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Did DIRECTV Try to Buy TiVo?
The answer may explain the shaky relationship between the two companies.
By Phillip Swann

Washington, D.C.. (April 4) -- A little over a year ago, the DIRECTV-TiVo relationship seemed to be a perfect marriage.

The satellite TV provider was using the Digital Video Recording service to attract new subscribers, particularly among early adopters of new technology.

TiVo, which had struggled to persuade VCR owners to try the new technology, could count on DIRECTV to provide a steady stream of new customers.

Both sides were benefiting. However, today, the two companies appear headed for divorce. DIRECTV has announced that it will launch its own DVR service. Although the satcaster continues to market TiVo, many analysts question whether the relationship will continue when their current marketing agreement expires in 2007.

What happen to this blissful arrangement?

The answer: Rupert Murdoch.

Taking Control
Murdoch's News Corp. purchased a controlling interest in DIRECTV in late 2003. Soon after the paperwork was dry, Murdoch made an offer to buy a similar controlling interest in TiVo, TVPredictions.com has learned. The media mogul advised TiVo that it would be in its best interest, considering that DIRECTV was generating approximately 70 percent of the DVR service's new subs. What would happen if DIRECTV was suddenly no longer your partner? TiVo was asked.

Despite the implicit threat, TiVo's top management did not like Murdoch's offer. Under the plan, News Corp. would effectively have control of the company, although it was offering to purchase less than a majority stake. (Similarly, News Corp. purchased a controlling interest in DIRECTV, but owns just 35 percent of the company.) TiVo felt that Murdoch was trying to get the company on the cheap.

In addition, TiVo executives were concerned that the DIRECTV deal would forever prevent it from aligning with the cable TV industry and reaching a mass audience. DIRECTV now has more than 14 million subscribers, but cable operators reach nearly 70 million homes.

So, TiVo said no. However, you don't say no to Rupert Murdoch without consequences.

Soon after, DIRECTV chairman Eddy Hartenstein resigned from TiVo's board of directors. Then, DIRECTV sold its entire equity stake in TiVo, which first led to rumors that the two companies were on the outs. And finally, DIRECTV announced at the January 2005 Consumer Electronics Show that it would launch its own DVR service, separate from TiVo.

What's Next?
Now, the two companies are like a old married couple who must continue to live together without certainty of a future. DIRECTV is still aggressively marketing TiVo, but it's unclear if that will continue when DIRECTV's new DVR partners are ready with boxes and software. (Under its own brand, DIRECTV is expected to offer future DVR products from Humax and NDS, the latter of which is owned by parent company News Corp.) TiVo, which publicly says the relationship is as strong as ever, still must rely on DIRECTV for the majority of its new subs. (The company has signed a licensing deal with Comcast, but it will not go into effect until late 2006, at the earliest.)

With the TiVo-Comcast deal on the horizon, it's possible that DIRECTV will want to continue its relationship with the DVR service post-2007. The satcaster certainly doesn't relish the prospect of Comcast boasting that it has TiVo while the satellite service doesn't..

However, Murdoch has always danced to a different beat. History shows that if he can't buy 'em, he'll eventually try to destroy 'em. Murdoch may feel that he can do without TiVo, regardless of what cable does.

In fact, despite the marketing pressures, I predict that Murdoch will let TiVo go. He's just not the kind of person who succumbs to pressure. He's the kind that likes to apply it.

Phillip Swann is president and publisher of TVPredictions.com. He has been quoted in dozens of publications and broadcast outlets, including CNN, Fox News, Inside Edition, The Chicago Tribune, The Associated Press and The Hollywood Reporter. He can be reached at swann@tvpredictions.com or at 703-505-3064.

http://www.tvpredictions.com/tivodirectv040405.html