Why TiVO is in trouble

Implications: TiVO has unveiled a CableCARD-compatible set-top with a huge storage capacity (1 Terabyte).  This is an obvious effort to break into the cable market via retail, but the approach has some profound limitations.  TiVO is also trying other ways to break into Cable.

Analysis: TiVO recently unveiled a new model with 1 Terabyte of storage (equal to about 150 hours of HD content), which is considerably more storage than Motorola or Cisco set-tops.  The TiVO box has a CableCARD slot for conditional access, and so can decrypt signals from cable operators or Verizon FiOS.

However, the TiVO box does not support a full 2-way offering, and this is the problem.  The box cannot access VOD, for example, or any other interactive offering from the cable operator.  To most consumers, the box will not have the same access to features that the cable operator's nearly-free DVR will have.

The ability to ship a retail product that works just like the cable operator's leased box only emerges once the operators have deployed the Tru2Way standard, which enables all the boxes in an area to run the same user interface (both older deployed boxes and new boxes).

TiVO is trying to carve out a niche for itself in cable operators by offering a proprietary user interface.  Both Cox and Comcast, according to the article, are offering an upgrade to a (presumably) premium user interface with the TiVO brand name.  This opens up a major new vista for TiVO, the ability to license its branded user interface, but it will ultimately reduce demand for its proprietary hardware.  Why buy a TiVO when you can download the user interface to your cable-operator-leased set-top?

It is unclear that this current product from TiVO will go anywhere.  It will be more interesting to see what happens once Tru2Way is fully deployed (possibly as early as this year) and whether consumers will want to buy a TiVO set-top instead of leasing the cable operator model.

In a world where the operators are still leasing set-tops and consumers won't pay much of a premium for a TiVO-branded offering, TiVO's last hope is to license its user interface.  That actualy becomes easier with Tru2Way, in theory, because Tru2Way lets all the set-tops in a city run the same interface.  But whether the operators will choose a TiVO interface versus their own or those of other UI vendors (such as TV Guide and NDS) remains to be seen.