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DirecTV sells its TiVo stake

The move fuels speculation that the relationship between the two companies may be on the rocks.

Satellite TV company DirecTV sold its stake in TiVo in an effort to reduce its debt as it becomes part of News Corp., according to an analyst.

DirecTV confirmed late Tuesday that it sold its stake in the digital video recorder company. David Farina, an analyst with investment bank William Blair & Co., said in a report that DirecTV sold 3.5 million TiVo shares at $7.20 per share in a block trade after the market closed Monday.

The sale comes four days after DirecTV Vice Chairman Eddy Hartenstein resigned from TiVo's board to spend more time at DirecTV, which has gone through some management changes following its acquisition. No new DirecTV representative will be joining TiVo's 10-member board.

The moves are feeding speculation that the relationship between TiVo and DirecTV, a key partner, may be on the rocks. TiVo in late May reported strong subscriber growth, adding about 264,000 subscribers in its first quarter. The majority of those came from DirecTV customers.

There are about 1.6 million TiVo subscribers in total. About a million of those are DirecTV subscribers signed up for the TiVo service. TiVo has a contract with DirecTV for DVRs that runs through February 2007, according to TiVo's annual report for the period ending Jan. 31, 2004.

TiVo receives monthly revenue per subscription from DirecTV for customers that use its DVR service.

Once the contract runs its course, DirecTV has the option to continue TiVo's DVR service without further payments. But it won't be able to add subscribers without obtaining a royalty-bearing technology license from TiVo.

TiVo executives were not available for comment.

DirecTV is owned by News Corp., which also has interests in set-top box maker NDS, which some believe could replace TiVo as a DVR supplier.

"DirecTV and TiVo are joined at the hip for the time being," Farina said. "They have a very successful product together, so it would be stupid for DirecTV to push TiVo out. They can't pull TiVo boxes out of people's homes."

He acknowledged, however, that the move is not a positive sign for TiVo and that NDS will likely be a competitor to TiVo at some point. Farina or members of his immediate family own TiVo shares.

Farina also pointed out that DirecTV has been selling some of its other investments to reduce its $2.6 billion debt.

"In a vacuum it would be worrisome (for TiVo), but DirecTV has been selling other stocks," Farina said.

DirecTV sold interests in Hughes Software Systems and XM Satellite.