo, but with the wrong partnerships they can also discount their service and they

do not get direct access to these customers. Thus, these partners are sometimes both competitors

and substitutes. Also, the partners have the ability to offer the service or not, because of the lack

of control by TiVo.

Cost disadvantage is independent of scale because outsourcing has driven down the

production ceiling for reaching cost efficiency. This has made it easier for small companies to

jump into the mix and for broadcast companies to produce their own equipment and compete

directly.

Power of Buyers – High

Under the current purchase scenario, with a combined initial hardware investment and

software subscription service, switching is inconvenient for many consumers. However, if the

consumer can bear a loss of its initial investment from the hardware unit purchase, the cost and

pain of switching becomes lower as most cable service providers and competing companies offer

some type of DVR product and service. There has also been a large increase in the number of

competitors since company inception twelve years ago, leading to consumers having a greater

ease of acceptance for the variety of products in the market. Because TiVo has increased its

reliance on high volume buyers through partnerships with cable service providers, who have

control over the offerings to customers, the power of buyers (the cable providers) increase their

level of power and control in this purchasing scenario.

Lastly, the majority of TiVo subscribers do not perceive a substantial product

differentiation between software services. Although TiVo is the only DVR set-top box sold at

retail that substitutes for cable box and allows a consumer to combine many services in one

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interface, most consumers are not aware of this differentiation due to poor marketing efforts.

Consequently, consumers typically do not place an emphasis on high quality when it comes to

this type of product and the extra features are only valued by a small niche market within their

consumer base.

Power of Suppliers – Medium

There is some forward integration by hardware or software manufacturers. These

companies are typically the generic producers of DVRs who have broadcast companies to help

them with distribution or companies who have created unique products for niche markets. Other

niche products are Google TV, Apple TV, and Roku, who differentiate themselves solely as

internet-based content providers. There is some switching cost, but there are many suppliers,

especially in the foreign market, that offer hardware this type of device.

Threat of Substitutes – High

There are many competitors from diverse backgrounds that see potential in this area for

profit. Thus, the environment has become very fragmented with each offering something

slightly different, but in many cases in the eyes of the general consumer, they all sell similar

products. The personal computer has become a commodity and many households have at least

one. These home computers, with quickly decreasing prices, can be hooked up the household

television, and with little to no additional cost, can be turned into DVRs. This contributes to low

product differentiation in the customers’ eyes, which leads to a majority of users accepting the

broadcast providers offerings, since they are offered at lower prices and require no additional

steps to procure.

Competitive Rivalry – High

The United States market is a saturated market approaching the top of the growth curve.

Globally, however, TiVo products are still in either the introduction or beginning the growth

phase. The saturation in the United States market, and increased competition, has led to lower

profit margins as producers are pushing for higher cost efficiency. Niche devices such as Apple

TV and Roku have also siphoned off part of TiVo’s consumer base. This is a high fixed cost

industry with high exit barriers, which keeps companies in this sector even if they wish to exit.

The patent litigation is also very slow and costly which has led to partnerships or alliances to

overcome these issues. Effective product differentiation has lowered in recent years even though

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the word TiVo is synonymous with DVR. The users all want basic service that has become

easier and less expensive to deliver as technology has advanced.

Value Net – Complements

TiVo has many complements in the current market place. It considers the broadcast

television, internet, YouTube, and video on demand as complements, since they can be accessed

through their new DVR, which expands the use to include all types of entertainment. TiVo is

helping to turn the television into even more of a media center and a focal point for people’s

homes. Other complements include offerings from standard television broadcasters and cable

companies, because they can combine with these companies to help get TiVo back into the

homes of millions of Americans.

Conclusion

TiVo is in a very tough spot and appears as if it could be on the verge of becoming an

extinct company based on these external factors. They used to be the highlight of this industry

but they did not keep up with the market and have since fallen on tough times. They are at a

turning point where if the new products, services, and partnerships do not pick up they will use

up their remaining cash. Also, it will be difficult to get loans on a declining business that will

have an unsubstantiated product line. It does not look like more people will invest once all their

cash is gone, customer subscriptions continuously falling, and the revenue streams have slowing.

Internal Analysis

Organizational Vision and Goals

TiVo’s vision is to be a “leading provider of technology and services for advanced television

solutions, including digital video recorders and in the future non-DVR set-top boxes and

connected televisions.” TiVo’s mission is to “redefine home entertainment by providing

consumers with an easy and intuitive way to record, watch, and control television and receive

videos, pictures, and movies from cable, broadcast, and broadband sources.” When TiVo was

founded, corporate values were written to ensure that TiVo would remain a special and different

work environment. To paraphrase these values, “TiVo works to build a profitable and growing

business by taking educated business risks while conducting themselves in an ethical manner.

TiVo values their employees, respecting one another, working as teams and giving back to the

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community. TiVo strives to earn and maintain customer loyalty by creating real customer value

and maintaining high levels of customer satisfaction. TiVo values creativity and innovation in

all areas of business.” These ideals were formulated in 2000 and have seen challenging times in

the past decade. Today, TiVo is no longer a profitable or growing business. While they have not

been unethical, per se, they are mired in lawsuits, both as plaintiffs and defendants. TiVo’s

message to the industry appears to be “work with us or we’ll see you in court.” CEO Rogers

stated that TiVo would prefer a business solution, “but sometimes you have to protect yourself.”

