Earnings Preview: TiVo Inc.

TiVo Inc., a pioneer in digital video recorders, reports earnings for the fiscal second quarter, which ended on July 31, after the closing bell Wednesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Despite being a pioneer in DVR technology, TiVo has been steadily losing subscribers to cheaper, generic models promoted by cable and satellite companies. It also lost an important distribution deal a few years ago when satellite TV provider DirecTV Group Inc. opted for its own DVR.

TiVo has since reached key deals with cable companies Cox Communications Inc. and Comcast Corp., though those partnerships are only starting to ramp up — limited in the second quarter to some of Comcast's Boston-area markets.

More important to TiVo's turnaround for now is its ability to reduce subscriber acquisition costs, improving margins on each customer, largely by cutting or eliminating subsidies on standalone TiVo devices.

A key question is how well TiVo was able to continue those reductions in the second quarter, a factor that could mean smaller losses or even profitability for only the third time in TiVo's history despite expected drops in subscriptions.

In an effort to distinguish itself from generic DVRs, TiVo also has forged partnerships with third-party content providers and retailers.

One deal, announced in July, lets subscribers buy physical products from Amazon.com Inc. — such as a book featured during a television talk show — using their TiVo remote control.

A partnership with the Chicago Tribune, announced in May, offers a way for TiVo to automatically record shows recommended by the paper's TV critics. During the second quarter, TiVo also announced the availability of videos from Google Inc.'s YouTube and movie-rental downloads from The Walt Disney Co.

Although the partnerships provide relatively little revenue, they could help boost marketing and retention.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect, on average, a loss of 2 cents per share and revenue of $54 million. TiVo had issued revenue guidance in the range of $53 million to $55 million for the quarter, with a net loss in the range of $2 million to $4 million.

In the same period last year, TiVo recorded a net loss of $17.7 million, or 18 cents per share, on revenue of $62.7 million.

In TiVo's 11-year history, it posted a profit only twice — in the first quarters of 2007 and 2008.

ANALYST TAKE: Soleil Securities Group analyst Daniel Ernst said in a research note last week that despite expected drops in subscribers and revenue, he foresees gains eventually from TiVo's deals with Comcast and Cox.

Ernst added, "We continue to believe that the market has not yet valued either TiVo's long-term prospects for stand-alone growth or the potential value from its licensing partners."

WHAT'S AHEAD: A Sept. 4 court date has been set in the continuation of a patent battle with Dish Network Corp. Courts have sided with TiVo, but TiVo has yet to receive the $94 million it has been awarded in damages. A resolution in TiVo's favor could generate revenue and give the company leverage as it negotiates partnerships with other satellite and cable TV providers that want to use DVR technology.

The partnership with Cox is expected to launch by year's end, while deployment in Comcast's territory could expand in the coming months. Both should help TiVo win new subscribers with relatively little marketing costs.

STOCK PERFORMANCE: Shares fell 6.7 percent to $7.68 during the second quarter. In the first six months of fiscal 2009, shares fell 12 percent.

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