TiVo Loses More Customers, Sues AT&T & Verizon

Dave Zatz —  August 27, 2009 — 28 Comments

tivofence
Photo by Zandir

TiVo’s quarterly call was a bit more dramatic than usual. While they continue to lose customers and innovate at a very unhurried pace, TiVo seeks a repeat DISH Network performance in going after AT&T (T) and Verizon (VZ) for infringement. Basically, TiVo’s current business model appears to be ad sales and patent trolling.

Unlike TiVo’s successful David v Goliath battle with DISH/EchoStar (SATS), things may play out a bit differently this time. First, there’s likely no smoking gun. Based on the evidence presented, it sounds like DISH may have helped themselves to an early TiVo prototype which was subsequently reverse engineered. Second, digital video recording technology may not be as patentable as TiVo would like. (Not to mention, it’s possible Judge Folsom and the Eastern District Court could run out of patience with TiVo’s community stunts and their own nationwide reputation. Then again, maybe not – these cases keep them in the spotlight and are good for the local economy.) Lastly, given the language in yesterday’s call, TiVo may just be looking to force AT&T and Verizon into some sort of licensing deal.

Another difference this time around, is that the defendants are relying heavily on third party tech. Verizon has constructed their own FiOS TV DVR software, but currently runs on Motorola hardware. AT&T’s set-top box platform is also Motorola, but the U-Verse software is largely Microsoft (MSFT). So it’ll be interesting to see how Moto and Mister Softee, plus others such as Broadcom, could be pulled into the fray. As an observer, and given TiVo’s pressure to license, I hope their contracts with DirecTV (DTV) and Comcast (CMCSA) are called into evidence.

My blogging partner Davis Freeberg has tracked down and purchased the PACER court filings so you don’t have to. Verizon here. AT&T here and below:

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28 responses to TiVo Loses More Customers, Sues AT&T & Verizon

  1. You’d really call this trolling huh? I’ve been of the opinion that TiVo invented the DVR — along with ReplayTV, but we know how that went — and deserves to be paid for their great idea.

  2. Ben- At least one of the original ReplayTV guys went on to work for Motorola. Don’t think he’s there anymore, but I don’t know how that plays out in terms of intellectual property.

  3. Sounds like you’ve really soured on TiVo, for whatever reason.

    I was surprised that you didn’t mention the “new product,” “new product developments,” and “interface improvements” that TiVo said were coming to Best Buy in early 2010. TiVo also said the new DirecTiVo was “on track.”

  4. Ben, They were first with ReplayTV (whose IP is now owned by DirecTV), but that doesn’t necessarily mean this (inevitable) tech is patentable. As evidenced by some of it being invalidated by the USPTO. And it sure seems like trolling when this may be there sole source of profit and they seem to have totally pulled the plug on advertising their own hardware other than web banner ads.

    bkdtv, Maybe I have soured. Perhaps I expect better. They’re still my primary DVR… I can appreciate a technology while also disapproving of certain business practices and decisions. But their pace of innovation has slowed and I didn’t really see anything new or exciting out of this call. Like most recent calls, they keep referring to future events. But as a customer I’m more interested in the present. Also, I wasn’t able to pick through the transcript as I usually do for good nuggets – SeekingAlpha didn’t have the transcript posted this AM when I was writing. It’s up now and if I discover anything compelling, I’ll do a follow-up. (The new UI looks nice… but that was revealed nearly a year ago in 2008 and we’ve yet to see anything on our boxes other than a beta Search product which is too slow to be usable most of the time.)

  5. I think your definition of patent trolling may be off. According to Wikipedia it is “often with no intention to manufacture or market the patented invention.”

    To me the patent system is for the TiVo scenario exactly. Company A spends money or efforts to create and then tries to market it. Company B realizes it is cheaper to copy the idea of company A than it is license it.

    Trolling comes in when a company sits and thinks of ideas and then patents them with no intent to ever create it, only to sue those who do.

    I’m also disappointed that TiVo has seemly stopped innovating, but I believe it is because they aren’t ready to invest more until they have been able to recoup their initial investment.

  6. A few other points:

    (1) I’m not sure how you came up with the idea that TiVo’s “business model appears to be ad sales and patent trolling.” More than 88% of TiVo’s non-hardware revenue comes from subscription fees. Less than 10% of TiVo’s non-hardware revenue comes from advertising and its Stop||Watch ratings service.

    If you listened to the conference call, it is obvious that they are pushing their own hardware+software platform to cable companies, as in the RCN deal. They weren’t very enthusiastic about software development for middleware, suggesting several times that it was not an effective use of company resources.

