Under a three-year agreement, TiVo's technology features will be included in AOLTV, the online giant's foray into interactive television.
In addition, AOL will also invest up to $200 million in TiVo.
News of AOL's investment sent TiVo shares through the roof. By the close of regular trading, TiVo was up $12.23, or 57 percent, to $33.80.
Today's announcement is an extension of a similar deal inked in August last year. At that time, the companies agreed to combine AOLTV with TiVo's technology. AOL also made an initial investment in TiVo for an undisclosed amount.
The agreement comes close to AOL's planned unveiling of AOLTV, which is slated for release this summer. AOLTV is the online giant's effort to extend its interactive services, such as Internet access, email and instant messaging, to the TV screen. It will come in the form of a set-top box manufactured by Philips Electronics and also a product shipped with Hughes Electronics' DirecTV.
"They're trying to extend their brand and franchise and audience in the online world to other devices at home," said Jim Penhune, an analyst at market research firm The Yankee Group. "This is not all that different with what they want to do with wireless devices or standalone appliances."
With TiVo, AOL gets a much-talked-about technology under its belt. TiVo is a TV set-top box that records programs using a hard disk instead of a traditional videocassette. The technology allows viewers to not only record their favorite shows but also to skip commercials, shuffle their programming lineups, and repeat missed parts of shows.
TiVo has garnered considerable attention from investors. Along with AOL, TiVo's list of high-profile backers includes Microsoft co-founder Paul Allen, NBC, CBS, Philips, Walt Disney and Cox Communications.
TiVo's primary competitor, ReplayTV, has financial backing from Motorola, Sega, Matsushita, Excite@Home, Scientific-Atlanta, News Corp., Rogers Communications and Universal Music Group, among others.
AOLTV boxes will begin incorporating TiVo features in early 2001, the companies said.