More Very Meaty TiVo/Comcast Deal Analysis


Jeff Macke is out with an article today entitled “TiVo Thoughts After the Comcast Deal” that provides some of the meatiest analysis I’ve seen yet.

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?

Loading Facebook Comments ...

5 Comments

  1. Discfree.com says:

    I bet DTV’s lower churn rate has more to do with consumers plopping down a grand for the box then it does with the TIVO service. If cable was smart they wouldn’t rent their boxes, they would adopt the cell phone industry’s strategy of requiring two year subscriptions for a free tivo box.

  2. Carl says:

    The “paying $1,000 for TiVo box” argument isn’t based on facts. At LEAST 90% of Directv’s TiVo customers are running standard DTV/TiVo boxes. These people all paid less than $200 for their DVR. Many of them got the DVR free in an install promotion.

    Churn is one reason Comcast did the deal. Another is that all of the work is on TiVo’s side. Comcast says “make it work with our boxes.” TiVo does all the work and Comcast keeps all of the money. Seems pretty straightforward to me.

  3. Discfree.com says:

    Carl,

    It’s fair enough to say that the reduced churn has nothing to do with the boxes because you are correct that dtivo has sold more non-hdtv boxes (although I suspect the mix is closer to 25 hdtv and 75 regular, but have no data to base my assumptions on.) Directv does however require an annual subscribtion for the cheap Tivo boxes. I guess that my point was that if someone owns something, it becomes an obstacle to change regardless of how much they paid for it. Because Comcast has chosen to rent their boxes, it will make it difficult for them to upgrade to larger hard drives and multi tuner’s as they became more available. Instead of forcing consumer to upgrade, they instead will be left with a bunch of boxes that they won’t be able to even give away (Is anyone in the market for windows 98 PC?) Directv, shouldn’t have too much trouble upgrading because their client base assumes ownership.

  4. Joefrontier says:

    These guys are on the right track. Comcast is going to have higher churn for a couple of reasons. One, DirecTV customers buy their equipment. Comcast customers don’t. This probably accounts for a big whack of that 1% difference. (Although I think he’s way off base with the 25% HDTV box. I can’t imagine that TiVo is selling hundreds of thousands of HDTV boxes. Most consumers just don’t have that kind of moolah to sink into a PVR.) Second, Comcast is losing customers to satellite anyway. Satellite is currently net gaining on these defections. The churn would therefore be skewed in their favor due to marketwide customer migrations, not TiVo boxes. I think stickiness has something to do with it, but I’m not sure it’s as big a deal as it appears to be in this article (although I’m commenting on the paraphrase, not the actual article. I’m not that rich either…)

  5. Jeff Doering says:

    Gotta admit I’m a Tivo lover! I’ve had one since late 2000 (standalone on analog cable then) and a dual-tuner DTV Tivo for a little over a year.

    I took Comcast up on a dump your dish promotion a few weeks ago (previously my townhouse complex had a sucky small cable provider) to get cable modem, etc for a great bundle. I’m in Washington so I got the Microsoft Foundation DVR, BUT I didn’t actually turn off the DTV yet.

    Short story, while I’m was a long-time Tivo fan, I was willing to drop it for generic DVR to get Comcast, good deal (multiproduct discount with cable modem, etc)…

    However, after about two weeks, I can’t stand it. I’m going to keep the cable modem and dump the Comcast TV (even at cheaper per month for a year with HBO than standard DTV). The DVR doesn’t remotely compare.

    I could live with the weaker ad-heavy user interface (Tivo easily kills the MSFT box in this area), Tivo suggestions I was willing to forgo, but I can’t live with the lousy dual-tuner support (no swap button on MSFT box), remote with a puny signal (button presses don’t take effect half the time, I can’t tell if it’s the remote or the DVR being unresponsive), and just plain overall poor usability. I though convincing my wife to give up Tivo would be the big obstacle, turns out I won’t even do it!

    I was surprised because after the long-time Windows versus Mac user interface lawsuits, etc, I thought MSFT knew a lot about “cloning” a good UI.

    With the recent Comcast Tivo deal (and the DTV Tivo deal phasing out), I figure I’ll probably switch back to Comcast cable in about a year when they have a new Tivo box (hopefully a big upgrade versus the current DTV Tivo!).

    To be fair, I don’t use HDTV (which is the only clear advantage I can see versus the commodity DTV dual-tuner Tivos), so that Comcast price advantage was lost on me.

    Maybe I can at least get some kind of deal for the next year out of DTV rention… we’ll see..