TiVo, DirecTV to develop new DVR

NEW YORK (Reuters) - TiVo Inc TIVO.O is developing a new digital video recorder for satellite TV provider DirecTV DTV.O, rekindling a strained relationship and potentially opening the door to boosting the number of its subscribers.

A TiVo box and navigation screen are seen in an undated handout photo. REUTERS/PRNewsFoto

TiVo shares climbed more than 2 percent on Wednesday after the companies said that they had extended their current deal and added the development, marketing and distribution of a new high-definition DirecTV DVR featuring TiVo service. The product’s launch is expected in the second half of 2009.

Terms of the deal, which also includes an extension of intellectual property arrangements, were not disclosed. But in a federal filing, TiVo said DirecTV will pay a substantially higher monthly fee for households using the new high definition DirecTV DVRs than it does for previously deployed models.

In addition, fees paid by DirecTV are subject to monthly minimums that escalate during the term of the pact starting in 2010 and those minimum payments are “substantially higher” than in the prior agreement, TiVo said.

DirecTV was once the biggest source of new subscribers to TiVo's television recording service. But their relationship soured in 2005 when DirecTV, the top U.S. satellite TV broadcaster, said it would no longer market TiVo's set-top boxes and would use its own system made by NDS Group Plc NNDS.O.

However, the companies did not sever their ties. In 2006, they extended their service and support agreement for three years, allowing customers to continue to receive maintenance and support for their TiVos.

Many of the satellite operator’s more than 16 million users still own TiVo set-top boxes, but their numbers have been dwindling.

Related Coverage

At the end of the second quarter, TiVo had a total of 3.6 million subscribers. Of that 1.7 million were “TiVo-owned” -- users who pay a monthly fee directly to the company.

TiVo will work with DirecTV to make a DVR product for customers with high-speed Internet service that will support both companies’ latest features.

“This new deal should minimize the DTV attrition headwind TiVo has felt as DTV’s subs have moved to HD (where there is no TiVo offering today),” said Citigroup analyst Tony Wible in a note to clients. “Overall, the new deal should help protect the roughly $22 million of high margin revenue TiVo receives from DirecTV today.”

The new agreement runs through February 2015, with DirecTV having the right to extend it until February 2018, TiVo said.

DirecTV will continue to develop and offer its own set-top boxes for both new and existing customers.

Shares of TiVo rose 32 cents to $8.83 in morning trade on the Nasdaq on Wednesday. DirecTV shares edged up 17 cents to $27.79.

Reporting by Franklin Paul; Editing by Lisa Von Ahn and Steve Orlofsky