Market Insight

Rovi acquires TiVo

May 04, 2016  | Subscribers Only

Merrick Kingston Merrick Kingston Associate Director, Research & Analysis, Digital Media & Video Technology

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The heavens have aligned for two of the media-and-entertainment industry’s technology giants. Analytics, program guide and IP-licensing kingpin Rovi will acquire OTT software, UI pioneer and DVR progenitor TiVo. Valued at roughly USD 1.1 billion, the deal remains subject to closing conditions, is expected to conclude by the end of the third quarter, 2016, and will usher in the disappearance of the Rovi brand entirely.  

Our Analysis

This acquisition is partly a tale of strategic repositioning, and partly a tale of boosting a plateauing business.

Over the past two years, both companies have faced rather strong headwinds. Rovi has struggled to secure major operator deployments, has seen its service provider IP-licensing business flat-line, has endured a sustained decline in its consumer-electronics licensing business, has seen its product sales fall, and in losing a high-profile infringement claim against Netflix, has had five key patents – covering content search, content filtering, and content recommendation based on viewing history – invalidated.

TiVo, for its part, has seen its consumer-hardware business shrivel, has also struggled to amass new, large-scale operator deployments, has witnessed its own IP-licensing fortunes plateau, and through 2020, expects its entire IP-licensing business to contract by two orders of magnitude, and decline into irrelevance by the mid-2020’s.

The good news is that the firms collectively preside over an invaluable set of media company relationships, and most importantly, have at their disposal an ensemble of products whose capabilities and underlying technology are widely perceived to be peerless. Rovi possess a superlative search-and-recommendation product, has made major investments in its set-top based consumption analytics platform, and has a stranglehold on the content metadata that the huge swaths of the media industry rely on to offer personalization and recommendation features. TiVo’s UI is the standard-bearer for seamlessly navigating walled-garden and 3rd party OTT content, the company’s own recommendation platform is strong, and the firm’s subsidiary – TiVo Research – already provides multi-device, cross-platform audience data and consumption analytics to agencies, advertisers, and programmatic ad exchanges.

These complementary strengths will allow the combined entity to pursue three overarching opportunities.

First, the acquisition provides a means to address major changes in the types of technologies that media companies demand. Operators in particular cannot continue to their future fortunes on the sale of large, monolithic channel bundles. The structure of media distribution has changed, and with it, the role of uncertainty. In the face of structural demographic change, new consumption behavior, the oversupply of choice, and the trend toward micro bundling, pay TV will require unprecedented insight into its audience, what it wants, to whom it should sell, and what it should sell. The future pay TV business will be anchored in analytics, and the new TiVo will be uniquely positioned to address this shift in technology demand.

Second, the new TiVo will possess a client footprint of the highest caliber. Spanning among others Dish Network, DirecTV, AT&T, Verizon, Time Warner Cable, Com Hem, Korea Telecom, Samsung, LG, Panasonic, SK Broadband, ONO, Sharp, and Virgin Media, the new entity’s search, recommendation, UI, metadata, analytics, and advertising business will be well-equipped to generate new value from so strong an addressable market.

Finally, the deal remains predicated on the companies’ conviction that their combined intellectual property portfolio will bolster a flagging revenue stream. This conviction shows chinks in its armor. Over the last 8 quarters, Rovi’s total IP- licensing income has contracted by 3% on average, quarter-on-quarter. TiVo largely anticipates that its licensing income will disappear altogether through 2020. While Rovi announced a major licensing deal with Intellectual Ventures (IV) this year – effectively becoming IV’s exclusive media-and-entertainment focused channel partner – the agreement is largely orthogonal to the TiVo acquisition. It is difficult to foresee how TiVo’s patent portfolio will materially change Rovi’s IP-licensing opportunities.


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