p2pnet.net News View:- Faultline has to hold its hands up and say that all the talk this week about Apple buying TiVo is probably our fault. We put the idea out in a discussion with Phil Leigh of Inside Multimedia, and some of his 25,000 listeners took it to mean that Apple IS talking to TiVo.

What we said was that Apple should buy TiVo and it’s worth going over the reasons why that’s a good idea, especially after all the hostile analyst reaction that has been aired this past week saying that it is a crazy idea.

The first criticism we read was that Apple has never run a service, and certainly not a subscription service, and it shouldn’t start trying that now, especially since it runs counter intuitive to how iTunes is set up. iTunes offers tracks for permanent ownership, one at a time, and does not have a monthly subscription service.

Our answer to that is that the smart recording technologies in a TiVo are patented and one way to exploit that patent is to build machines, while another is to charge a monthly price for it as a service.

Gradually smart recording is beginning to appear on more and more DVR devices, quite possibly in breach of those patents. The iPod has similar patents in how it works and how its interface works.

Instead of using licensing and subscriptions to generate revenue, as TiVo does now, Apple could use product sales, much as it does today with the iPod. By carefully policing its patents it would keep other non-licensees of TiVo technology at bay (we doubt if NDS, which designed a replacement for TiVo for its New Corp parent, has all the relevant licenses but TiVo would hardly sue and lose even more DirecTV business.).

Apple might introduce smaller, sleeker products, which might look a lot like the Mac Mini, and eventually target a portable device. It might call such a set of products iTivo perhaps or Mac Mini TiVo edition. Such a device might be both a Mac and a DVR.

From Apple’s point of view it has reached a point where 45% of its revenue is from consumer devices. As the iPod franchise picks up momentum, this may rise to a majority of its revenue, but Apple now needs a new initiative and it needs this initiative to be in consumer electronics. This week it launched new models of the iPod Photo and new iPod Minis and added a camera connector, so the iPod has lots of life in it yet, but that is all, already, in the $36 billion Apple share value.

To move beyond where it is now, Apple needs to broaden it attack on consumer digital media, and its next stop should take in video in some way.

Now why can’t Apple just license the TiVo technology instead of buying the company? Well it could, just the same way that Sony, Toshiba, Philips, Thomson and DirecTV have licensed TiVo technology and Scientific Atlanta and Motorola have licensed Reply TV’s technology (TiVo’s defunct competitor now called Digital Networks North America).

Well it could, but any advances would be shared by its competitors and it would not control the intellectual property, nor oversee its protection.

Could Apple create its own device? There’s no doubt that a company as sophisticated as Apple, with its technology and design skills, could do this, but why did that list of heavily branded CE companies above decide to license the technology rather than go out and build their own? Quite simply they didn’t want to leave themselves open to intellectual property challenges, so the same goes for Apple. We do, however, believe that Apple will innovate considerably on the genre of Digital Video Players when it finally enters the market with or without the TiVo patents.

Other comments we have heard are that TiVo needs to be bought by a company that understands TV services, or that has an installed base of TV subscribers, like a cable operator. This would eliminate the growth in subscription revenue of TiVo just as surely as if Apple bought it and de-emphasized that aspect of revenue generation. And anyway, being bought by one of your customers is hardly likely to engender confidence with your other customers.

We firmly believe that TiVo will change hands during the next three months because it will shortly enter a quarter when it will gain few new subscriptions, if any, from DirecTV, which makes up two thirds of its business.

Apple may well have shown no interest in looking at TiVo, but Faultline sincerely thinks that it should.

Peter White – Faultline, UK

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This entry was posted on Saturday, March 5th, 2005 at 1:46 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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