    (2) Verizon’s Motorola DVRs are based on the same Broadcom CPU parts as the Dish Network and TiVo DVRs. These CPUs have very little in the way of general purpose computing power and rely extensively on built-in hardware functions.

    In the Dish Network case, there was a long parade of experts who described how the Broadcom SoC worked and how software interacted with it, with differing opinions as to what software interactions constituted infringement. TiVo has a number of legal precedents (“finding of facts”) relating to those arguments, which were established and re-confirmed at the district and appellate levels. TiVo is not starting from scratch with these cases.

    (3) The two additional patents at issue in the AT&T and Echostar suits were only granted this year, some 5-7 years after they were filed. TiVo does have some other patents with the same name that were approved years earlier for a different implementation.

    (4) None of TiVo’s patents were invalidated.

    Dish Network challenged two claims in the time warp patent and presented its arguments. Based on those arguments, the PTO made a preliminary ruling that those two claims were invalid. This preliminary ruling did not take into account any arguments from TiVo. Preliminary rulings go against the patent holder around 65% of the time.

    After the preliminary ruling, the patent holder is given the opportunity to respond and present its arguments. Final rulings go against the patent holder closer to 20% of the time.

    This is the way our patent system works. PTO examiners are encouraged to make preliminary rulings against patents, because this forces the patent owner to provide more documentation on the patent, which others can then use for both implementation and workaround purposes. TiVo went through the same process when the time warp patent was challenged by Dish Network the last time (i.e. initial rejection of some patent claims, later reaffirmation of all patent claims) based on the same two patents taken separately.

    If a final ruling is made against the patent holder (TiVo), they are given the option to appeal. If the examiner’s decision is not reversed on appeal, the patent holder is given the opportunity to amend the claims, and these amended claims become a part of the revised patent. This process can take years.

  7. You might want to remove that “unhurried pace” link since TJ said he didn’t want to be quoted as the source.

  8. Morac, he’s a company spokesperson who left that comment on a public forum. That makes it fair game. I did take some creative liberties based on my perceptions, but left his name out of it for whatever small consolation that’s worth.

  9. Dave,

    I think you took more than a little liberty in that comment. You used it completely out of context. The “unhurried pace” was a reference to the Java certificate for TiVo Desktop, not a reference to innovation or R&D.

    TiVo spent an average of $60 million per year in R&D over the past 2.5 years. I’m not aware of any company that spent more on DVR R&D. Are you? [Dish Network / Echostar spent closer to $50 million on total R&D last year.]

  10. I usually like riding your blog, but this one seemed a little bitter and snarky. How can you take a comment about the delay in renewing a java certificate and refer to that being about product innovation? Granted, renewing a certificate should be a no-brainer, but it has little to do with actual development.

  11. Chris, yeah I’m a little upset that TiVo has squandered a large lead over the competition and some customer good will. Jerry’s quote is representative of my perception of their corporate culture – for such an originally innovative company, they take a very conservative approach.

    bkdtv, You’re emphasizing my observations – TiVo appears content to develop at a snails pace while the competition closes the gap… You’d think $60 million/year would have resulted in something tangible.

    Hopefully we can all laugh about this in the fall when TiVo absolutely amazes us with new hardware running the new UI. And, despite my complaints, as I commented above TiVo is still my primary DVR.

  12. One last comment:

    “(The new UI looks nice… but that was revealed nearly a year ago in 2008 and we’ve yet to see anything on our boxes other than a beta Search product which is too slow to be usable most of the time.)”

    Did you really expect to see a revamped HD UI on existing boxes? The 300MHz BCM7038 (Series3) and BCM7401 (TivoHD) have the general computing power of a Pentium II and the 2D video performance of a 10+year old graphics card. These SoCs were never designed or intended to support a HD interface. No product based on these solutions offers a HD UI. As you note, TiVo’s “HD Search” application does not provide an acceptable level of responsiveness on current hardware.

    If a high-definition interface requires new hardware to provide acceptable performance, then the question becomes, what hardware? Several years ago, Broadcom announced faster DVR CPUs, but those did not actually ship in volume until this past spring. These faster CPUs are now found in the Moxi, Motorola DCX3400, Dish ViP722k (not the ViP722), upcoming Dish ViP922, and the Samsung 3090/3260/3270 true2way DVRs. Of those, only the Moxi and Dish ViP922 currently feature a high-definition interface.

    If TiVo were going to release a new DVR based on one of these new faster SoCs, you’d think they’d have done so this summer. Not only is the new Broadcom SoC significantly faster, with much improved 2D/3D performance, but it also integrates more functionality to reduce both design cost and BOM. The part itself costs no more than the TiVo’s existing SoC did in 2008. So why aren’t they using it?

