I almost got my TiVo

Fascinating story here about TiVo’s struggles — and about a deal that might have changed the technical landscape in my house:

After months of hard bargaining, TiVo reached an agreement last summer to offer its pioneering video recording system to customers of the Comcast cable system, according to several people involved in the discussions. It was potentially a critical deal for TiVo, because Comcast is by far the biggest cable system and also because control of DirecTV, the satellite system that has been the biggest distributor of TiVo, had been bought by the News Corporation, which also owns a TiVo rival.

Yet, at the last minute, Michael Ramsay, TiVo’s chief executive, decided to pull out of the deal. Comcast was not going to pay TiVo enough money or give it enough control over its service, Mr. Ramsay told the company’s board, according to people involved in those discussions.

TiVo’s board backed Mr. Ramsay, a brilliant and headstrong Scottish engineer, who wanted to focus on new technologies to attract customers directly – without distribution of the service by cable or satellite TV companies. But a debate about whether the company made the right choice raged in its executive suite and boardroom.

Last week, TiVo announced that Mr. Ramsay was stepping down as chief executive but would remain as chairman. He said the change was his idea and had been under discussion for months. Several board members and others close to the board confirm that. But they also said that the board hoped to hire someone with less of Mr. Ramsay’s fierce belief in the power of TiVo’s technology. They said they preferred someone with an ability to repair TiVo’s relations with the big cable companies.

The TiVo technology cannot stand alone, not while cable/satellite companies hold control of the digital systems. I think TiVo will live to regret that break with Comcast — but not, quite possibly, much longer.

Doing business with cable and satellite companies offers far less money, but from far more customers. TiVo receives about $1 a month from DirecTV customers (Comcast offered even less, people knowledgeable about the deal said), rather than the $12.95 a month it receives from its direct customers. Then again, customers prefer a single box on top of their TV set rather than two – a cable box and TiVo’s box for finding and recording programs. More important, the cable and satellite companies could reach tens of millions of households, allowing TiVo to profit from secondary businesses, like offering premium services and advertising on its service, or by doing audience measurement research.

But now, the opportunity for TiVo to strike a deal with cable or satellite companies is far less than it was a year ago. After TiVo left the negotiations with Comcast, the cable company started distributing a video recorder made by Motorola, its principal supplier of set-top boxes. The service has been so popular that Comcast has little incentive to pay more for TiVo’s technology. Similarly Time Warner, the No. 2 cable provider, has been very successful with its own video recorder, made by Scientific Atlanta.

To some degree, the cable companies (as local monopolies) can treat DVRs as a commodity. They don’t have to offer their subscribers the best, just one that suffices enough to get the subscription. That may not be ideal, but that’s the landscape that TiVo has to work in, and it’s unrealistic to not recognize that.

Which is a real shame, because there’s a tremendous amount TiVo has done, and can continue to do, in innovation. But innovation alone doesn’t make money, as more than one fantastic tech company has discovered.