TiVo to Bring the Future of Streaming
The entertainment world is at an inflection point. New business models are killing convention, even in the most unlikely places.
In the TV streaming market, names like Netflix, Hulu, Apple and Disney are dominating the conversation. But one company — largely forgotten until now — is looking to make a comeback.
In an interview with Bloomberg on Sept. 10, Dave Shull, TiVo (TIVO)’s new chief executive, announced plans for better streaming services integration, and new advertising-based services.
It’s a huge new opportunity for investors hiding in plain sight.
TiVo began in 1999 as a digital alternative for broadcast and cable TV subscribers to record and playback content. With a small silver box and a peanut shaped remote, users got the functionality of a video cassette recorder without the hassle of clunky tapes and complicated interfaces.
A TiVo made it dead simple to record all your favorite shows, find new ones and conveniently skip the commercials. It was the inception of streaming video on demand culture.
And it was huge. People no longer “taped” their favorite shows; they “TiVo’ed” them. In 2000, TiVo was worth over $100 per share. But then, the rise of the internet brought about subscription video on demand (SVOD) services.
Today, internet SVOD services such as Netflix (NFLX), Prime Video, a unit of Amazon.com (AMZN) and Hulu, controlled by Disney (DIS) penetrate 74% of U.S. households, according to a press release from Leichtman Research Group.
For a monthly subscription fee, consumers can watch thousands of high-quality shows and movies on demand, on multiple devices, with minimal or no commercial interruption. It’s a convenience that can’t be easily duplicated with traditional broadcast and cable TV services, TiVo’s primary source of content.
Revenues for SVOD services accelerated to over $19.9 billion in 2018, according to a report by eMarketer, a digital advertising research firm.
Ultimately, even those heady those projections may be conservative.
Entertainment, communication and tech heavyweights are emptying their bank vaults to secure streaming rights to the best content, while spending billions more developing their libraries. They are moving all-in on streaming.
Disney acquired 21st Century Fox in March for a whopping $72 billion. The buyout gave Disney a 35% market share at the domestic box office, not to mention numerous popular franchises such as The Simpsons, the longest running show in TV history.
All of this content, and new shows, will eventually be repackaged as Disney Plus, a $6.99 per month steamer launching Nov. 12.
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The Wall Street Journal reported Thursday that HBO Max shelled out $500 million for The Big Bang Theory. Earlier in the month, the AT&T (T) controlled streaming company paid $425 million for the rights to Friends. And Comcast (CMCSA) plans to launch a rival streaming service for its NBCUniversal subsidiary called Peacock next spring, after ponying up $500 million for the rights to The Office.
Meanwhile Netflix, Amazon and Apple will reportedly spent $14 billion, $7 billion and $5 billion respectively on original programming content in 2019.
With all that heavy competition, how can TiVo compete?
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Well, TiVo managers can see the bigger picture. Its business model, now dependent on monthly subscriptions and patent licenses, needs to expand to accommodate emergent cord cutting and SVOD trends. The company also needs additional sources of revenues.
TiVo Plus will launch in October, free to existing subscribers in the United States. CNN Business notes that initially the ad-supported service will use artificial intelligence to curate content across broadcasts and streaming services users already subscribe to.
If this business model seems vaguely familiar, it is essentially the Roku Channel, with a TiVo twist. Members will get a consistent user interface, access to their favorite SVOD services and curated, ad-supported content. As long as they’re willing to watch ads, the service will be free to use.
And it’s this last part that is the opportunity for investors.
Although more direct-to-consumer business models are emerging in entertainment, it’s unlikely all will survive as paid subscriptions. Moreover, ad-supported business models are thriving as consumers overwhelmingly opt to watch ads, as opposed to paying monthly subscriptions.
In May, Hulu revealed that 70% of its 82 million monthly viewers choose its ad-supported plan.
The best way for investors to play this is The Trade Desk (TTD). Founded in 2009, the Ventura, Calif., company owns the programmatic advertising platform ad buyers seek when they’re not funneling money directly toward Facebook (FB) and Alphabet (GOOGL)’s Google.
eMarketer has predicted programmatic ad spending will reach $45.7 billion by 2019. As media companies shift toward ad-supported business models, that number will surely grow, and Trade Desk will get its cut.
Last November, Trade Desk signed digital advertising deals with Chinese companies Alibaba (BABA), Baidu (BIDU) and Tencent, the largest internet companies in the country.
Domestically, networks such as ESPN, CBS and NBC continue to monetise online content with ads. Peacock, for example, is planning to sell ads throughout its new streaming service.
TiVo Plus will be part of that larger trend.
Trade Desk grew sales to $477 million in 2018, a 55% year-over-year gain.
During a conference call with analysts in August, Jeff Green, chief executive, put growth in perspective. He said research showed programmatic advertising is growing 5 times faster than traditional ad sales, which are currently $725 billion annually.
Over time, he expects that most ad sales will be digital, and nearly all of that will be transacted programmatically.
The shift is secular. Digitization makes sense because ad placement is data driven and measurable. For TV, this process is only beginning.
Jon D. Markman