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Toshiba tunes in to TiVo

The company licenses TiVo's technology for digital video recording, allowing it to make chips and components for a wide range of devices that can record TV shows.

Toshiba's chips will soon have TiVo inside.

The company's chipmaking unit and a consumer electronics division, Toshiba Semiconductor and Toshiba America Electronic Components, on Wednesday licensed TiVo's technology for digital video recording.

The TiVo Digital Video Recorder, a set-top box that captures television broadcasts onto a hard-disk drive, lets consumers record and play back TV shows with greater flexibility than a VCR allows. TiVo's Series2 boxes sell for $399.99, and a lifetime subscription to TiVo's service is $249. A monthly subscription costs $12.95.

For TiVo, whose growing numbers of subscribers helped it cut its loss dramatically in the first quarter, the deal represents an investment in the future. In competition with the likes of Sonicblue's ReplayTV and Microsoft's UltimateTV, TiVo has been working to establish the technology underlying its digital video recorder as a de facto standard for consumer electronics devices.

Licensing will play an increasingly important role in establishing its technology, and the company has been aggressively building up that part of its business. Subscriptions remain the largest contributor to the company's revenue, but revenue from licensing is expected to increase. Analysts have said that new licensing agreements have been slow to emerge, but it may be the key to TiVo's future.

"Given the evolving competitive dynamics and the change in TiVo's business model, we believe the company will essentially exit the subscription business over time," Ty Carmichael, an equity research analyst with investment bank Credit Suisse First Boston, wrote in a report in late May.

With the license, Toshiba will be able to produce chips and components that will go into a wide range of devices that can record TV shows.

"We see TiVo as the key to providing the latest technology and important product differentiation for our customers," Farhad Mafie, a vice president at Toshiba America Electronics Components, said in a statement. "Developing chips that are 'TiVo-ready' is an advantage for us. We believe in the growing market for digital video recorders, and the standard-setting work TiVo has accomplished is what led us to license technology from the market leader for our next-generation products."

The Toshiba deal is similar to an agreement between TiVo and longtime partner Sony, which in October licensed TiVo's technology for a wide range of devices. Sony launched its own branded digital video recorder in Japan in May.

As part of its agreement with Toshiba, TiVo will help the company integrate digital video recorder technology into chips that will ship in 2004.

The financial details of the Toshiba agreement were not disclosed. The earlier deal with Sony included an up-front software licensing fee and royalties on a per-product basis.

News.com's Richard Shim contributed to this report.