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DirecTV fine-tunes TiVo deal

To improve customer interest, the satellite operator plans to sell boxes with expanded features at lower prices.

In an effort to attract more customers, DirecTV has expanded and restructured its relationship with digital video recorder company TiVo, DirecTV announced Thursday.

TiVo is one of the pioneers in digital video recording technology. TiVo's DVR service, which runs on set-top boxes, allows subscribers to pause live shows as well as program boxes to record shows just like a consumer would with a VCR. The difference is that shows are stored on a hard drive instead of a videocassette.

Satellite operator DirecTV has been selling a set-top box using TiVo's digital video recorder service and DirecTV's network since October 2000. Subscription rates for the combined services have not lived up to expectations, according to Larry Chapman, executive vice president at DirecTV. Thursday's announcement was aimed at changing the way the set-top boxes are sold and managed in an effort to boost consumer interest.

To improve interest, DirecTV will sell boxes with expanded features at lower prices, Chapman said. DirecTV will develop an advanced set-top box based on TiVo's Series2 platform, which will have new advanced features, such as video on demand, online gaming, and the ability to display digital images and play digital audio files. DirecTV will also take over the manufacturing of the set-top boxes.

These changes should reduce the cost of the boxes below the current price range of $299 to $399, but the company has not decided on a new price, Chapman said.

Chapman expects the boxes to come out in the third quarter and the advanced services to be available by March of next year. The two companies are looking into which of the new product's features will also be available on existing boxes, he added.

"Market penetration has been completely unsatisfactory for us, and the frustration is that most people who see the services, like them. But we haven't done a good job of communicating their values," Chapman said. "Our goal this year is to crack the code and find a way to communicate the benefits better."

Chapman would not say how many subscribers have signed up for the combined DirecTV and TiVo services. DirecTV is the leading satellite television network operator in the United States with over 10.7 million subscribers to its service. San Jose, Calif.-based TiVo has about 280,000 subscribers to its service.

Chapman described the announcement with TiVo as a mutually beneficial change. It makes sense strategically for DirecTV, as it tries to improve interest in its services and recorders, and for TiVo, which has shifted its business model to fit its emphasis on licensing its DVR technology, he said.

Playing catch-up
Yankee Group analyst Aditya Kishore said given that DirecTV competitor EchoStar has already announced similar plans with digital home entertainment company Moxi Digital, it makes sense for DirecTV to have competitive services. EchoStar is a major investor in Moxi Digital.

"If you look at the competition, it was time for DirecTV to match them," Kishore said.

EchoStar is in the process of acquiring DirecTV, which raises the question of whether the companies are duplicating efforts. However, Kishore said that the deal is still in the air because of the potential creation of a satellite network operator monopoly.

"Even if the deal goes through, it will take some time before the two different platforms could merge into one, and in order to stay competitive, each has to be prepared to...go it alone as well as meet consumer demand," Kishore said.

Chapman added that Moxi Digital's platform and TiVo's service are both based on Linux, which could make the transitions easier, if the acquisition goes through.

In related news, Moxi Digital CEO and President Steve Perlman stepped down on Thursday to focus his attention on digital media production company Rearden Steel Studios. Vice president of business development, Rita Brogley, assumed the titles of CEO and president.