Corporate Governance

The board of directors at TiVo is made up of up to nine members who stand for election

every three years, in a staggered cycle. A nominating committee evaluates potential candidates

in all aspects of their qualifications, with a view of creating a board with a diversity of

experience and perspectives. While the board does not require a certain share ownership, the

board believes the directors should be stockholders with a long-term view of TiVo’s interests.

Tom Wolzien is currently the Chairman of the Board. He currently owns a consulting firm,

which consults in the media and communications industry and has over 40 years of experience in

media and cable companies, including NBC. Other board members include Peter Aquino, who

led RCN, a cable company, from the emergence of bankruptcy to a sale in 2010, William Cella,

former ABC executive, Jeff Hinson, former Univision executive, Heidi Roizen, former managing

director of a $2 billion technology venture fund who holds an MBA from Stanford and Joseph

Uva, CEO of Univision. This board is made up primarily of members with an intimate

knowledge of the communications industry. Ms. Roizen is the only member with a wider view

of financial markets. This may distort the view of the board rather than giving them the larger

view of market outside of the communications industry. This board has been very tolerant of

lack-luster performance with little guidance on revitalizing TiVo.

TiVo Organizational Chart

Tom Rogers, President and CEO

Jim Barton, Co-founder, VP, CTO

Anna Brunelle, VP, CFO

Naveen Chopra, VP Development &

Strategy

Nancy Kato, Sr VP, HR

Jeff Klugman, VP GM Products &

Revenue

Joe Miller ,VP, Retail Sales and Marketing

Dan Phillips, VP Engineering &

Operations

Matthew Zinn, VP General Counsel &

Privacy Officer

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Intellectual Assets

TiVo’s intellectual assets have been crucial in executing a strategy where the goal has been

to change the way in which consumers access and watch television, by offering increasingly

differentiated features and services to provide a best in class user experience. The current CEO

and President, effective July of 2005 is Tom Rogers. Mr. Rogers holds a J.D. from Columbia

Law School and has over 30 years of experience in the telecom industry. Jim Barton is a TiVo

co-founder, CTO and Sr. Vice President. He was previously President and CEO of Network Age

Software, where he developed the concepts which form the foundation of TiVo. Mr. Barton

continues to set the technical vision for TiVo. Anna Brunelle, VP and CFO, is responsible for all

financial operations. Prior to TiVo, Ms. Brunelle held controller positions at other media

companies such as Roxio and Napster. Naveen Chopra is VP for Corporate Development and

Strategy and is responsible for expanding TiVo service. This upper management group has the

education and experience to provide a positive position for TiVo in the industry. TiVo has a

history of innovation, headlined by developing the first DVR. TiVo appears to be an open and

honest environment where people can thrive. It fosters a culture which should allow for

continued success in the industry; however, they find themselves hindered by lawsuits from the

past which appear to be over-shadowing TiVo’s ability to develop new and industry changing

products, which will be necessary to remain competitive in the future. Matthew Zinn is the

Senior VP, General Counsel and Chief Privacy Officer. He has experience in the telecom

industry and is vital to TiVo’s current defense in its patent infringement case against EchoStar.

Financial Analysis

TiVo has ample cash and other liquid assets on hand to be financially solvent in the short

term. Their current ratio reveals they have three times the amount of current assets compared to

current liabilities.

0.00

1.00

2.00

3.00

4.00

2008 2009 2010

Cash Ratio (times)

Current Ratio(times)

TiVo Liquidity Measurers

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TiVo’s financial leverage is high, as they are using 40% debt in their capital structure,

with a debt to equity ratio of 70%. TiVo has had to take out large loans to provide funds for its

ongoing legal battles as well as R&D expenses.

Asset management at TiVo is mixed. While inventory management has improved in the

last three years, the ability to collect promptly on receivables has decreased by 20%. This has

resulted in over 25 days sales are in receivables in 2010.

Profitability measures all indicate that TiVo’s profitability has fallen dramatically in the

last three years. Return on equity fell from a high of 70% in 2008 to negative 50% in 2010. In

addition, the profit margin is in “free-fall” going from 40 cents profit for every dollar in sales to

a loss of nearly 40 cents for every dollar in sales.

0.00

0.20

0.40

0.60

0.80

2008 2009 2010

Total Debt Ratio(times)

Debt-Equity Ratio(times)

TiVo Long Term Solvency

05

1015202530354045

2008 2009 2010

Days sales inInventoryDays sales inReceivablesLinear (Days sales inInventory)Linear (Days sales inReceivables)

Asset Management

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TiVo is far smaller than its direct competitors with a market cap of only $1.08B and only

611 employees. It is also in a significantly weaker financial position than most of its

competitors. AT&T and Cisco are in the best financial position, reporting double digit profit

margins with the largest market caps. All direct competitors, except Motorola, delivered positive

earnings per share for stockholders in 2010. Motorola recently split into two divisions; TiVo

competes with Motorola Mobility (MMI), which is also struggling; however MMI has more than

five times as many sales and a market cap nearly seven time greater than TiVo, with a profit

margin close to the break even point.

