Sony to plug TiVo into its products

A new deal between the companies will let the electronics maker incorporate TiVo's digital recording technology into its line of consumer devices.

Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
Margaret Kane
3 min read
Sony said Thursday that it has signed a deal that will allow it to incorporate TiVo's personal digital recording technology into its line of consumer electronics products worldwide.

TiVo's technology lets consumers record TV shows onto a hard drive so they can view them later. Consumers typically pay a monthly $9.95 fee, or $249 fee for the lifetime of a recorder, to access the service.

Specific financial terms of the deal were not released, but TiVo Chief Executive Mike Ramsay said in a conference call Thursday that the pact should bring in $10 million to $15 million in revenue during the next 12 months.

The Sony agreement may help the troubled company live up to its early high-flying promise by boosting revenue.

"This deal is an endorsement of our technology and patents and will bring in revenue and significant opportunities going forward," said Morgan Guenther, TiVo's senior vice president of business development. "It enables us to proliferate our technology, and it's a much broader deal than other previous ones (for standalone recorders) with Sony."

TiVo shares were up 92 cents, or 20 percent, to $5.47 in late trading.

The licensing agreement announced Thursday extends an earlier pact between the two companies signed in September 1999. Sony has been producing TiVo boxes and bundling the technology with DirecTV receivers. TiVo also has a deal with Philips Electronics to produce boxes using TiVo's service.

Guenther added that the company will begin to see some revenue through the new Sony deal by the time TiVo reports third-quarter earnings Nov. 20.

The seven-year deal calls for Sony, which is an investor in San Jose, Calif.-based TiVo, to pay royalties on a per-product basis. Sony will also pay an up-front fee for access to TiVo's client source code and has the option of licensing its server code for additional fees.

Through the nonexclusive deal, the consumer electronics giant will integrate TiVo's technology into consumer electronics products.

Morgan Guenther, senior vice president at TiVo, talks about Sony's new licensing deal to incorporate TiVo's personal digital recording technology into consumer electronics. (3:17)

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Guenther added: "TiVo's technology will likely be found in televisions, DVD player and virtually any type of device where local area storage is one of the applications."

TiVo has generated a majority of its revenue from subscription fees for standalone recorders, but fees from licensing its technology may prove to be a larger contributor to the bottom line in the future.

As of July 31, the company had about 229,000 subscribers to its DVR service.

Sutro analyst David Miller projects that by early 2003, 30 to 40 percent of the company's revenue will come from non-subscription sources, a large part of that being technology licensing.

TiVo executives said they also expected the deal to bring in revenue through software upgrades, services and fees.

Ramsay said the deal will also allow Sony to get more creative with the TiVo technology.

"Today, our agreement with Sony, as it is with other manufacturers, centers around their ability to manufacture boxes that are really TiVo-designed," he said. "This agreement gives Sony access to a deeper and greater range of technology assets for the purpose of taking that technology and developing a range of greater designs that are Sony specific."

While the technology has built a loyal fan base, TiVo has not yet been able to turn a profit. And it faces competition from companies including Microsoft and AOL Time Warner, which are both working on video-on-demand services.

Ramsay said the Sony deal was "the first of what we expect to be a series of agreements that will accelerate" the company's technology.

"This deal is the cornerstone of TiVo's licensing strategy," he said. "This is an important step toward the mass-proliferation of TiVo."

Miller said he sees the Sony deal as a "proxy for similar agreements" with other consumer electronics companies.

Deutsche Banc Alex Brown analyst Peter Ausnit was not as positive about the news, saying that any payoff for TiVo is essentially in the hands of Sony.

"Sony sees some value in TiVo and is just buying it instead of building it themselves," Ausnit said. "It isn't an exclusive deal, and Sony can use the technology as they see fit."