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Summary:

What do you do when you’re a consumer electronics company that depends on subscription revenue and you’re hemorrhaging subscribers? If you’re TiVo, you give your box away for free and you hope to make up for lost revenues over the life of a more expensive contract.

old tivo

What do you do when you’re a consumer electronics company that depends on subscription revenue and you’re hemorrhaging subscribers? If you’re TiVo, you give your product away for free and raise your subscription rates, hoping to make up for lost sales over the course of a two-year contract.

TiVo, which was once synonymous with the DVR, has seen its subscriber numbers plummet over the last several years as cable companies have undercut its products by leasing DVR boxes of their own to subscribers. The company lost 666,000 subscribers over the past year, or nearly a quarter of its user base.

To combat further subscriber losses, TiVo announced special holiday pricing today, aimed at getting consumers excited once again about owning one of its DVRs, as opposed to leasing one from their cable provider. For the next six weeks — and possibly longer — TiVo will be selling its Premiere DVR for just $99, which is $200 off the usual retail price of $299. But that price comes with a hitch: rather than pay the usual $12.95 monthly service fee, TiVo requires purchasers of the $99 Premiere DVR to pay $19.99 a month for a one year contract. But that’s not the only special promotion TiVo is pushing; sign a contract for two years of service at the inflated rate; and you get a Premiere DVR for free.

The problem with these promotions, as pointed out by the Washington Post, is that they’re not always a good deal for consumers. Getting a TiVo DVR for $99 might seem like good for the first year, but if you continue to shell out $19.99 for three years of service, you’re actually paying more than if you bought your DVR for the non-discounted rate. WaPo runs the math:

TiVo normally sells its Premiere DVR for $299.99 and charges $12.95 a month for service. That yields a total one-year cost of $455.39. After two years, you’ll have spent $610.79; after three, $766.19. If you take the $99.99 offer, your expenses hit $339.87 after one year, $579.75 after two and $819.63 after three.

You’ll do better under another, non-XL offer that TiVo doesn’t mention on its home or product-information pages: Pay nothing for a Premiere in return for committing to two years of $19.99-a-month payments (after which the $19.99 rate remains bolted to the DVR). Under this offer, you’d pay $239.88 after one year, $479.76 after two and $719.64 after three.

It might be difficult for TiVo to convince consumers to pay a higher monthly fee and sign a one- or two-year contract for DVR service when they can already lease a similar box from their cable or satellite provider for less than what TiVo is asking. While most cable DVRs don’t offer nearly as many features or flexibility as what TiVo has put together with its Premiere box, for many cable subscribers, what Comcast or Time Warner Cable has to offer is good enough.

Photo courtesy of Flickr user Katie Brady.

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  1. Whether or not it’s a good deal for consumers depends a lot upon how you currently get television. Living without cable TV is easy, living without a DVR gets a lot harder. I think that most consumers would rather have the ability to time shift then the extra channels. Cable knows this too, which is why they bundle their DVRs into their most expensive packages. Comcast charges $15 per month for the DVR in the bay area, but they also charge .50 per month “remote control” rental fee, a separate $5 per month set top box fee (even though the DVR is the set top box) plus another $50 per month for the actual content. At the end of the day, if a consumer doesn’t have $300 to spend on a DVR then their only choice has been to pay $60+ per month for that experience. With a $20 over the air antenna and a TiVo subscription, you can save quite a bit over time. Maybe not as much as the subscribers who don’t buy a subsidized box, but certainly a lot less than the cable subscribers whose only choice is a rental box.

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  2. I’ve always thought that TiVo has been stuck in the midst of two different pricing models, to its detriment, and it needs to pick one or the other. They can either go solely based on subscription fee/subsidy model like a cell phone contract or a cable company DVR — at most a nominal upfront cost for the box — or they can sell a product with the lifetime service included (say, charge $500 for the box and that’s it.) Right now, TiVo is both expensive upfront and ongoing. Cable DVR costs barely a little more monthly with no extra upfront fee. Customers would either appreciate that same model or prefer the cost certainty. To spend $300 on a box that requires $13/month of service is expensive all around.

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  3. In Tivo’s old business model, they tried to subsidize expensive hardware with a subscription plan, but the fee only covered updates to the TV guide and occasional software patches. Tivo didn’t provide any content, only crippled the box if payments stopped. Meanwhile the product most people compared it against was the VCR, which keeps working forever for free once you buy the box (plus the cost of tapes).

    Now Tivo has the opportunity to do what Apple TV, Google TV, Boxee, etc. are doing – sell the box as cheaply as they can, then make money with on-demand rental services, ads, and apps. Tivo is in a unique position to offer a device with both cable set-top/DVR and Internet streaming/download features. It’d be more expensive due to the extra hardware (tuners, hard drive), but some customers might want the all-in-one solution.

    Unfortunately, Tivo doesn’t have enough capital to push revenue into the future, sacrificing a monthly fee for a cut of on-demand services & ads. Apple and Google are both leveraging mobile phone efforts into a low-risk shot at capturing a portion of the video market. Tivo’s $200M/year revenue is a pittance compared to the billions at play around them.

    Tivo taught people that it makes no sense to watch anything in realtime except sports, but everyone gets it now, and there’s no patent on the pause button per se. All Tivo has left is a nice user interface. Perhaps their best shot at survival would be to build a Google TV device and add their own user interface magic to make it the best Google TV box out there.

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  4. While I love Tivo and have had it for years, I gave them up.

    After a cable hiatus, they want me to sign a one or two year contract to get their service? No thanks. These aren’t cell phones, and cable companies–their competitors–require no contract.

    Dumb move by a company in its last gasps.

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