In spite of negative financial news, the share price has remained fairly steady at around

$9 per share for the last few years. This is largely because of the possible positive outcome of

pending litigation with EchoStar. In summary, TiVo is solvent in the short term, however the

long term outlook is not favorable. The company is highly leveraged and profitability has fallen

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

Return onAssets

Return onEquity

2008 2009 2010

TiVo Management Effectiveness

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

Profit…

2009 2009 2010

TiVo Profitability Measure

Direct

Competitors TiVo

Cisco

(CSCO)

AT&T

(T)

Verizon

(VZ)

EchoStar

(SATS)

Laclede

Group

(LG)

Motorola

(MMI)

Sales 219.61M 42.36B 124.28B 106.57B 2.35B 1.69B 11.46B

Net Income -84.51M 7.58B 19.08B 2.55B 204.36M 54.02M -86.00M

Profit Margin -38.48% 17.89% 15.61% 9.59% 8.69% 3.23% -0.69%

EPS -0.74 1.32 3.35 0.90 2.39 2.45 -0.30

P/E -12.22 13.69 9.54 41.91 15.20 15.47 -82.86

Market Cap 1.08B 95.19B 181.54B 105.62B 3.13B 848.25M 7.01B

Share Price 9.00 18.07 30.71 37.76 36.81 38.31 23.78

Employees 611 70,700 265,410 194,400 2,300 1,682 19,000

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severely in the last three years. TiVo management needs to reverse the current trends if it hopes

to once again become a profitable company.

Competencies and Competitive Advantage

TiVo’s value chain identifies distinctive core competencies of sales and marketing,

service, innovation, culture, and intellectual property defense. The primary activities of the

value chain; inbound and outbound logistics, as well as operations, are sufficient. However, it is

the Sales and Marketing departments’ ability to work with partners, and the Service department’s

efficiency which are vital to TiVo. TiVo has a modular structure, using Broadcom as the sole

supplier of the system controller for their DVR. They currently do not have a long-term written

supply agreement with Broadcom. In addition, they do not have long-term supply agreements

with several other sole suppliers for key components in their value chain. TiVo depends on

third parties to supply services related to inventory management, order fulfillment and direct

sales logisitics. Failure to properly oversee these processes may result in excessive risk to TiVo.

The TiVo brand is well recognized as the original DVR service with outstanding software, and

their strong image continues to inspire confidence in their product. It is essential that Marketing

and Service continue to enforce that image. The support activities which are key to TiVo are

General Administration, Finance and a strong Legal department, which has been vital in

protecting TiVo’s intellectual property rights in the current lawsuit against EchoStar. The

Human Resource management has been strong in mataining a culture of innovation, supporting

an R&D department who continues to develop added features and functionality to the original

DVR technology. A Resource Based View of TiVo reveals tangible resources such as ample

cash accounts and patents. The employee base is strong, with a large number of skilled computer

software programers on staff. The intangible assets of TiVo include a brand name that is

associated with a reputation for quality and service. The firm has an essential organizational

capabilty of a resilient nature, fighting off patent infringments while continuing to support all

other business functions. A VRIN analysis reveals TiVo does not have a sustainable competitive

advantage; however if their patent infringment lawsuit is upheld TiVo will have a short term

competitive advantage.

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VRIN Analysis

Valuable? Yes, Patents for TiVo DVR technology

Rare? No, other DVR technology exists

Difficult to Imitate? No; however TiVo patents protect superior DVR software

technology

Difficult to Substitute? No, Basic DVR service is available as well as TV, movies,

internet viewing, theatre and other forms of entertainment

Conclusion

TiVo is fighting for its very existence as a company. While in the short term, TiVo has

enough cash ($240M) to continue operations, long term debt financing and continuing legal

battles are a huge financial burden. TiVo is using cash to settle legal battles leaving it

vulnerable. TiVo has many partners such as Broadcom, as well as relationships with retailers

like Best Buy which are important in the value stream. However, their heavy reliance on sole

suppliers could jeopardize the business. TiVo must update its customer value proposition soon

as their reliance on their original technology is becoming dated. But with its strong brand image

based on customer satisfaction, core competencies and innovative culture they can make a turn-

around with the proper plan of attack and stategic tactics.

Strategy Formulation

Issues Currently, there is a large push to integrate as much content as possible into the consumer

home entertainment system. When a customer signs up for cable or satellite service, they have

the opportunity to add a set-top box (STB) that allows them to access DVR and on-demand

features. Aside from that, STB makers such as Apple, Roku, Google, and Boxee have devices

that allow the consumer to stream additional types of programming to their television, including

content from Netflix, YouTube, Amazon, and Hulu. Given broadcast television networks’

inability to understand the wants and the needs of the current consumer market and their delay in

adjusting strategies that would allow them to benefit from consumer preference, combining the

two types of STBs will not be an option in the near future.

