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Discussion in 'TiVo Coffee House - TiVo Discussion' started by alarson83, May 9, 2019.
TiVo Plans to Separate into Two Independent Companies
Product and IP licensing to split.
Well, interesting ... but I just don't get why it's better for the two business components to be separated. The rationales given in the linked document just seem like wishful thinking corporate speak to me. I would like to see specific examples of the touted advantages.
I don't see any objection or disadvantages to the separation. It just seems the two business components should be able to function equally well whether separate or together -- with good management, so why bother separating them? Is there some obvious way that separating them will result in better management of both?
There can be legal reasons to separate out a company's IP to a related company--the owning entity can be situated in a low-tax country (think Ireland or Caribbean countries), and I imagine that an IP license fee that may have to be paid to the owning company would be charged as a company operational expense, thereby lowering profits and taxes. But I have no idea if that forms any part of the considerations here, and I also wonder about it as @dlfl discusses.
Happenings like that here seem not uncommonly to be employed in the business world, and I always wonder about the cost efficiency and benefits.
I was hoping they were just going to undo the Rovi merger...
The article reads as R&D stays on the product side, such that IP filings would stay there until issue, at which point it would be transferred to the licensing business? Sounds like a solution the lawyers will love.
I thought this sounded familiar.. from two months ago..
TiVo prepares to split its business into two as it pursues sale – TechCrunch
Current management is wild about one side of the business and sees the other side as a boat anchor. Once they split, the side they were wild about will wither and die and the boat anchor will keep plugging along, not growing much, but not dying either. (At least that's the way it usually works).
My thought is that the IP licensing side is a risky bet right now because of uncertainty about how the ongoing patent lawsuits will go against Comcast, plus the possibility (?) that certain longstanding key TiVo patents may be expiring soon. Hard to assign a market value to the TiVo patent library right now given the near-term uncertainty. So it makes sense that TiVo is seeking to separate that part of the business out into a separate entity. (Well, actually, it's the other way around: they're going to spin off the product side into a new separate company.)
Meanwhile, the product side stands alone as more of a normal business offering various platform solutions for small-to-medium-sized MVPDs.
Product revenues were down 22% over prior year/same reporting period. The had a good quarter but still have a ways to go.
The good news (to me at least) is that the product business may well have a sudden spurt of innovation and leadership changes that could lead to the type of quality products we're accustomed to buying from Tivo. They haven't been able to sell the product business so now the name of the game will be to isolate it from the core Rovi business - presumably sans the Tivo IP portfolio - and hope to install leadership that can get that product business whipped into a viable business that can be sold off.
'By splitting the company into two, TiVo may be able to “facilitate strategic transactions,” with interested parties, [CEO] Rau said.' Translation: We can't make our current business model perform the way we think it should, so we're going to cannibalize it and see what happens. In two years time, they'll either be saying the same thing about why it's a good idea to merge the two previously separated companies, or they'll be filling for bankruptcy. Or both.
Yeah, I'm pretty cynical about it, but it's hard not to be, when all they can do is spout buzzwords.
Just listened to the entire earnings call. I'd love to know what others think about this call if you listened in. My take aways:
1. They could not sell either business unit. Now they are trying to "maximize" shareholder value by splitting them and seeing if they can sell one or both that way.
2. The product business cannot compete with cheap IPTV hardware, hence their "excitement" about TE4 and the platform being able to attach to the ginormous install bases of Apple, Roku, etc.
3. The Rovi and Tivo patents remain with IP company. The NOL (net operating losses) of $1B also will remain with the IP (parent) company.
4. Guidance provided upward of $85m in losses next quarter.
5. No significant uplift in customers converting from TE3 to TE4 (no increase in ARPU - annual revenue per user). However, they claim that TE4 positions their customers to increase ARPU.
The call was worth the listen and had some good questions. Lots of spin (like most earnings calls) but I found it revealing. I encourage all to have a listen though.
