TiVo gains muscle in DVR game thanks to court ruling

Dish Network’s latest loss to TiVo (NASDAQ:TIVO) in a Texas federal court last night may have been the worst-case scenario for the struggling satellite provider, but it was also a significant step in putting TiVo back in the driver’s seat for digital-video recorders (DVRs), a market it pioneered but in which it has struggled to keep subscribers.

The court ruled that that what Dish called a technology workaround was too similar to TiVo’s patent for Time Warp software, which allows users to record one TV program while watching another. As a result, approximately four million – or all but 192,708DVR subscribers – will lose their DVR capabilities within 30 days, although Dish said that they would not immediately be affected. Dish was ordered to pay $103 million to TiVo and inform the court before it attempts another workaround on the infringed patent.

The court ruled that that what Dish called a technology workaround was too similar to TiVo’s patent for Time Warp software, which allows users to record one TV program while watching another. As a result, about 4 million – or all but 192,708DVR subscribers – will lose their DVR capabilities within 30 days, although Dish said that they would not immediately be affected. Dish was ordered to pay $103 million to TiVo and inform the court before it attempts another workaround on the infringed patent, making it a clear-cut win for TiVo, which pioneered DVR services but has struggled to stem subscriber loss.

“TiVo has such a huge lead in developing the DVR, and anybody who has been a loyal TiVo user knows that even with all the great DVRs released, TiVo is still a step ahead,” said Rory Altman, co-founder and director of Altman Vilandrie & Co. “It has a user interface that is second-to-none and was well thought out six to seven years ago. People are still trying to catch up.”

While TiVo may be a step ahead in terms of functionality, it has lost out as a standalone service. As Bruce McGregor, senior analyst at Current Analysis, pointed out, some customers may say they “TiVoed a show,” but most likely they actually used their pay-TV provider’s generic DVR offering. It’s still a favorite service, but consumers are increasingly opting for the cheapest option or even turning to the Internet for streaming content.

“I would think [Dish] wouldn’t let it get to a point where they would have to take DVR away from their subscribers,” said Michelle Abraham, principal analyst at In-Stat. “If they did, it would be an issue for something that a lot of people have come to depend on.”

Both Dish and TiVo have been getting more into services to make their products more competitive and sticky, according to McGregor. TiVo’s initiatives include an ad rating program for TV networks and the ability for advertisers to create pop-up ads that cannot be skipped as viewers fast-forward commercials. TiVo also has deals in place with Netflix and Blockbuster for the streaming and downloading of movies and TV shows.

Dish has responded with plans to launch a Slingbox media player that lets consumers transfer existing TV shows to other devices. For the pay-TV market in general, additional offerings like whole-home DVR and incorporating online video are becoming more important.

“For the consumer, it is very confusing right now on what to choose and what to use,” McGregor said. “It boils down to what is your perspective? What is the existing equipment in your home? More and more people have these high-definition televisions, so they aren’t satisfied with the generic DVR experience, or they’re starting to want to incorporate online video. That is still hashing itself out.”