RMBS
Silicon Image – Convergence Spoiler
Attending CES is a great way to meet people willing to enlighten you with another side of an argument. The surprise topic that emerged was HDMI.
Tivo – Better Off Without The Legal Jackpot
Tivo (TIVO) won the patent infringement lawsuit against Echostar Communications (DISH).
Tivo wasn’t starved for cash before, and having a lot of money sloshing around typically doesn’t help companies focus on solving their core problems. While winning anywhere between $73.9MM and $220MM at the litigation roulette wheel (there will be appeals, and the judge can treble the $74M in damages) can hardly be positioned as a bad thing, it doesn’t help solve, and worse, may fundamentally distract Tivo from the core problem they face- they are not growing as fast as the DVR market.
From the WSJ today($$$ link):
The common explanation for this is that the cable companies have developed their own clone systems that are inferior but cheaper than Tivo. Perhaps they even egregiously violated some patents in the process. They didn’t take these risks and get into the equipment business because they didn’t want to pay Tivo $1/month in licensing.
The bottom line is the Cablecos and other Video transport companies know that letting Tivo control the set-top-box, particularly one with a broadband uplink, is effectively allowing Tivo to roll a Trojan horse into the living room of every one of their subscribers. If the DVR patents truly are bulletproof my guess is the cable guys would rather not offer DVR’s than let Tivo get between them and their customers.
With this legal victory, my concern is that Tivo will now seek market penetration by legal bludgeoning rather than innovation and market leadership. Rambus (RMBS) is trying this, and will eventually fail, because it is an awful and painful strategy. It’s analogous to terrorism. Customers refuse to be coerced in the long run and will eventually find their way to freedom through technology or legal means. Companies that get sucked into this business model eventually realize it is just as bankrupt as it’s political counterpart.
Tivo faces a decision, one we have outlined before. Either they need to become friendly with cable/telco/satellite video providers and swear up-and-down to never compete with them. Or they need to mount a full scale assault and convince consumers that the Cableco DVR represents the old media model by offering truly innovative downloadable video and content services. Getting Yahoo! Weather and amateur video blogs on my TV doesn’t count. This would require making nice with the content providers and showing them a path to generous revenue models.
Tivo now has more cash (note the difference between cash and cash flow) but that doesn’t necessarily mean they will use it intelligently. What they do in the next year will be critical.