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Strengths & Opportunities Since the current environment requires two different devices for the two types of media

content, broadcast and internet, there are two different market segments that TiVo has the

opportunity to impact. One of TiVo’s biggest strengths is its ability to develop intuitive software

that is unique and easily distinguishable. Most fans of broadcast television are familiar with the

TiVo bleep when fast-forwarding a recorded show, whether it was because they have used a

TiVo device or they have seen it replicated on television shows or commercials. It is the TiVo

DVR software that holds the brand equity, and this can be used in a device from any STB

manufacturer to increase the footprint of the TiVo experience.

One of TiVo’s untapped opportunities is the emerging Eastern European and Asian

markets. Those markets, except for Japan and South Korea, tend to stay a generation or two

behind Western trends. With TiVo’s current technology and manufacturing of STBs, they can

make a strong marketing push and gain control of those markets and would have the opportunity

to establish the TiVo brand to reach the level of recognition it has in the U.S.

Weaknesses & Threats

TiVo’s biggest weakness is that it has focused on selling its own STB in a market where

there is no room for it. With the advent of HD television, an STB is required from the

consumer’s cable or satellite provider. If that provider does not offer a TiVo device, that

household is removed from the possible customer base. This makes STB manufacturers such as

Motorola and Scientific Atlanta (Cisco) TiVo’s biggest competitors. Providers such as DirecTV,

Time Warner, and Dish Network that facilitate the growth of those competitors’ install base end

up becoming TiVo’s biggest threat.

Another looming threat for TiVo is the current patent lawsuit brought by AT&T, with

financial support from Microsoft, and other litigation with EchoStar. There is no visible timeline

for the resolution of the case because the courts have involved the United States Patent and

Trademark Office to make a ruling that will narrow the issues at trial. Microsoft’s and AT&T’s

deep pockets can easily extend the lawsuit long enough to cause TiVo to use up all of their cash,

causing them to either have to shut down their operations or need to be acquired to continue the

TiVo brand.

19

SWOT Analysis Summary

Internal

Analysis

Strengths

- Core competency of software

development

- Secondary competency of device

manufacturing

- Brand equity of TiVo software and

user-interface

Weaknesses

- STB customer base being taken by

cable and satellite providers

- Long term debt load

- High cost of current patent

infringement lawsuit with EchoStar

External

Analysis

Opportunities

- Untapped customer bases in

emerging markets such Eastern

Europe and Asia

- Leverage software development

abilities to create licensing

agreements with STB manufacturers.

- Restructure organization to focus on

higher margin software than lower

margin manufacturing

Threats

- Lawsuits brought by AT&T and

Microsoft which may lead to loss of

patent protection for core technologies

- High cost of defending against patent

lawsuits

Key Strategic Issue TiVo’s business is on the decline. It’s most critical strategic issue is determining how to

maintain premium market share in an industry that has become increasingly commoditized. The

set-top box that TiVo sells has no way of overcoming the market strength of the device that is

included when signed up for cable and satellite service. A customer no longer has a reason to

take the extra step of acquiring a TiVo DVR when their cable company will provide one at a

lower cost and without the need to order it separately, or purchase it at a retail location.

If this issue is not addressed, TiVo’s market share will continue to erode until the point of

non-existence. There are customers who have, at some point paid for a “lifetime” subscription,

but that does not provide a continuous stream of income. There will come a time when that

device will stop functioning, and there will be no incentive for that customer to purchase a new

TiVo device when their TV provider can supply one at a lower cost, will replace it with a newer

model with more features, when available, and will replace it if it stops functioning properly.

20

Strategic Alternatives

Exit from Manufacturing of DVR Set-Top Boxes & Create License Agreements with Set-Top

Box Manufacturers

TiVo’s biggest strength is the software that runs on its devices. They need to leverage

this core competency and work directly with the STB manufacturers and create licensing

agreements to have them install TiVo software on the STBs that they manufacture, then

distribute that hardware to cable and satellite providers. This would allow for a continuous

stream of income for every device installed in a consumer household. Broadcast television STBs

will not be going away anytime soon, so this income stream will allow TiVo to take advantage of

the current industry model. Overall, DVR technology is similar across DVR devices, but TiVo

software has the advantage of being simple and intuitive. Even users who are not tech savvy can

navigate their way through the system easily the first time they pick up the TiVo remote.

The current TiVo business strategy is differentiation with a focus on the tech savvy

consumer who would go out of their way to purchase a set-top box without the assistance of their

broadcast television provider. If TiVo eliminates hardware manufacture and has their software

installed across as many STB brands as possible, they would have the potential to increase their

install base to every television viewer, as opposed to the just the niche of the techie consumer.

TiVo’s corporate strategy would become one of scope. It would focus on its core

competency of software development. The organization would restructure itself from a

manufacturing and development one to a strictly development organization. This would allow

for the elimination of the fixed costs involved in set-top box manufacturing.

Expand into Internet-Based Content Devices by Acquiring Roku

The internet-based content delivery market is growing very rapidly, with products

currently available from Apple, Google and Roku. Currently, a device’s success is being

determined by the distributors’ abilities to license the largest amount of content for those

devices. Roku and Apple TV devices are quickly gaining ground while Google, with their vast

amounts of available cash, were not able to secure the content that they thought they would, and

is quickly failing. TiVo has the opportunity to use their existing software in this type of device,

and can adjust their manufacturing plants to build these devices. If TiVo were to enter this

21

market segment by acquiring Roku, they would also acquire content agreements with Netflix,

Hulu, MLB, NBA, and many other valuable content providers.