    One possibility is they’ve stopped innovating, but we see that they’ve spent more than $120 million in the past two years on DVR R&D, significantly more than Dish Network. Either TiVo is completely incompetent in the way it spends that money, or they are working on something that customers haven’t seen.

    Another possibility is that TiVo miscalculated how long it would take to deplete their existing inventory. When TiVo unveils a “Series4,” sales of the older model will grind to a halt. TiVo can’t force an older model on customers like the cable and satellite providers (“you get what they give you”).

    Still another possibility is that TiVo decided to wait for newer technology. Back in January, Broadcom announced two next-generation SoCs — a generation beyond that used in the Moxi, Motorola DCX, and Dish Network ViP922 DVRs. These SoCs claim 50% improved performance over that generation and three times the performance of the TiVo’s CPU, with improved energy efficiency thanks to a new 45nm manufacturing process. These SoCs also add 1080p60 output, a built-in IEEE1394 controller, and a MoCA modem for networking over coax. These SoCs are sampling now, with volume availability expected in early 2010.

    A key new feature in the latest (and next-generation) Broadcom SoCs is Flash Lite support. Last spring, you noted that TiVo was looking for a Flash expert who’d “shipped large and complex Flash applications (preferably on an embedded system).” Since then, TiVo has posted and filled jobs for a number of other Flash-related positions. TiVo is currently seeking at least one “Flash Engineer” that will “be responsible for architecting and developing new FlashLite applications with a large team of developers.” There are also two jobs posted for “Flash/ActionScript engineers” that are “responsible for the overall architecture and development of new FlashLite applications along with a large team of local and off-shore developers.” The current TiVo hardware cannot support Flash at all, which strongly suggests that work is underway on a new platform.

  13. Full transcript of the TiVo conference call:

    http://seekingalpha.com/article/158649-tivo-inc-f2q10-qtr-end-7-31-09-earnings-call-transcript

    From page 2:

    “As part of this deal, TiVo and Best Buy are together working toward the development of new user interface features for TiVo DVRs sold by Best Buy, which will build upon TiVo’s seamless integration of broadcast, cable, and broadband content on the television set…

    “As proof of their commitment, beginning early next year Best Buy will be putting substantial marketing muscle behind this relationship as newly innovative features are rolled out.”

    From page 6:

    “I would say the essence of that [Best Buy] deal is geared toward early next year, where some product improvements and developments that we will be putting forward will be able to be wrapped into the overall strategic marketing relationship with Best Buy, so the guts of the relationship will really get under way then.”

  14. Patent trolling?

    TiVo owns valid patents. The Dish case has proven their validity. Dish’s reverse engineering of TiVo’s technology has nothing to do with their culpability for patent infringement. It affects only whether they were found to have willfully breached patents – which goes to the assessment of damage awards (ie: the amount of penalty to be paid), not whether or not there is/was infringement in the first place.

    TiVo could have sued Verizon, AT&T, Motorola and everyone else in the business of developing, manufacturing and distributing infringing PVRs. Period! They always had that right. My guess is they didn’t because pursuing parties in court is an expensive proposition. They no doubt wanted to have a win under their belt before expending the resources on the INEVITABLE follow-on law suits.

    If all those in the chain of developing, manufacturing and distributing infringing products have not obtained license rights from TiVo, TiVo is perfectly in its right to pursue them. That’s the whole point of having a patent!

    As I understand it TiVo has gently sought license deals from all these parties for years. The cablecos and set-top manufacturers are the ones who stonewalled and refused a decent license in the hopes that the Dish case would blow-up in TiVo’s face. It didn’t.

    I say three cheers to TiVo. TiVo’s business has been imploding because these players used its licensed technology and kept TiVo from competing in the high-def PVR arena by way of fighting the cable-card mandate tooth and nail for the better part of a decade.

    TiVo is NOT the bad party here. Verizon, AT&T and every other infringing cable company, telco and set-top manufacturer are the bad guys.

    …Dale

  15. While I disagree that TiVo is a patent troll, I do agree that they’ve been very stagnant since the release of the Series3. Personally I have moved on to Windows Media Center, but admit that there are a number of reasons I’d go back to TiVo if they updated the UI and added real MRV features — the Broadcom SOC with MoCA would really hit the spot.

    But I’m not one to stay with a technology if there is something better out there, so between Windows 7 Media Center, the RVU Alliance and whatever TiVo is working on, 2010 looks to be an interesting year.