As a long time customer I'm excited about the prospects of a spinoff. However, there are so many questions unanswered and to me it is hard not to be cynical. Will the Tivo brand remain with the IP company or go with products? Without that brand, the product business is stillborn IMO. Who will run the product business? Who will build products for the spinoff business? Does the software that runs on Apple, Roku, etc. go with the product business and considered a "product" or will that remain with the IP business?
Not that I know that I would use it , but is there a link for the earnings call, and how long is the call?
I'm a bit confused by what the 2 business units are. Are they the old TiVo on the one hand minus its IP rights, and the old Rovi on the other hand with the old TiVo's IP? The linked written announcement above (in the first post) seems to indicate that. Where does the Rovi programming work go--I guess that is part of the product/service line. (Sorry for my confusion and answering of my own questions--it's starting to sink in (kind of).)
What is the endgame here (apart from, making $)? To sell one or both business units? And then, if successful, what is the "remaining" TiVo, apart from a holder of $ and whatever is leftover? And what, then, was the purpose of Rovi's purchase of TiVo 3 years ago? Was it a genuine intent to continue the old TiVo forward that just hasn't worked (or worked as well) as desired; was it an intent just to acquire IP rights for future exploitation; ? (including, did Rovi know what it was doing)? The concern is that this becomes a Microsoft-like acquisition where a beloved acquired company goes to waste.
The written announcement sounds a bit different from the earnings call. The former doesn't mention an intent to sell one or both of the business lines (or, at least, an emphasis on that). Rather, to me, much of the written announcement makes it sound as if the product half of the company and the IP half of the company sometimes have been at odds--i.e., it's hard to sell your product and services to someone whom you're simultaneously threatening to sue and force into a license.*
* edit: And/or, current TiVo management (composed mostly of the old Rovi) doesn't know how to work both halves of the business.
With IPTV (apparently) being so cheap it seems it would put TiVo compatible systems at a disadvantage. One more notch in the coffin?
I love TiVo. If nothing better comes along I don't know what I would do if TiVo dvrs went away.
It's likely that both companies will still be able to use the TiVo brand. Just like how when Rolls-Royce split up the aerospace and automobile divisions into separate companies, each company continued to be able to use the Rolls-Royce branding. Or how when Time Warner Cable was spun off into a separate company from Time Warner, they both continued to use the "Time Warner" branding. If the whole point of this is to maximize shareholder value as they say, then you would want both companies to be able to still use the valuable TiVo brand after the divorce.
TiVo has always been a niche product. Most of my life, a TiVo with Lifetime has been about $850. I paid $200 for my last two. I just bought a Recast and five 4K Fire TV Sticks for $380. I like the Amazon option better. TiVo was magic, but expensive for a long time. Now it's just expensive. They will sell the IP and exit the hardware business -- maybe putting the name and logo on some inexpensive android device.
I felt this way about the DTVPal. The DVR+ came along. When the DVR+ was discontinued, I moved on to TiVo. All of these look a little dated when compared to Amazon's product. You'll be fine.
You’re doing OTA:
Listen carefully to the questions at the end from investors. In reviewing again, I think "core products" are the software and hardware business components. The IP are the patents/patents pending that they license. Still unclear who owns certain IP developed as software features are created by newco product business? If the product business will have to license the same IP any other company would from the Tivo IP company then it will be a box-business trying to compete with Apple and Roku but will no longer have control over their own destiny. I can't see that ending well.
Lots and lots of questions. I'm hoping for a fun ride that ends with my Tivo boxes all still being useful for life.
Possibly. Maybe the product business will be a newco name that is "powered by Tivo" or an "Intel Inside" play to leverage the brand equity. However, that implies that lots of different competing manufacturers could also be "powered by Tivo" which leaves the product business trying to gut it out in the world of commoditized IPTV hardware.
This answers some questions - from SeekingAlpha:
"It will pursue a tax-free spin-out of the product business to shareholders; it consists of the Platform Solutions and Software and Services businesses. The product segment generated $401M in revenue for 2018, with a large component of recurring revenue.
The IP licensing business covers an expansive portfolio of some 5,500 Rovi and TiVo patents and pending applications. Revenue was $295M for 2018, with a high percentage of recurring revenue."