NDS Group Plc, a maker of digital television recording technology, has set its sights on DirecTV, the largest U.S. satellite television service, its chief executive said on Tuesday.
That could spell bad news for TiVo Inc., which is currently DirecTV’s exclusive provider of digital video recorders (DVRs) and relies on DirecTV for most of its subscriber growth. Tivo shares fell 9.5 percent in afternoon Nasdaq trading.
Although London-based NDS has yet to strike a DVR deal with DirecTV, NDS and DirecTV have the same corporate parent --Rupert Murdoch’s News Corp. Ltd. -- and many believe it is only a matter of time before DirecTV parts ways with TiVo.
“We are competing with TiVo,” said NDS Chief Executive Abe Peled, who said that DirecTV may at some point offer its subscribers a choice of DVR service, perhaps based on price. “We think our technology is more operator-friendly.”
A TiVo spokeswoman said the company declined to comment. Representatives for DirecTV and News Corp. were not available.
DVRs are set-top boxes that can record more than 80 hours of TV programs on a built-in computer hard drive. Customers pay a monthly fee for the enhanced features and exclusive shows offered by TiVo, which holds a 39 percent share of the U.S. DVR market, according to research firm IDC.
Analysts have warned that growth at TiVo, which expects to have 10 million subscribers by 2008, may be limited unless it finds partners outside of DirecTV. TiVo ended its fiscal year in January with 1.3 million users, of which about half --675,000 -- were acquired through DirecTV.
TiVo shares fell 80 cents, or 9.5 percent, to $7.64 on Nasdaq, and shares of NDS rose 22 cents to $27.50. TiVo shares have tumbled some 33 percent since early March.
TiVo-DirecTV deal expires in 2007
Facing a possible split from its biggest partner, TiVo needs to make a deal with a cable television provider or a set-top box maker to spur its adoption by millions of cable viewers, Sanders Morris Harris analyst David Miller said.
“Do we think that TiVo is dead? Not necessarily, but sometime in 2005, anyone who had a DirecTV/TiVo box may get a letter from News Corp. saying that they can continue paying for TiVo or get the NDS box for free,” he said.
Some of the largest cable operators, such as Time Warner Cable Inc. and Comcast Corp., are already buying DVRs from box makers like Scientific-Atlanta Inc. and Paul Allen’s Digeo Inc.
Peled said NDS, which on Tuesday also announced a security software pact with DirecTV, benefits from its relationship with European satellite broadcaster BSkyB, another News Corp. property, and can help DirecTV keep subscribers and cut costs.
“News Corp. has been quite clear with DirecTV that BSkyB has been the most successful digital platform in the world with a host of interactive features,” he said. “We have developed a lot of those technologies for BSkyB for News Corp.”
In its annual report, TiVo said its current agreement with DirecTV expires in February 2007.
“There is a decent chance that the contract might run to its end, and by that time, NDS might be running on all cylinders,” said William Kidd, analyst at Vintage Research.
