DirecTV and TiVo kiss and make up, again, with HD agreement

By Scott M. Fulton, III, BetaNews

September 3, 2008, 11:41 AM

After subscribers were already receiving notices that they'd have to drop their TiVo equipment if they want to go HD, DirecTV is trumpeting the news that an HD TiVo will be a customer option after all...albeit in late 2009.

In the clearest signal to date that the new management at DirecTV is changing course, the satellite TV provider announced this morning it has renewed -- rather than let elapse -- its agreement with time-shifting hardware provider TiVo. Although it may still be a little late for some consumers, TiVo is now promising a new HD box for DirecTV subscribers for the second half of 2009.

Since 2004, a very sizable chunk of DirecTV subscribers have also been TiVo customers -- according to Zacks Equity Research estimates, DirecTV accounts for as much as two-thirds of TiVo's entire subscriber base.

But three years ago, a serious rift began forming between the two partners, as competitive DVR manufacturer NDS and DirecTV found themselves with a common parent company: News Corp. In August 2005, DirecTV announced it would not be using TiVo as its supplier for high definition DVRs, going instead with NDS in a deal which would divert revenue from DVR rentals more directly to DirecTV.

That move did not go over well with subscribers, who saw in their immediate future the likelihood of not only higher rental fees, but increased channel fees, especially for sports leagues like the NFL. While many jumped ship and were willing to sacrifice channel choice and picture quality for the convenience of their TiVos, the move triggered a subscriber leak at TiVo that continues to this day. Recent agreements between TiVo and CATV providers such as Comcast and Cox Communications have helped bandage the sore, but analysts note they couldn't possibly compensate for what may retrospectively be described as a three-year exodus.

The bright spot at the end of the dark tunnel started showing up for TiVo in December 2006, when News Corp. agreed to swap DirecTV to Liberty Media, in exchange for other properties, in a deal that ended up with Liberty actually being paid to take DirecTV. It was proof that Liberty's chief deal-maker John Malone was still at the top of his form.

It took another six months, but word began spreading in June 2007 that DirecTV and TiVo could find a way back to partnership.

But the thaw wasn't happening quickly enough. Last February, a plan that News Corp. set in motion years earlier began taking effect, and DirecTV subscribers were informed they would need to purchase full upgrades to its NDS equipment, if they wanted to move to full HD service.

One disgruntled subscriber was Zooomr's Thomas Hawk, who wrote for Seeking Alpha last February, "Unfortunately, DirecTV's upgrade will require me to lose my TiVo service that I love.

"The upgrade is a joke. Although I've been relatively happy with my four-tuner HDTV TiVo, DirecTV wants me to upgrade to a new non-TiVo DVR that only has two tuners, not four tuners like my TiVo," Hawk continued. "It kind of sucks that they are forcing this upgrade after I spent over $1,000 on this DirecTV TiVo box originally. My response to this forced upgrade? I just called DirecTV and canceled my service."

Comments to his post indicated Hawk was not alone, although some took issue with his plan to substitute Netflix for DirecTV.

Cancellations such as Hawk's may have been the catalyst for DirecTV to make good with TiVo once again, although in the joint statement this morning, DirecTV President and CEO Chase Carey made indirect mention of his company's own DVRs, indicating it would continue to produce them while providing TiVo as an alternative. "DirecTV has a long-standing reputation for developing innovative, advanced products and services, including our highly successful series of DVRs and HD DVRs," Carey stated. "We will continue to work with TiVo and make this new product available to all new and existing DIRECTV customers who may want to add TiVo on top of our industry leading experience."

The "new product" to which Carey refers does not appear to be the same HD TiVoToGo product that was given the go-ahead back in September 2007. Rather, the new product is being described as a hybrid developed exclusively for DirecTV that will incorporate certain select TiVo features, such as KidZone and "Universal Swivel Search" (a kind of search engine for content whose name the viewer may not recall), along with DirecTV features that have yet to be named.

DirecTV was anxious to share the news today, dovetailing with word from its parent company Liberty Media that it's planning to spin off a new corporate parent, Liberty Entertainment, that will be half-owner of DirecTV if the deal works out as planned. The other half-owner, or owners, have yet to be determined.

With the US' DTV transition coming next February, and with consumers being prompted to invest in HDTVs this holiday season as a result, there's a chance that HD TiVo's availability on DirecTV coming at about this time next year, may be too late for many subscribers.

At any rate, the news apparently did impact competitor NDS, which this morning showed signs of being in full damage control mode. It issued a statement citing a survey as saying that it has deployed 13 million DVRs worldwide, calling that number four times the amount of TiVo subscribers. Last July, TiVo confirmed its subscriber base had fallen by 178,000 for the quarter to 3.623 million, back to July 2005 levels and down from its peak of 4.444 million at the end of 2006.