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TiVo Loss Deepens Due to EchoStar Litigation

30 Aug, 2006 By: Erik Gruenwedel

Digital video recording (DVR) pioneer TiVo Inc. posted a net loss of $6.4 million for the second quarter (ended July 31), largely due to upfront hardware costs, the exercise of stock options and ongoing patent infringement litigation with satellite provider EchoStar Communications.

Earlier this month, a federal appeals court temporarily stayed a U.S. district court judge's ruling granting TiVo a permanent injunction and $89.8 million in damages against EchoStar's own DVR device.

“We are confident in our case, and the positive news that has come out in the past several weeks certainly supports that we will ultimately prevail in all phases of this litigation,” said Tom Rogers, CEO of TiVo.

The Alviso, Calif.-based service posted a net loss of $892,000 during the same period last year. Net revenue totaled $59.1 million, up about 30% from $40.6 million last year.

Despite the increased loss, TiVo beat Wall Street estimates ranging from a $10.5 million loss and revenue of $51.3 million.

“Despite a traditionally slower summer consumer electronics selling period, coupled with no exceptional advertising spend, we were able to continue to build momentum relative to last year's results and meet and exceed our second-quarter guidance for revenue doubling year-over-year,” Rogers said.

TiVo, which recently announced a distribution deal with cable provider Cox Communications, reported 4.4 million subscribers compared to 3.5 million last year. The service recorded 74,000 new company-owned subscribers, down 4% from 77,000 new subscribers last year.

Overall, TiVo-owned subscribers totaled 1.5 million members, compared to 1.2 million last year. DirecTV-based TiVo subscribers totaled 2.8 million members, compared to 2.3 million last year. The monthly churn rate (turnover of customers) increased to 0.9%, or 44,000 subscribers, for the quarter, compared to 37,000 during the same period last year.

“The majority of churns come from monthly, not lifetime, subscribers,” said Stuart West, TiVo's outgoing VP of finance. Steve Sordello was recently named SVP and CFO of TiVo.

Subscriber acquisition costs (SAC) for an individual subscriber increased to $320 from $216 last year, based on increased hardware (set-top boxes) costs, which totaled $21.6 million compared to $7.6 million last year, and a higher number of offered consumer rebates.

The number of set-top boxes sold in the quarter through direct and retail channels (including RadioShack) increased for the first time in five quarters, which Rogers said indicated the “vitality and robustness” of the TiVo brand at retail.

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