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TiVo and DirecTV extend contract

DirecTV will support for another three years TiVo DVR boxes and service that were sold to existing subscribers.

TiVo and DirecTV said Wednesday that they will extend their commercial agreement for three years.

The agreement will allow existing DirecTV customers using the TiVo digital video recorder to continue to receive maintenance and support from DirecTV. As part of the agreement, TiVo and DirecTV also said they wouldn't sue each other over patent rights.

TiVo, which introduced DVRs to the market, has been struggling to turn a profit. The company's 4.4 million subscribers have mostly come from its deal with DirecTV. Last year, DirecTV said it would stop marketing and selling TiVo's digital recorders to its satellite TV subscribers starting in 2007. Instead DirecTV is developing a device with NDS Group.

Since then, TiVo has been scrambling to differentiate its product and strike other distribution deals. Last year, it announced it was working with Comcast, and a new TiVo product is due later this year for Comcast subscribers.

Murray Arenson, an analyst at Ferris Baker Watts, cautioned that the DirecTV contract extension doesn't indicate that the satellite TV provider has changed its mind about the value of TiVo's product. Instead, it's an admission by DirecTV that it needs more time to transition its customers beyond the 2007 cutoff date, he said.

Ultimately, TiVo will likely end up in a worse position from this deal, since it now seems unlikely that DirecTV will license intellectual property from TiVo, he said.

"The extension of the deal doesn't bode well for TiVo," Arenson said. "For the next three years, all TiVo gets is a dwindling customer base from DirecTV. And the company has put to rest any possibility of getting licensing fees for its technology from DirecTV."

TiVo is currently suing satellite TV provider EchoStar Communications for allegedly infringing on a patent that defines how digital video recorders work. A TiVo victory in the EchoStar patent case could pave the way for the company to extract royalties from other DVR makers. But because the company is already working with Comcast and has now agreed not to sue DirecTV, TiVo may have fewer options for potential licensees.

"If TiVo wins the EchoStar case, all of sudden they could have this massive addressable market for licensing their technology," Arenson said. "But at the same time they are pairing down that potential market."