Given TiVo’s experience in manufacturing, they would have the advantage of cost

leadership, because they already have the plants in place to manufacture these devices, where

Apple and Google are new to this type of device, so they would have to build more relationships

with existing plants or build their own plants to accommodate the increased demand of the

growing market.

Their corporate strategy would be that of related diversity by using their secondary

competency of device manufacturing to expand into a different use set-top box. If they gain

enough share, they would be able to turn manufacturing into a core competency, like their

software development abilities currently are. They would be able achieve this method of

diversification through the acquisition of Roku, which is still a relatively small company, but

whose name is quickly becoming associated with internet-based content delivery.

International Expansion of Current Product Line

With the slower expansion of DVR technology in emerging markets, such as India and

China, they can keep their current manufacturing and software development skills untouched,

and expand the organization into those markets. They would need to apply an international

strategy to the organization because of the need to adapt the product software to the language of

that market area. Since these are emerging markets, they would also have to minimize the costs

of their hardware to be able to be a low price option for these new consumers. Since the

hardware is manufactured in Asia, costs of getting the product to those markets would be low,

relative to the shipping costs of getting the product back to the United States. TiVo would also

be able to take advantage of the lower cost software development labor in India and China,

which would have the advantage of knowing the language that the software needs to be adapted

to.

The biggest issue may come about when U.S. software development managers need to

communicate with developers on the other side of the globe. There will be some language

barriers that will need to be overcome, but they will need to be handled quickly, so as not to have

a negative effect on the quality of the software, so as not to cast a harmful shadow on the

localization of the software in new markets.

22

Evaluating of the Alternatives

Exit from Manufacturing of DVR Set-Top Boxes & Create License

Agreements with Set-Top Box Manufacturers

Pros Cons

- Elimination of high cost manufacturing

operations

- Potential customer base extends to ALL cable

and satellite customers

- Focus on core competency of software

development

- More resources spent on software development to

foster innovation in that competency

- Minimal impact on mission, since they focus on

the television viewing experience, will remain

mostly unchanged

- Minimal impact on culture, since developer

environment will be untouched

- Increased R&D spending on software

development, since they will be replacing the

R&D departments of the set-top box

manufacturers

- Some STB manufacturers may hold out on

agreements awaiting outcome of current litigation

- Manufacturing department would be eliminated,

possibly causing morale issues and job security

worries associated with organizational

restructuring

Expand into Internet-Based Content Devices by Acquiring Roku

Pros Cons

- Entering the growing market segment of internet-

based content delivery devices

- Core competency of intuitive software

development expanded to larger customer base.

- Minimal impact on mission, since they focus on

the television viewing experience, will remain

mostly unchanged

- Increased costs due to increased development

team

- Increased costs due to increased manufacturing

operations

- Large cash outflow to acquire Roku

- Culture may become more “corporate” and less

“start-up casual” because of increase in employee

numbers and the need to keep employees focused

and organized with larger teams

International Expansion of Current Product Line

Pros Cons

- Increase of customer base in emerging markets

- Potential to be the main DVR hardware provider

before competitors move into Eastern Europe and

Asia

- Manufacturing competency used to keep costs

low and provide low cost product for new

consumers

- Entering the growing market segment of internet-

based content delivery devices

- Costs of international expansion, marketing, and

managing international employees needed for

localization of products

- Potential of new markets not accepting DVR

technology

- Potential legal or political barriers associated

with entering markets with very controlling

governments, such as China

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Recommended Alternative

Our recommended alternative is to exit from manufacturing of DVR set-top boxes &

create license agreements with set-top box manufacturers. It is believed that this is the best

solution because it removes TiVo from the current business model of manufacturing which is

causing continues losses. It is time to stop throwing good money after bad, since the market for

the current product is shrinking. The alternative of expanding internationally has a very high

initial cost because of the localization of the software for the market. Once the product is

localized and available for sale, TiVo would still have to establish a customer base, which would

take time, if they are able to do it at all.

The alternative of expanding into internet-based content devices would not be optimal

either because it keeps TiVo in the STB manufacturing business, which is an expensive model,

since sales are decreasing, with no solid method of reversing that trend, and acquiring Roku

would be a very large expenditure at a time when the cash can be used in other parts of the

business.

If TiVo exits manufacturing, they can focus on software development. Their biggest

selling point to create license agreements would be the ability of STB manufacturers such as

Cisco and Motorola to eliminate their own R&D and development departments that provide the

software for their DVRs.

TiVo’s corporate strategy would become one of scope, and would focus on its core

competency of software development. The organizational structure would change from a

manufacturing and development one to a strictly development organization. The current

business strategy is one of differentiation with focus on a niche market. Usually, a combined

strategy like this would lead to an advantage, but since the goal of the TiVo product is to get it

into as many households as possible, the niche factor is detrimental to the business. The business

strategy with this alternative would remove the focus factor and allow TiVo to become a staple

in most American households, like a television set is today.

