TiVo tivo and DirecTV dtv said on Wednesday that they've struck a deal that could slow the slide in the DVR pioneer's customer base — and save the satellite giant from a potentially punishing patent-infringement lawsuit.
TiVo's agreement to create high-definition DVRs for DirecTV by late 2009 revives an important relationship that fell apart in 2006 when DirecTV introduced its own line of DVRs.
"We had a hiatus period, a separation, so to speak," TiVo CEO Tom Rogers says. "Now, we've reconciled, and it provides the basis for both of us to do good things for each other."
That's important to TiVo. Nearly 54% of its 3.6 million DVRs receive the service via DirecTV. The DirecTV total is down 938,000 since early 2006.
But, "It's a good bet that an awful lot of those people" who still get TiVo from DirecTV "would like to upgrade to the high-def version," says JPMorgan analyst Barton Crockett.
He says that TiVo could collect about $1.50 a month for each high-def customer from DirecTV vs. about $1 from the ones that use its current DVR.
As part of the deal, TiVo agreed not to challenge DirecTV's DVR patents the way it has with EchoStar. In 2006, a Texas jury found that DVRs from the owner of the Dish Network violated TiVo patents.
Today, a U.S. District Court will hear arguments over whether EchoStar should be held in contempt for continuing to use its DVRs. It reported this month that it has set aside $130 million for potential fines. The court also could order Dish to cut service to as many as 4 million DVRs.
DirecTV believes its DVRs don't infringe on TiVo patents, but, "Once you get stuff into the court system, things can go in directions that you might not want," says Derek Chang, DirecTV executive vice president for content strategy and development.
TiVo's relationship with DirecTV warmed after February when Rupert Murdoch's News Corp. transferred it, in a package of assets, to John Malone's Liberty Media. Under Murdoch, the DirecTV DVRs were powered by software from NDS, a company that he controls.
The companies say that TiVo's new DVRs will include still-undetermined broadband features not in services that Comcast and Cox are beginning to introduce to their cable customers.
DirecTV will charge a higher fee for TiVo than for its own DVR. But, "I wouldn't frame this as a premium product," Chang says. "It's an alternative product for which there are higher costs to deliver."