AOL, TiVo DVR Deal Revamped

By Greg Tarr -- TWICE, 5/13/2002

SAN JOSE, Calif. — TiVo, the developer of one of the first digital video recorders (DVRs), said it revamped an agreement with AOL Time Warner that will enable it to offer new features such as instant messaging and online chat on its Series 2 devices.

The new agreement replaces one announced in 2000, under which TiVo and AOL's AOL TV unit was to jointly develop and market DVRs under both brands.

The move also strengthens TiVo's relationship with AOL Time Warner's Time Warner Cable unit, leaving industry watchers to wonder if in the recent deal TiVo was in part hedging its bets should federal regulators approve the EchoStar-DirecTV merger. Industry analysts have speculated that EchoStar might seek to buy out the TiVo-DirecTV contract so it could build and sell its own digital video recorder products, as it does now on the DISH platform. DirecTV is currently TiVo's largest distribution partner, although TiVo recently stepped up efforts to market its Series 2 products online and through special retail distribution arrangements.

Meanwhile, EchoStar CEO Charlie Ergen reported at his company's first quarter 2002 financial conference that EchoStar has now shipped more than 500,000 DISH Network personal video recorders (TiVo is estimated to have around 400,000 subscribers). He said EchoStar's goal is to be the first company to reach 1 million PVRs into the market.

DISH Network makes its own personal video recorder called the DISH PVR 501, first introduced in mid-2001. DISH Network does not charge a monthly PVR fee to record, rewind, etc. It records up to 35 hours of programming.

In the revised TiVo-AOL agreement, AOL will pay TiVo a development fee for applications. Additionally, TiVo will return to AOL $48 million of the $200 million it had set aside for the development of joint TiVo-AOL TV set-top boxes from the original agreement. TiVo said it will keep $4 million in accrued interest from the $48 million amount. AOL, meanwhile, will use the $48 million to buy back 1.6 million shares of Series A redeemable convertible preferred TiVo stock. AOL has a 12 percent stake in TiVo.

TiVo is reportedly working with AOL on a system that would enable AOL subscribers to go online and remotely program their TiVo DVRs to record television programs. At January CES, Microsoft's UltimateTV unit reported plans for similar functionality for its rival DVRs.