Is TiVo (TIVO) the Next Eastman Kodak?
TiVo (TIVO) shareholders were recently devastated, after a long-running patent infringement lawsuit against Google (GOOG), Cisco (CSCO) and Time Warner (TWX) ended with a very disappointing settlement. Analysts, who were bullish on TiVo, had suggested that TiVo could reap up to $1.7 billion from the three companies, due to its protected patents in video recording technology.
The actual settlement came in at a paltry $490 million. That disappointing outcome caused TiVo shares to plunge nearly 20% on June 7. Daily Chart
Shares of TiVo had rallied last Thursday, after Motorola Mobility (a subsidiary of Google) announced that it had reached an out-of-court settlement with TiVo before the case was set to go on trial. J.P. Morgan analysts speculated that Motorola could pay up to $400 million alone in the settlement. Therefore, when the final figure from all three companies came in at $490 million, investors abandoned ship. Although the settlement should cover all the legal fees from the continued courtroom wrangling, it will do little to boost TiVo's top line growth for the rest of the year. Over the past few years, TiVo has fallen into the trap of using litigation to generate revenue from licensing fees, as it struggled to remain competitive with rivals Dish Network (DISH
) and Echostar Corporation (SATS
), which both paid TiVo $500 million two years ago in a similar settlement. Sitting on patents and using litigation as a source of revenue generally results in a slow decline into obscurity. For example, former camera giant Eastman Kodak attempted to save its dying business by squatting on its patents and suing tech giants Samsung and Apple over patent violations. That strategy worked briefly, then the company flickered out and went bankrupt. TiVo's patent payouts are also not particularly impressive. Last year, AT&T (T
) and Verizon Communications (VZ
) paid TiVo $215 million and $250.4 million, respectively. Meanwhile, TiVo is sitting on a -9.47% operating margin, $172.5 million in debt, and only $570.9 million in cash and equivalents. It's not hard to see where this company is headed once it runs out of companies to sue. Another major problem is that with each settlement, TiVo is cross-licensing its patented technologies to better funded rivals. This means that its TV show recording technology - which could soon become obsolete due to the rise of smart TVs, Internet-connected media hubs and streaming services from Netflix (NFLX
) and Amazon (AMZN
) - will fade out even faster as its patented technology aids the competition. Apparently, TiVo's answer to these problems is a poorly timed promise to double its stock buyback plan to $200 million, and extend it to August 2015. TiVo has now posted annual losses over eight of the past ten years, so it certainly needs to do more than sue other companies and buy back its own stock to survive. Other News About TIVO TiVo Plunges After Settling DVR Suit With Google's Motorola
TiVo shareholders didn't get the payout they were expecting. TiVo Settles With Cisco, Motorola and Time Warner
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Published on Jun 10, 2013
By Leo Sun