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Strategic Implementation

Financial Feasibility

This implementation plan will be based upon funds stemming from the divestment of the

hardware component of its operation and the revenue growth derived from increased licensing

arrangements and strategic alliances. As the workforce will be down-sized and manufacturing

costs may decrease, funds previously used for these expenses will be diverted into software

design and strategic alliances.

Changes to Vision, Mission, and Goals Presently, the vision of the company is to be a “leading provider of technology and

services for advanced television solutions, including digital video recorders and in the future

non-DVR set-top boxes and connected televisions.” In light of changing consumer trends this

statement is too narrow. As the company moves forward with the recommended strategy it

needs to remove the set-top box manufacturing section and expand its vision and mission

statement into a broader concept beyond “television solutions” to “being a leading provider of

software technology of visual media.” This change will reflect the changes in consumer

consumption of media and help reflect both a broader market of prospective and existing

consumers (e.g. those who watch media only from computers or other devices). It will also

allow for greater awareness of TiVo’s expanded offerings. For example, TiVo provides the

ability to download photos and other media into its systems. The current statement does not

reflect such differentiation nor is it broad enough to encompass further innovation.

Any strategic goals referencing hardware or development thereof will need to be deleted

and amended to innovative software design. Lastly, a suggested addition to the mission

statement or strategic goals would also be to forge new strategic partnerships.

Corporate Governance To expand its knowledge base and help change its strategy TiVo needs to expand the

breadth of experience of its board. It should begin by expanding from six to nine board members

and seek out and select board members from the software industry to help provide increase its

knowledge of in-depth trends and advancements. Experienced board members should also be

solicited from hardware manufacturers (e.g., Motorola) to assist with integration. In addition, it

25

would be helpful to add a board member with marketing experience in the Asia Pacific region

with experience in global expansion into those emerging markets.

As the company begins the implementation process board meetings will need to increase

with greater frequency (e.g., monthly) to discuss and stay abreast of the implementation process

and to more closely monitor competition. Visits from board member to different facilities and

face-to-face meetings with employees will help boost morale and confidence throughout this

change and upheaval. Finally, in order to create an atmosphere of trust, the level of transparency

of management decisions and strategic direction should increase.

Organizational structure While the current functional structure will remain in place, it will need to create new VP

position and a department for Quality Assurance for software testing and development. Creation

of this new department will improve performance and quality of its software design and help

ensure that hardware manufacturers and service provides choose TiVo as its premium device

software of choice. This new department will also solidify and enforce the new strategic

direction of company in innovative software design and will help maintain its premium price

point and status in the marketplace.

On a lower level, it is recommended that strategic software teams be formed within the

organization to help advance and accelerate growth in software design. These teams will also be

given the autonomy to collaborate with loyal TiVo customers via blogs, open source

communities, and bi-annual TiVo conferences hosted not by the company but by the customer

base to ensure autonomy and credibility.

A further extension of teaming with external partners will be necessary to advance its

strategic partnerships and alliances. A culture that recognizes and acknowledges the

interdependence with outside hardware manufacturers and media service providers will also need

to be formed. Small teams similar to those in software design will be formed but this time with a

core group of external shareholders such as hardware designers from strategic alliances and

broadcast companies. The purpose of these teams will be to strengthen the relationships in order

to improve the integration of the software with the hardware components. Improving

communication channels via these teams will help advance software functionality and

26

integration. For example, if there are problems with the integration between the software and the

hardware, these teams will be able to create solutions faster as the hierarchies and bureaucratic

levels will be reduced and trouble-shooting and problem-solving can begin immediately. Such

teams will perform duties in a virtual workspace environment due to resource constraints and for

efficiency.

People and Skills

Leadership

A critical role in TiVo's leadership will need to be grounded in its ability to forge critical

partnerships, working together with the major companies of the media, technology, consumer

electronics, and television industries. Examples of new strategic partnerships will now focus on

the giants of manufacturing devices such as Motorola and Cisco. Leadership development skills

will include enhanced networking skills outside of the company. The effectiveness of this new

leadership role will be, in part, reflected in the new partner roster indicating the increased level

of industry support of TiVo.

Divestment and Restructuring of Hardware Systems

As the company begins to divest its interests in the hardware portion of its business

restructuring and layoffs will occur. Some members of the hardware design groups should be

retained in order to ease the transition and to consult with new partners. Other personnel may

need re-training for potential transfers into the new department, should their skills sets match the

needs of the organization.

Software Design Hiring and Skill Set

To help drive the change from hardware and software to a more strategic focus on

software design and development, TiVo will need to institute the following hiring practices:

Recruit more software engineers (from US and other countries) from universities

Increase recruitment of software marketing personnel

Software designer skill sets will include the following:

Ability to insure software and system architecture are in synchronization

Understand performance expectations

Plan for technology insertion with multiple hardware vendors

27

Manage risk identification and evaluate mitigation strategies associated with design and

architecture

Insure that the design comes out in stages in a timely fashion so that the overall

organization can make progress on all levels – marketing, sales, etc.

Such qualifications will require creative thinkers and individuals who are flexible as the

design will be subject to change throughout the process.

