TiVo, a pioneer of the digital video recorder, settled its patent litigation with Motorola, Cisco and Time Warner Cable, days before it was due to come to court. Google and Cisco will pay TiVo $490 million in a settlement that was lower than investors may have hoped. It followed previous victories in the courts against EchoStar, AT&T and Verizon, bringing the total from awards and settlements due to TiVo to around $1.6 billion. Other than that, TiVo continues to lose money, so what does the future hold for the company?
The settlement came days before a court hearing that was due to consider alleged patent infringement in set-top boxes provided by Motorola to Time Warner Cable. Motorola in turn had patent infringement claims pending against TiVo.
Google acquired the Motorola Mobility business for $12.4 billion in a deal that closed in 2012 and subsequently sold the home division to Arris for $2.6 billion, while limiting the exposure of the acquiring company at $50 million.
A further case against Cisco was due to be heard subsequently. Cisco acquired Scientific Atlanta for $6.9 billion in 2006. It then acquired NDS for $5 billion in 2012.
In this context, the $294 million that Cisco will pay TiVo is comparatively modest and certainly less than the billions of dollars that TiVo had claimed it was due in compensation.
As part of the settlement, TiVo will enter into patent licensing arrangements with Google, Cisco and Arris. TiVo will grant Arris a limited licence to the patents involved in the case. TiVo will also licence these patents to Google and Cisco, who will also cross licence other patents in the video field.
“We are pleased to reach an agreement that brings our pending litigation to an end and further underscores the significant value our distribution partners derive from TiVo’s technological innovations and our shareholders derive from our investments in protecting TiVo’s intellectual property,” said Tom Rogers, the president and chief executive of TiVo.
“Further, this settlement significantly enhances our already strong balance sheet, bringing our cash position to over $1 billion before inclusion of future expected payments of at least $400 million from prior settlements.” He said TiVo intends to use the payments to drive shareholder value and return capital to shareholders.
The chief executive of TiVo added that the company expected revenue growth from service providers to increase as it rolls out additional deployments: “So, as we look out beyond today’s important settlement we believe our core operating business will continue to drive growth to both the top and bottom line.”
TiVo now has just a million customers subscribing directly to its service. Its strategy has moved to licensing its technology to operators. There are around 1.5 million TiVo boxes deployed with Virgin Media in the United Kingdom, from which it derives licensing fees. It is also deployed by ONO in Spain, with 166,000 boxes, and Suddenlink in the United States with 80,000, with other operators including Mediacom and CableONE due to deploy and Atlantic Broadband recently signed up.
Nevertheless, the total number of TiVo users remains relatively small, at around 3.4 million. The company has yet to return an operating profit, while it has successfully defended its claimed patents in the courts and extracted significant sums in compensation.
The key question is whether TiVo will now be able to focus on using its considerable cash pile to invest in innovation, or whether companies like Cisco are now free to supply competing products and services that will further marginalize the company that did much to pioneer and popularize the digital video recorder.