More Very Meaty TiVo/Comcast Deal Analysis
Unfortunately Macke publishes at Minyanville.com which is a pretty expensive pay for content site so I’ll try to summarize and expound on some of his key points and quote liberally.
Macke’s tagline on the piece is, “I’m going to be obsessive about TiVo anyway so I might as well share.”
The power of TiVo has always been in a strange way a chicken and an egg problem. In order to love TiVo you need to try it and buy it. In order to try it and buy it, you need to know that you are going to love it. One thing about TiVo users though is that they are sticky — apparently very sticky. For the fiercest TiVo owners they treat their TiVo like a religion – it can be their third child, it can be more addictive than blogging, it can be more addictive than crack.
On the other hand, the cable and satellite companies largely produce shitty PVRs. They have limited storage, lack the more innovative features that TiVo beat them to patent on and while these cheap freebie DVRs may be “good enough” for the uninitiated average Joe they are an unthinkable step back to those who have tasted the nectar that is TiVo.
According to Macke, the brilliance of the TiVo deal for Comcast comes down to a single issue, “churn.” Or as Macke writes, “For every season, Churn, Churn, Churn.”
And churn is where the value of the TiVo deal exists for Comcast according to Macke. Churn is what happens when you say, screw Comcast, I’m going to DirecTV. Or screw DirecTV I’m going to Dish. Or screw Voom (or should I say get screwed by Voom) I’m going to Comcast. And churn costs cable operators and satellite companies money. Basically it costs them about $800 to get you as a customer in the first place, according to Macke. They’d like to keep you. They’d much prefer that long-term cozy relationship with you where you keep giving them your money month after month after month – even if you can’t tell it by the way that they treat you on the telephone.
According to Macke the churn rate for DirecTV/TiVo users is .2% per month. “That’s one full percentage point lower than the levels of churn for Comcast DVR
customers (to take one example and please note that this rate isn’t stated
openly by Comcast or any other cable cos… but it can be worked out from the
information they do give).”
Macke does some back of the envelope math and concludes that by reducing churn 1% that Comcast would save about $60 million per month – that’s a lot of dough. And although Comcast probably is reluctant to actually pay TiVo the money to include them, they recognize that their own lame engineers have come nowhere close to matching TiVo’s offering and it’s still gonna cost ‘em to build something in house anyway.
Macke gets inside of the head of a cable operator and puts it this way, “”My generic DVR customers are churning at 1.2% and I’m giving boxes away for free to get customers. DirecTV is stomping me on customer adds and is getting .2% churn out of their TiVo users. I want some of that but I don’t like TiVo and don’t want to pay them.
“Then again, my tech guys are asking for $50 million more for another upgrade of
our TiVo knock-off that my tech guys swore could be re-created ‘in a week of
work, tops’. I’m sick of dealing with that mess and if Echostar (DISH) loses in
court to TiVo I’ll end up paying anyway.
“I’m going to suck it up and pay TiVo then knock the snot out of DTV in ads
promoting it. At worst, it nullifies DTV’s TiVo advantage (which I don’t think
is the sole reason for he difference in churn but millions of dollars into
trying to knock them off, I’m open to ideas). If DTV totally dumps TiVo I’ll be
alone with the DVR my idiot customers want for whatever reason.
“Either way, I can pay TiVo a buck a month then charge customers who use it $10
and make them pay for the set-top box. Seems hard for me to lose.”
Macke, who as one who is long TiVo stock definitely might have some interest in seeing the stock go up, goes on to offer some interesting responses to those who are short TiVo stock, but I’m probably going to have to make you pay minyanville.com to get that information.
The one question that I still have though is if the TiVo deal is such a hot deal with regards to customer retention, then why in the heck is DirecTV giving them the cold shoulder? Another question I have is I wonder what the churn rate on the Microsoft Foundation box is for the trial that is currently being run in Washington state by Comcast. It would be interesting to compare and contrast the .2% TiVo DirecTV churn rate with whatever churn rate Comcast is seeing with Foundation. Foundation has a pretty superior UI and feature set compared to the standard Comcast DVR and even more significantly it records HDTV. Of course I’d imagine that the new Comcast TiVo offering will most likely include HDTV recording.
Overall Macke offers a very interesting new twist on the TiVo argument that I had not heard yet. What do you think? Any merit to his idea?