Virgin Media has done a deal with TiVo to develop the interface for its next generation high-definition set-top boxes. The main cable television operator in the United Kingdom has entered into a mutually exclusive partnership with the digital video recorder pioneer. It aims to deliver the first co-branded product in 2010.
Virgin Media will have exclusive rights to the TiVo brand in the United Kingdom while TiVo will become the exclusive provider of middleware and user interface software for next generation set-top boxes for the cable company. Under the multi-year deal, TiVo will receive monthly fees which commence on delivery.
TiVo originally led the market with a slick animated visual interface. It was an early adopter of a hybrid approach, combining broadcast programming with video delivered over broadband. Tivo has also pioneered new approaches to advertising, and announced partnerships with Google.
“TiVo’s proven track record of innovation, strength of its patented technology and experience in developing best in class user environments, make it an ideal strategic partner for Virgin Media as we move aggressively to bring our next generation TV service to market,” said Neil Berkett, the chief executive of Virgin Media.
Tom Rogers, the chief executive of TiVo, said the deal underscores its commitment to expanding its global footprint through strategic alliances. “We believe this international deal affords us a significant subscriber growth opportunity,” he said. “We expect the opportunities presented by broadband connections to the TV to create some very interesting product opportunities for our next generation TiVo products and services.”
TiVo originally entered the United Kingdom market in 2000 but failed to make much of an impression with a standalone subscription service, launched in partnership with Sky and Thomson. It suffered from poor integration with external receivers and reliance on programme listings delivered over a dialup modem that were often out of date.
The satellite television operator then brought out its own integrated Sky+ digital video recorder, initially manufactured by Pace, based on NDS software. TiVo stopped selling its products in the United Kingdom in 2003.
Nearly six million homes have Sky+ in the United Kingdom and Ireland, representing nearly 60% of their installed base. Virgin Media now have a similar digital video recorder it calls V+ which is present in 750,000 homes, just over 20% of their smaller installed base of 3.6 million digital television homes.
As a pioneer of digital video recorders, TiVo has established a strong brand in the United States and a loyal following among subscribers, but has struggled in the face of competition from cable and satellite operators offering their own devices. TiVo is now partnering with DIRECTV, Comcast and Cox to develop and deploy services, but has been engaged in long-running litigation with Dish Network and EchoStar and is currently suing AT&T and Verizon.
TiVo was awarded around $200 million in damages as a result of alleged infringement of its “Time Warp” patent. It says the total damages could be $400 million plus costs. The case is still subject to appeal. The eventual outcome will be critical for TiVo.
TiVo has a distribution deal with Hybrid Television Services, a company owned by Seven Media in Australia Group and TVNZ in New Zealand. So far this has yet to produce significant results. The offering was launched in New Zealand earlier this month.
Since the start of 2007, when TiVo had over 4 million subscribers, it has steadily been losing customers, shedding over 300,000 in the last quarter. The company now has just 1.5 million standalone subscribers or a total of 2.7 million including partnerships with other television service providers, out of nearly 40 million homes in the United States that now have digital video recorders. TiVo reported a net loss of $13 million for the last nine months. The company anticipates a similar net loss in the current quarter on revenues of around $45 million.
Virgin Media continues to operate at a loss, largely as a result of massive interest payments on long-term debts of approaching £6 billion.
For Virgin Media, the adoption of TiVo for a new user interface could reinvigorate the platform. The questions for TiVo will be whether it comes too late and whether it will take too long to come to fruition.
With Virgin Media adopting the proprietary TiVo approach, albeit one that it open to third-party innovations, the cable company is responding to the increasingly competitive television market.
Sky will be broadband enabling its high-definition digital video recorders next year, enabling it to offer video on demand services. Meanwhile high-definition digital video recorders will be available retail for Freeview and Freesat services without subscription. The latter will soon have access to on-demand services over broadband, irrespective of the outcome of project Canvas, a proposed joint venture including the BBC and ITV with BT.
Both Sky and Virgin Media have expressed strong criticisms of Canvas. Virgin Media now clearly has its own plans for hybrid cable and broadband services, with a user interface from TiVo that could make it a more competitive proposition.