Marketing and Sales Skill Sets

In other departments, such as Marketing and Sales, current employees and new hiring

will need to increase their business acumen in business to business sales and marketing in order

to develop and foster relationships with hardware manufacturers. Skill sets necessary for these

individuals will include the following:

1. Communication – ability to communicate with prospects, current customers, co-workers, and

management require excellent communication skills

2. Networking – as the company’s new focus will be on strategic partnerships and alliances,

online, offline and social networking skills will be essential

3. Analytics and trending – the ability to create and/or understand accountable metrics and to

understand the underlying data

4. Flexible forecasting – as the technology arena moves at such breakneck speed, forecasting

skills and the ability to be able to adeptly re-forecast in light of competitive threats and

changes in the marketplace will be needed

Culture, Reward, and Control Systems TiVo’s current culture advances innovation but is currently split between innovative

hardware and software design and development. As the company begins to implement the

recommended strategy it will need to strengthen its team culture to create a higher level of

innovation with a focus on software. Successful innovative software design also requires a

learning organization framework and culture. Thus, the recommendations below will address the

creation of a team culture and a learning culture to help foster a proactive approach to the

unknown. In addition, reward and incentive programs will also be changed to increase

performance in alignment with the TiVo vision and goals.

28

To enhance the team culture and create a level of empowerment, titles and hierarchies

within these teams will be minimized or eliminated. These teams will also be given the

autonomy to collaborate with loyal TiVo customers via blogs, open source communities, and

TiVo conferences to enhance innovation and creativity. The gathering of external information

and insight from its core consumer base as well as experienced developers outside of the

organization will increase and enable creativity and expand the knowledge level beyond the

internal boundaries of the organization. The gathering and integrating of external information

will also enhance their crowd-sourcing efforts such that software development teams will be

tracking external information on a more regular basis and creating a constant feedback loop

between core customers and company employees. This practice will require an interdependence

and knowledge-sharing network amongst TiVo software development teams and the open source

community.

Leadership can help instill this culture via story-telling of its past successes of software

design in order to inspire new hires and present employees alike. To truly innovate and build

upon its past successes TiVo must also draw upon the talents of all employees, regardless of

status or position. Employees who innovate and create at all levels will need to be recognized

and celebrated by the leadership to help engender and foster a learning environment that enables

innovation. Lastly, leadership will need to promote outreach efforts to core consumer groups

and open source communities.

A more creative work environment and culture can also be fostered with casual dress

code and flex-time work schedules.

Reward Systems To promote this culture reward systems will need to be closely linked to risk-taking and

innovation-oriented behavior. Employees from low-level to management must not be penalized

for failures. Rather, these individuals can be encouraged to work on other projects where they

can leverage their experience and insight. Employees will be given at least 10-15% of their time

to work on personal creative projects. To instill a focus on the company’s mission, stock option

plans at discounted rates will be provided to employees at all levels. Performance plans and

reviews will focus on long term goals and achievements rather than short-term expectations and

results.

29

Changes to Systems and Processes To facilitate open source collaboration information systems will be created for sharing in

open source environments. Blogs and other internet marketing tools will be created to foster

communication with core consumer groups, including social networking proposals. These

internet-based sharing tools will increase the speed at which end-user consumers can drive

innovation for software design.

Implementation Plan – Steps and Timeline

Balanced Scorecard As TiVo is continuing down the path as an innovative company with a highly

differentiated product line it is important they focus completely on their core competency of

software development. In order to do this they must continue to be a learning organization. New

teams of cross function members will be developed to facilitate R&D. Most of the employees at

TiVo are professionals and therefore the monitoring and control systems will depend on

behavioral controls including training, attendance at industry-wide conferences and a strong

company culture. It is important that management support the efforts of creativity while at the

same time setting targets for release of new software on which the company and its new partners

will be dependent. TiVo is dependent on loans for meeting their long term obligations and

newsletters and communication from management must be frequent and contain a sense of

urgency and single-minded focus on release of updated software. The staff must be reminded

30

with storytelling of the integrity and high ideals the company was founded on and encouraged to

maintain these standards.

The Balanced Scorecard looks at the company from four essential points of view. The

financial goals are of high significance and may be the most difficult to achieve. The

shareholders should already understand the current precarious position the company. Therefore

the goal must be to avoid financial ruin of the company in the short run. While a portion of the

large cash reserve must be invested in software R&D, a current ratio of one should be maintained

to provide adequate liquidity to avoid short term financial problems. In addition, management

should strive to maintain a long term debt-equity ratio of no more than the current 70% while at

the same time maintaining a stock price in the current $9 range. The business processes goals

are to create cross-functional R&D teams who will begin work together by Q3 of this year and

deliver a new software package by the end of 2012. From a customer perspective, the TiVo

brand image must be maintained. A customer satisfaction survey should be performed by the

end of 2011 which should reveal that our customers are satisfied at a minimum of four on a scale

of one to five. It is also imperative that TiVo begins negotiations with partners for a new

software package. It is important that TiVo reaches out and to begin negotiating with at least 3

partners before the end of 2011. In order to achieve the new vision to be the “leading provider of

software technology for visual media”, TiVo must focus on their core competency of software

development. The goal is to hire 100 highly skilled software engineers who have the right fit for

the TiVo culture by the end of 2011. Along these same lines, the goal is to appoint three new

members to the Board of Directors. These members should be from diverse backgrounds

including the software and hardware industry and one who has extensive experience in

international marketing.

