In Hit to TiVo, DirecTV Sells Its 4% Stake

TiVo Inc., the Silicon Valley darling famous for its time-shifting television service, saw its stock drop 14% on Tuesday after satellite television provider DirecTV Group Inc. said it had sold its 4% stake in the company.

DirecTV has been a major source of TiVo subscribers, providing nearly 75% of its new customers in the last quarter, according to TiVo regulatory filings. And the sale of the stock it owned -- less than a week after DirecTV Vice Chairman Eddy Hartenstein resigned from TiVo’s board of directors -- made investors nervous.

Shares of TiVo sank $1.09 to $6.41 in Nasdaq trading. The stock has lost one-third of its value in the last year.

Executives at Alviso-based TiVo declined to comment. Robert Mercer, a spokesman for El Segundo-based DirecTV, said the sale was in line with the satellite broadcaster’s recent moves to shed noncore assets.

In the last few months, DirecTV has sold its stake in XM Satellite Radio Holdings Inc. It also has agreed to sell its set-top box manufacturing unit to Thomson and to sell its 80.5% stake in No. 2 satellite provider PanAmSat Corp. to buyout firm Kohlberg Kravis Roberts & Co.

DirecTV is also in the process of auctioning off its Hughes Network Systems unit, a satellite services company, people familiar with the situation told Reuters.

Mercer said DirecTV would not be ditching the TiVo digital recorder service -- which allows users to record live TV shows and to pause, rewind and fast forward as the shows are broadcast -- at least not right away.

“We have a million TiVo customers, and we expect to add another million by the end of this year,” he said. “It’s a strong relationship.”

At the same time, Mercer said, DirecTV is evaluating a competing digital video recorder from a company he wouldn’t name.

Analysts believe that company is NDS Group Ltd. of Britain; both NDS and DirecTV are controlled by Rupert Murdoch’s News Corp.

But DirecTV isn’t likely to drop TiVo as a choice for its customers, said analyst David Farina of William Blair & Co. in Chicago.

“If you have 2 million customers who love your product, you are not going to abandon that product,” said Farina, who owns TiVo stock. “The bottom line is that TiVo and DirecTV, together, are a hit. They are joined at the hip.”

TiVo and DirecTV haven’t disclosed the financial details of their subscriber deals, but analysts said TiVo probably collects a monthly licensing fee of about $1.50 for each DirecTV customer using its service.

TiVo pockets $13 a month per customer for the service it sells directly, although the company has to bear substantially higher promotional and advertising costs for obtaining and keeping these customers.