If you think TiVo is done, think Patents and DDT

TiVo is perhaps man’s best friend when it comes to watching television. I know you’ve heard about it and most of you have seen TiVo, used TiVo, or consider it one of your personal friends. Most TiVo owners have a hard time having just one, so what’s better than a TiVo? That would be, two TiVo’s.

However TiVo Inc. (TIVO) and more importantly the TiVo shareholders don't share the same love as TiVo fans. The love affair with TiVo's shareholders has been more like an on again, off again bad girlfriend. You know the type loud as a motor bike, but wouldn't bust a grape in a fruit fight (a la Jay-Z). No matter how many times you breakup with her, you always come back for more, and the same goes for TiVo.

TiVo has recently been trading near its 52-week low, just pennies away from $5.05 a share. It's very possible we may shares go even lower. Oppenheimer & Co. initiated coverage on Oct 13th, 2006 then one month later they downgraded TiVo. Last month TiVo shares took a beating the day after they reported largely positive quarterly earnings but then offered a dismal outlook for the current quarter, the chart doesn't lie - Wall Street is not as optimistic as TiVo's management. There are plenty of reasons not to believe in TiVo starting with growing their customer base and more importantly achieving their forecasted sales, not to mention reducing their losses.

The Stockmasters have yet to believe TiVo can turn it around.

However, TiVo's 'intellectual property' is the diamond in the rough, and it's something Wall Street is overlooking every time TiVo reports disappointing earnings. Yes Tivo's Net income was -$11M last quarter - but their wonderful patents. Oh those sweet patents are just as precious as that golden ring Gollum couldn't stand to resist. EchoStar's paid TiVo $74M this year because they were found to have used technology that violated TiVo's "multimedia time warping system" U.S. patent 6,233,389. In March of 2005 TiVo scored TiVo U.S. patent number 5,241,428 allowing them the following:

The exclusive right to license and enforce entitled Variable-Delay Video Recorder known in the industry as the Goldwasser Patent. Filed in March 1991, the Goldwasser Patent is one of the earliest patents regarding digital video recorders of which TiVo is aware. This patent covers devices that permit the simultaneous recording and playback of video material with a variable time delay between recording and playback of a given video program segment.

All the DVR's that are out there today, just you wait - your time is coming. TiVo has patents and lawyers that can put the smack down on Giant Cable and DVR companies in less time it took Jake the Snake to put you in the DDT and leave the snake on you for dinner. Take a look at TiVo's last 10-K that came out in April and read all about their patents. Hate reading 10-K's? Fine, if you trust the Motley Fool they also did a decent review of the cost analysis of TiVo's patents that's worth a read. With more than 100 patents they are all over DVR technology so it's either TiVo's way or they'll see you in court, and I'll put my money on TiVo's lawyers any day of the week.

The point I'm trying to make here fellow Masters is there is a price for TiVo's technology and patents that we believe is not included in the current share price. Believe it or not my friends, TiVo's patents could fund Jake the Snake to make the greatest comeback in wrestling history. Could TiVo be a comeback story this year or are they headed toward nostalgia land with Jake the Snake? Time will tell, but as popular as DVR's are becoming, a company is bound to step over the line and then - DDT and lights out.

Article written by: Frank Lara Jr.
Article posted on: January 4th, 2007

Disclaimer: The Author loves TiVo but does not own any short or long positions in TIVO. Jake the Snake could own a TiVo and shares of TIVO, but he was unavailable for comment.