Conclusion

The external analysis reveals that TiVo is in a difficult market. The competition is

rapidly commoditizing the DVR market and TiVo’s value proposition to the coveted 35 year age

group is rapidly deteriorating. The Five Forces analysis shows high or medium threat levels

from all sectors, especially competitive rivalry. The target market subscriptions are declining

and the internal analysis of TiVo confirms the shaky financial footing of the company. The short

term stability of the company is good with a current ratio of three. However, the long term

31

finances demonstrate a highly leveraged company which is incurring a high debt load to

subsidize the on-going legal battles over patent infringement with EchoStar as well as lawsuits

with other competitors.

The primary strategic issue facing TiVo is how to maintain a market share for a highly

differentiated product in an industry that has become increasingly commoditized. Several

alternatives were investigated including expanding into internet-based content providers by

acquiring Roku or expanding internationally with the current product line, however, a large cash

outlay to acquire Roku would be a risky move as the cultures may clash and expanding globally

with the current technology would result in at best a temporary competitive advantage.

Therefore we recommend TiVo exit the set-top box market and aggressively pursue licensing

agreements with set-top box manufacturers. This would allow TiVo to focus on its core

competency of software development and create a synergy that would be beneficial to TiVo and

its partners, as well as creating a truly extraordinary value proposition for the end user. In order

to implement this strategy it would be necessary for TiVo to change its vision. Rather than

focusing on the past vision of being the leading provider of technology for television and

services for advanced television, it must now focus on being the leading provider of software

technology for visual media. This new focus will allow TiVo to exploit its innovative culture

and increase the differentiation of its software to create new value to the customer. Creating new

R&D and Strategic licensing teams will allow TiVo to focus on the development of selective

partnerships with companies with whom they will create synergistic relationships. TiVo must

focus on a way forward, eliminating the attention diverted to set top boxes, away from their core

competency. Commitment from an increasingly diverse board of directors and upper

management will be imperative in the implementation of this strategic change in direction. TiVo

is at cross-roads and must re-invent itself with a committed focus on its future as the software

provider of visual media for the future.

32

Appendix

33

Summary of Interview with Mathew Zinn, Chief Privacy Officer - TiVo, Inc. The vision of goal of TiVo is to be the one box you use or the one UI that you go to

watch what you want when you want it. TiVo is the only box you can buy at retail that

substitutes for cable box and allows you put so many services all together in one interface – there

is no other device does that in the marketplace. Most consumers do not realize that TiVo can

replace your cable box and do so much more. Everything else (cable providers, Roku, etc.) are

merely partial solutions. However, the company does not have the retail sales that justifies a

high spend on marketing to relay this message. Most marketing is internet based and they try to

do it as inexpensively as possible.

TiVo is unique in that they have multiple types of competitors. Competitors were

originally cable providers and their DVRs but with changing consumer trends, they now compete

with different types of companies, ranging from cable providers (with their own DVRs), Roku,

as well as even television manufacturers such as Samsung.

Focus is on operating license deals in US and other countries such as UK, India, New

Zealand, etc. They are focusing their energies on creating the “hybrid TV solution.” In UK they

have become the exclusive software provider for Virgin Media. They have no hardware or

marketing costs. Virgin Media benefits because they can use TiVo to differentiate against their

competitors.

They have a high investment in litigation (which shareholders value) and research and

development (due to cable partnerships). Investors aren’t interested in the retail business as their

focus is on the service provider business and patent litigation.

Globally, there is a huge land-grab going on in Europe with strong push for exclusive

hybrid TV solution deals being executed (e.g., TiVo deal with Virgin Media).

To enhance strategic partnerships there are whole teams dedicated to customer support,

sales, etc. which are organized and conducted on a virtual basis. They have learned that it is

important to pick the right partners and it is better to do exclusive deals with people that want to

work with you. For example, Comcast was a disaster in part due to their infrastructure (over 800

VPs) which did have experience or true interest in forming partnerships with outsiders. They

have found that many cable companies in the US have similar limitations in infrastructure and

attitude.

34

TiVo has a unique structure between retail sales and strategic partnerships. While

investors are not as interested in the retail side of the business, it creates value for the company

in that it allows TiVo to innovate based on what consumers want. Innovation is not dictated by

what cable providers want – it is end user driven. What they learn on the retail side and the

innovations that come from it can then be leveraged across all strategic partnerships driving more

value over other competitors.

They are working more closely with open source communities. Their operating system

was based on Linux, which is an open source platform. There is a lot of give back to the open

source community but he recognizes there could be more. Their UK platform is evolving from

Flash and this is the new direction of the company.

Hardware operations are small, consisting of only about 10 people. Business is almost

entirely software. They currently just break even on the hardware. The only reason they are still

in the business is that they have not been able to depend upon anyone else in the past.

No SWOT analysis is done as part of the decision making process. Most decisions are

opportunity driven analysis. Deals are hard to come by and take a long time in the making.

35

Balanced Scorecard

36

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