A Case Study on TIVO:

Prepared by,
Ng Eng Chong
HT093129M
Questions:

1. Draw a supply chain (or value net) that traces the various stakeholders
Involved in the TiVo value chain and their respective exchanges. From this, what
insights do you get about the relative value that each stakeholder adds in this
process?
2. For TiVo, describe the six factors that affect customers’ purchase decisions
(see Chapter 7, Table 7.1). What are the most salient for Tivo Adapters ?
3. What are TiVo’s core competencies? Is the company effectively leveraging
these in its current strategy?
4. To what extent is the TiVo business model affected by network externalities?
What are the implications for its business model?
5. Who are the key competitors facing TiVo? Given this competition, what are
the pricing implications?
6. Does TiVo’s pricing strategy make sense? Why/why not?
7. Do you believe that TiVo’s business model is sustainable over the long term?
If so, why? If not, why not? If not, what recommendations do you have for this
company?
8. Why has TiVo apparently not been successful in “crossing the chasm”? What
will it take for TiVo to penetrate the mass market?
(1)
Traditional Value Chain:

Stakeholders: Film/Movie/video makers, Delivery

Producers
Content Stakeholders: DVR manufacturers
Producers Software vendors, Retailers

Stakeholders: TV stations,
Satellite Video
Cable TV station
Recording
Hardware
Broadcasters Customers
Cable

OS
Broadband
Platform

Application
Stakeholders: Services
Broadband service provider

Advertising

Stakeholders: Advertisers

In the traditional value chain where the value delivery component is vertically disintegrated, the values added by the stakeholders is as follows :

(i) Film/Movie/video makers, Producers: Create contents in form of video/animation/music which is sold to broadcasters
(ii) Broadcasters such as TV stations and Cable TVs: Sell broadcast time to advertisers and package contents into fixed TV schedule.
(iii) Advertisers: Buy the TV time slot to market their products or services to the mass viewers.
(iv) Broadband service provider: Provide the necessary infrastructure to deliver the broadcasted content in EM or wired signals
(v) Display makers: Build display devices such as TV monitor to convert the signal from the service provider into pictures and sounds
(vi) DVR manufacturers: Build devices to record live TV in digital format and provide subscriptions to access exclusive broadcasted programs
(vii)Software vendors: Provide OS platform and application software for display monitor and video recorders
(viii) Retailers: Sell the TVs and DVRs independently to consumers.

E.g The company that manufactures video recording hardware do not do any broadcasting.
Tivo’s Value Chain:

Video Recording
Broadcasting Delivery Hardware Customers

OS/ Application
software

*optional *optional
Advertising

However, Tivo’s business model is vertically integrated, combining several components into a DVR box. Tivo delivers
broadcasted content branded as Tivo service, makes recording equipment that houses software and large storage device, and
provides software features to skip the advertisement in the recorded media. There are many big players in the traditional
business model market and Tivo’s vertical integrated model threatens the value of the stakeholders such as broadcasters,
advertisers, and other DVR manufacturers.
 (2)

6 factors that affect’s customer purchase decisions:

(i) Relative advantage: The benefits of adopting Tivo technology compared to the other’s DVR service providers.
(ii) Compatibility: The extent of the media format recorded by Tivo whether it is standard and viewable in different devices
such as mobile phones, laptops and pcs.
(iii) Complexity: The consumer usage model of Tivo DVR technology whether it’s user friendly or difficult to use.
(iv) Trialability: The extent where Tivo DVR can be tried on a limited basis or it can be returned if users are not satisfied with
the product.
(v) Ability to communicate product benefits: The ease and clarity of the benefits of using Tivo DVR can be communicated
to the users.
(vii) Observability: The benefits of Tivo is observable to everyone.

The most salient factors for Tivo adopters is relative advantage. Tivo faces competition from cable and satellite operators
which bundled the DVR box in their plans and the DVR box is given free to the consumers. It’s a very disruptive marketing
to Tivo who is selling the hardware at a premium cost.

Secondly, Tivo hardware has compatibility problems with the cable cards provided by the cable TV providers. Its hardware which
supports Multi-stream cable cards causes a lot installation issues to the consumers in US market. In different countries where
Cable cards are not supported, Tivo has problems to penetrate into new market without modifying their hardware.
(3)
Tivo’s core competencies in the personal video recording market are in its proprietary technology in DVR application software
programming to provide interactive television experience to the users.

Main functionalities:
(i) Record and play back broadcasted TV programs or cable TV in
(ii) Bypass advertisement within the shows
(iii) Combine satellite TV, cable TV, personal movie, music and web into a box

Additonal functionalities:
(i) Create wish list to search and record by actor,director, and keyword.
(ii) Record multiple streaming movies
(iii) Record shows from web browsers
(iv) Play MP3s, and view digital photos on TV screens
(v) Create schedule recording through mobile phones

As highlighted in question (1), Tivo’s strategy to influence the whole value chain in broadcasting market, software programming,
and DVR hardware manufacturing is not effective as it’s too vertical and it’s not focusing on its core competencies in
the DVR application software programming.
(4)

In the traditional media industry, the advertising revenues are the incentives for broadcasters to invest in the
program quality to increase its number of audiences. So as the number of audiences increases the value
or profit of the broadcasters increases as there are more advertisers attracted to pay for the high-priced
advertisement. Therefore the network externality effect exists in the traditional media business.

