TiVo Woos TV’s Big Players With Its Set-Top Box

TiVo Inc., maker of a digital set-top box that allows viewers to control when and how they watch television programs, on Tuesday announced $32.5 million in investments from a group of broadcast TV and cable companies.

The announcement means that Sunnyvale, Calif.-based TiVo now has equity backing from all three major TV networks despite marketing a device that undermines the traditional broadcast advertising model.

TiVo’s box, which reached the retail market in March, strikes at the heart of traditional network television by giving viewers the power to skip commercials and to record, pause, play back and fast-forward programs as they choose. It works by recording the television signal on a hard disk similar to that found inside a personal computer before streaming it to the TV screen.

“This round of investment marks a major step forward in the adoption and validation of TiVo’s service,” said Michael Ramsay, company president and chief executive.

TiVo’s main competitor, Mountain View, Calif.-based Replay Networks, hinted Tuesday that it will soon announce similar investments from leading media conglomerates, “including some of the same names that invested in TiVo,” said Jim Plant, Replay’s director of marketing.

TiVo’s latest investments come from CBS, Walt Disney (owner of ABC), Cox Communications, Discovery Communications, TV Guide Interactive and several other media companies.

They follow the company’s recent announcement that it is preparing an initial public stock offering, expected to take place before the end of the year, and its announcement in June that NBC had taken a multimillion-dollar stake in the company. Satellite service DirectTV, Philips Electronics and Showtime Networks had previously made equity investments in TiVo.

Replay Networks has been backed by the venture capital firms Kleiner Perkins Caufield & Beyers, Tribune and Vulcan Ventures, headed by Microsoft co-founder Paul Allen.

The burst of investments has now brought all the major components of the television industry behind a product that makes it easier than ever to skip through commercials without watching them. On the other hand, by making the recording of TV programs almost effortless, the devices could theoretically expand the audience for any program.

“When you have a technology that can change the viewing habits of millions of people, that’s compelling,” said Sean Badding, senior analyst with Carmel Group. The networks and TV producers “can’t look at this as a threat; they see it as an opportunity.”

Gil Schwartz, senior vice president of communications for CBS, said the network is intrigued by the technology’s potential.

“We’re very interested and we are investigating the technology,” he said. “The future belongs to those who control the content. Any new media or new technology we view as incremental in bringing that content to more people.”

Analyst Badding said the investments from the three networks, along with their stable of cable companies, satellite companies and advertisers, has given TiVo a strong position in the budding field of so-called personal television.

“They have just about everyone now,” he said.

But Replay’s Plant countered that there is nothing in the technology that suggests that only one company and one device can survive.

“This is a very early market and there’s very little exclusivity in it,” he said.

TiVo’s basic $499 device stores 14 hours of television on a 14-gigabyte drive. It requires a subscription to the TiVo service, which provides electronic program schedules to the user’s machine for about $10 a month.

Replay Networks’ $699 box stores 10 hours of video on a 10-gigabyte drive, but its price includes the electronic service. Both players must be connected through a phone line to the company’s central computers.

The difference between a standard videotape recorder and the digital devices from TiVo and Replay may appear small on the surface, but their impact may be as significant as the change from long-playing records to compact discs. That’s because the new machines can record programs with minimal effort by the user, in contrast to conventional VCRs, which many consumers find confusing.

Their electronic programming functions also make them much more nimble than VCRs. Viewers can command the recording of programs by keyword--”Bogart,” for example, would direct the device to record all broadcast Humphrey Bogart movies as long as the disc’s capacity holds out.

“TV happens now when you want it to happen,” Plant said.

The devices will eventually allow users to buy products over their telephone connections and provide other forms of interactivity.

While the technology raises serious issues about the future of conventional TV advertising, it also opens the possibility of the media companies’ using the full 24 hours in a day to air programs.

“More eyeballs,” Badding said. “It increases the viewing hours, and that’s what makes the cash registers ring really loudly.”