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Why TiVo Is Struggling While Netflix Is Thriving

The good news that came out of TiVo (s tivo) this week was that, encouraged by an initial $105 million patent-infringement ruling against DISH/Echostar (s dish), the company is now suing AT&T (s t) and Verizon with similar complaints. The bad news is that this is what passes for good news at TiVo these days.

Actually, there was worse news. TiVo’s net subscriptions fell by 146,000 as it lost more customers than it signed up — for the ninth straight quarter. According to TV By the Numbers, TiVo now controls less than 10 percent of the DVR market it helped to create. But as much as TiVo may be entitled to the lawsuits’ proceeds, patent claims are a long, costly and not terribly innovative way to make money.

So it’s interesting to compare TiVo’s fate with that of Netflix, another upstart that’s helped to change how we watch video over the past decade. Both improved the video experience and grew by positive word of mouth. Both endured years of stock volatility amid investor skepticism. Both were positioned to weather, if not benefit from, the recession as consumers seeking to spend less watched more video entertainment in their homes.

But the two don’t seem like kindred companies anymore. As TiVo’s customer base has shrank, Netflix’ subscribers have been growing at an annual rate of around 25 percent for the past several quarters. Cheaper, if less sophisticated, DVRs from cable and satellite providers hurt TiVo’s prospects.

And Netflix? In the five years it took TiVo to fight Dish/Echostar in court, Netflix has used its DVD-by-mail business as a base on which to slowly build an online audience -– without interference from cable or satellite TV providers. And while Netflix has long faced a deep-pocketed competitor in Blockbuster (s bbi), it’s done an admirable job of not only holding its own but taking market share away from the retailer.

The key difference in their approaches seems to lie in just how much they’re willing to pay to grow and maintain a customer base. In a way, Netflix’s Watch Now is a very crude on-demand video service, especially when compared with TiVo’s software. Netflix could have made it fancier, but it focused on price competition with Blockbuster.

As a result, Netflix is in a position to keep innovating in streaming video, forging relationships like the one it has with Microsoft’s (s msft) Xbox as well as TiVo itself, and may be seeking similar tie-ups with other companies. The market for streaming broadband content to TVs and other devices is still young and growing slowly. Netflix’s patient approach, coupled with its focus on keeping prices low, is likely to serve it well in the long run.

9 Responses to “Why TiVo Is Struggling While Netflix Is Thriving”

  1. aspertame

    Re. DTRs and online content…I just canned Comcast, which is dismantaling expanded basic analogue in our area. If Hulu, Fancast, et. al isn’t enough, we’ll consider Netflix.

    Our favorite shows will all still be there – just delayed by up to a week. We’re setting up our digital TVs with our computers and cheapie “PC Remotes” and we are no longer tied to recoding on a set date/time — I think we’ll be good for awhile.

    Which brings me back to Mr. Stewart’s TiVO comments. We have ReplayTV – kind of the Betamax to TiVO, if TiVO = VHS. But it’s been more than adequate even as a largely unsupported legacy product, and I’m glad we waited for the NEXT big thing instead of jumping for TiVo as soon as ReplayTVs went out of production. I’m guessing, Mr. Stewart, that TiVo is a better deal these days for people who ALREADY have TiVo than those who are weighing their viewing options. For your needs, there are now pretty cheap software programs — one less box to stack in the home entertainment setup. Ironically, it’s the technically not-so-very-challenged — a demographic that probably tracks closely with people who can afford higher tier service — that are bucking spiraling costs for cable, costly set top toys, etc.

  2. Robert Stewart

    I guess no one likes old movies like I do. One thing that I have done with a TiVo that doesn’t seem to be possible with any of the DVRs provided by the cable company is connection to my home network. My TiVo is networked and auto transfers movies and TV shows to hard drives in my home computers. After a few of years of TiVo ownership, I now have over 1,500 movies and shows. I can watch them any time I want on any TiVo box. I can even watch on any PC or laptop, at home or travelling. Couple that with Amazon unboxed and now NetFlix on Demand, I have the capabilty to watch almost anything I want anytime I want. I don’t know why TiVo isn’t doing better.

  3. Blockbuster does a pretty good job of online DVD rental as well. I have used them a year back and have just started a new trial. I think I’ll stick with them this time. They have worked well for me (as well as Netflix).

    By the way, I think you can now get a free SIX-WEEK trial at Blockbuster. Not sure how much longer they will be running the promotion.

    I found it originally at here.

    You’ll find details on getting the free trial at

  4. Linda Cameron

    I still love my TiVo but it took me a long time to decide to buy one. The subscription cost was the real killer. Once I pay $300 for a device, I don’t want to keep paying monthly to use it. I came into a bit of a windfall one day so I splurged and got the TiVo with a 3-yr subscription. I am not sure what I will do when my subscription runs out. The idea of spending another $400 for a lifetime subscription seems like a lot of money when the TiVo could die any time.

  5. Depends how you define struggle. TiVo’s subscriber numbers are clearly down (for various reasons), but if they manage to make most DVR providers into partners or licensees (and if they continue to prevail in court) they’ll profit handsomely for their investors. (And currently hoard over $200 million in cash, which could help them weather the lean times or acquire up compelling new tech.) Also while Netflix and TiVo appear to operate in the same space, they are very different sorts of businesses. As a customer I’d like to see that new interface and a renewed focus on content discovery – one of their original and unique selling points. (I’ve given up on TiVo as a tool to completely bypass advertising.)

  6. I got a tivo just after they first came out.
    back then the device was a game changer.
    I no longer had to have a stack of blank tapes.
    I no longer had to try to hook a vcr to my direct tv box.
    I no longer had to run home to try to record a show.

    But times have changed, broadcast tv sucks.
    Movie and music channels no longer show movies and music.
    The tivo is not longer cost effective. at $14.00 a month for tivo, plus $150 a month for a sub to all the movie channels that’s just a waste of money. I get most of my tv these days from the internet, $40 a month. if I want to watch the latest movie release I can go to a redbox or get a netflix account or just download it from the internet.
    If I really still need access to a pvr I get one for free as part of my basic service from ATT..
    I can record 4 channels at once and do it remotely via my iphone and watch tv on for different tv’s with no hassle.
    it does not have all the features of a tivo box, like frame by frame step or super slow motion but who cares it works and it’s free. I get more entertainment for less money without all the hassle of standard cable, a tivo box and trying to get all that crap and hardware to work together.

    The deal killer was when tivo stopped supporting direct tv. forcing me to go to comcast and there crap-tastic
    To really use tivo you have to have standard cable, get cable cards, try to get comcast to get those to work with your tivo… spend days on the phone trying to get all that crap setup.

    The hassle is not worth it, it’s frigging tv it’s not rocket science. These low featured pvr’s from the different cable and sat providers are good enough.

    With the transition to digital TV all of your old Analog tivo’s can no longer record over the air broadcasts.
    So i’m suppose to toss that device out and buy a new one.
    HD Tivo’s are like $600.00
    That’s not a smart way to spend your cash.

    Tivo’s day in the sun is over.