The advertisement-avoidance technology featured by DVR product like Tivo which allows users to skip the
advertisement diminish the network externality effect in the traditional business.

This leads to certain implications to the business model:

1. Increase in pressures from the broadcasters.

The broadcasters are unwilling to support the Tivo DVR as they need to forfeit their lucrative advertising business
which is their core revenue. Therefore they go directly into the consumer market by giving away free TV boxes which
is bundled into the monthly subscriptions and they eliminate the advertisement-avoidance technology in their products.

2. Lack of support and compatibility from the broadcasters.

The broadcasters are less inclined to standardize their cable cards which can be used in Tivo. Therefore Tivo users faces
a lot of installation problems which involves the broadcasters cable cards.

These lead to a few implications to its business model:

(a) Tivo might need to engage in aggressive strategy to compete in broadcasting market, service delivery, electronic
instruments and software programming.

(b) Tivo needs to find other ways to find new revenue stream such as exploring the subscription based model for its DVR.
(5) Console game device
Playstation by Sony
Broadcasting & TV Xbox by Microsoft
DirectTV, Walt Disney,
Liberty, Comcast, Dish Other media players
Network. Laser disc players –
Panasonic, Sony, etc.

Internet on TV Competition Landscape

Google TV, Apple TV IPTV
JumpTV, MediaZone,
Telechannel
Other DVR Manufacturers
Sony, Pioneer, Toshiba
Broadband service
provider
Singtel, Starhubs, M1

The competition in the personal television market is very intense from big players with strong finance capability
and emerging technologies which deliver the content through the Internet at lower cost driven by the increasing bandwidth
and advancement in hardware integration technology from computer to TV set. These factors drive down the pricing
of DVR as there are more substitutes or alternatives available.
(6) Tivo’s Pricing for its latest product is as below:

Justification:

Tivo prices its product with the following strategies:

(a) Penetrate market with entry barrier pricing to fuel adoption. (Captive product pricing strategy)
For broad consumer market, the hardware is sold at entry barrier price of $299.99 with all
hardware functionality enabled. However the hardware cost is covered with compulsory subscription fees. As
the DVR requires constant updating of the new program information, keeping up with the changing schedules
and providing back-end services to the customers, there is an ongoing costs occur. Subscription fee is one
method to cover these costs.
(b) Maximize profit by offering premium hardware at premium prices. (Price lining/versioning strategy)
For consumers who like to have higher storage capacity, higher premium audio and digital quality,
they can buy it at premium price where the profit margin for such category is higher.
(d) Introduce different pricing for the subscription plans. (Price lining/versioning strategy)
To maximize the profit, Tivo use different pricing for its subscription and product lifetime subscription.
e.g A consumer might pay for monthly service at first before subscribing into product lifetime as they are
not sure whether Tivo can deliver values up to their expectation.
(7)

Tivo business model may not sustainable over the long term. This is due to the following reasons:

(a) Hard to penetrate into mass overseas market.

It’s vertical value chain affects many stakeholders such as broadcasters which will pressurize business model of Tivo.
Different countries have different rules and regulations regarding the standardization of cable TV streaming. For
example, cable card is standardized and used widely in US but it’s not in Canada, its neighbour country.

(b) Emerging technologies and lower entry barrier.

The emerging Internet and broadband technology fuels the broadband service providers to provide video on demand
through the means of Internet by bundling the box into their subscription plan to protect their exclusivity, maintain
customer loyalty and prevent other players from entering the market.

(c ) Direct competition from video-on-demand Big Players such as Apple and Google.
Apple launched its Apple TV which makes use of its ITUNES to download and play movies at affordable price of $5
per movie. The video-on-demand concept is diminishing the needs for users to record video directly from cable TV
as now they can directly buy the movie at lower cost.

(d) Change of behaviour of mainstream consumers.

Next generation mainstream consumers may use Internet services to purchase movie or watch movie through P2P
network on the TV as it’s more convenient. Video recording may get less popular if consumers can watch from peers
sharing network.

Recommendations:
(a) Pursue new mass distribution partnerships with cable distributors at international scale.
(b) Innovate creative advertising methods to increase new revenue stream from advertisers
(c) Pursue new market such as computing on TV, bridging the PC entertainment into TV such ability to download
movie from Video-On-Demand stores, watching youtube and download music.
(8)

Tivo has failed to cross the chasm due to its lack of capability to bring the broadcasters/cable TVs together to provide
mainstream video recording solutions to the mass majority. Its adoption of advertisement-avoidance technology in its
DVR has caused a conflict of interest with its stakeholders. Therefore, the broadcasters have little interest to work
with Tivo. This causes complexity in the installation of cable cards from different cable TV and the mass majority are
concern of the successful installation of DVR box.

Secondly, the free bundled box by broadcasters makes the DVR market extreme difficulty to enter. Tivo is hardly able
to compete with zero cost product without charging extremely for its subscription fees which deters it from penetrating
the mass market.

To penetrate into the mass market, Tivo needs to seek out for partnerships with the major broadcasters, abandon its
advertisement-avoidance technology which causes a conflict of interest with the broadcasters and advertisers and
fully capitalize on its proprietary technology in providing value added software applications in DVR which will enhance
the values for all its stakeholders by increasing the number audiences.