  16. The fact that TiVo still makes and markets products precludes them being any kind of patent troll.

    IMO TiVo got themselves into trouble when they more or less abandoned the “Stand Alone” market and decided to focus all their HD efforts on CableCARD. By doing so they said they didn’t need the business of the many millions of satellite subscribers (including all the ones who were already TiVo users thanks to the previous DirecTV relationship).

    As for myself, I’m a Dish Network customer with 2 Series2 TiVos, I’m still at the point where my love of TiVo is greater than my desire for HD but I’m sure many people would have switched to the “good enough” Dish DVRs a while ago to get HD.

  17. IP is important and should be protected, but shouldn’t cloud your focus of innovating. There is nothing I’ve seen in the last two years from Tivo that’s made me say “wow”. They were innovating back maybe five or six years ago, but every update lately has been how they have been providing “innovative” ways to provide advertising. As an end user, this is the absolute worst possible publicity for Tivo as a company. Each time I select a simple command on my TivoHD and the dialog pops up “please wait” I realize how hopelessly out of date the software and hardware is.

    Why don’t they give up on the traditional DVR (and admit the big guys have it now) and move forward – provide true multi-room streaming, faster encoding for off-loading to laptops and iPhones, and update what was once the forefront of UI design?

    I feel this is the only way they will be welcomed with open arms for licensing deals, not suing their way to “partnerships” (or is that the American way?).

  18. Dale, thanks for putting Echo’s reverse engineering in perspective in terms of intent and culpability. (Although is it the sort of thing that could taint a jury?) Glad to have a lawyer here for clarification. (Wish I knew bkdtv’s background – fan, industry guy, something else?)

    Robert, TiVo over HD? Wow, you’re a true fan. I ran a Moto box and used a ATSC OTA tuner to supplement my pre-Series3 TiVos.

    Angelo, I’ve got a draft post I’ve been working on since spring 2008 on how TiVo might leverage their brand and loyalty into other areas. How about a line of remotes? Or license their experience and UI to a Blu-ray manufacturer. My favorite DVD player was a TiVo.

    I’m with Ben. I’d like to see TiVo do well, but I’ll jump for a better experience. VERY interested to see what Microsoft’s Media Center announcement in a week or so. Sure hope there’s a new lightweight but fully powered extender in the pipeline and better CableCARD support (including that tuning adapter). I also think the FiOS team is doing really good things – I like where they’re headed. Although, I can’t partake any time soon given my residence.

    Morac, bkdtv, Chris – Regarding Jerry’s quote: TiVo and I just spoke. They feel the citation’s been taken out of context, as you do. I feel it’s representative of their development process and therefore appropriate to convey my point. However, I agreed to their request to remove the TiVo Community link and quotation marks.

  19. So when I use the VLC player to record hulu content to my hard disk I am violating TiVo’s patent?
    :P

  20. I would like to see TiVo do well, but I will be evaluating my options when Tru2way becomes mainstream and is used by my cable provider. Since that will require a new TiVo, I will be looking at Windows Media Center as an alternative.

    A new Media Center box would probably be $300 to $500 more than a Series 4, but you’ll be able to do more with it. I wouldn’t pay $799 for a TiVo, but I would for a Media Center because I know I would be able to do more with it.

  21. Chris,
    I actually spent more on my HD TiVos than on my Media Center. I paid $800 for the first one and $500 for the second, plus $300 each for service. That is $1600! For Media Center I paid $800 for the OEM PC (overkill) $400 for the CableCARD tuner and $150 for a HDHomeRun. Then $400 for extenders. That is $1750, but for three rooms instead of two. Even with the TiVo HD at $250, the extra room would’ve cost me $550.

    Dave,
    I’m convinced that bkdtv works for broadcom, Cisco or Motorola. I mean how else could you have that great insight into the chips? Honestly I don’t really care, just so long as he keeps posting.

  22. Ben,

    I agree with you that over time, Tivo is a more expensive option when you take into account the service fees. In my area (Albany, NY), Time Warner has gone SDV on the majority of channels. Using a tuning adapter is pretty much required to get any of the digital channels. Right now, TiVo is the only game in town for the tuning adapter.

  23. Dave, I used to read your blog religiously for all consumer tech updates, but no longer. The cavalier way you threw Jerry from TiVo under the bus with a completely out of context quote makes me realize you have no journalistic integrity. Your continued lack of remorse for what you did is further proof that all you care about is your own ego.

    And it is ironic that you played a very similar role by misquoting and getting the longtime great TiVo and “gizmo” blogger Megazone fired just this year. You are on a roll.

    Consider me one of MANY who will stop reading your board for good. Trust me…word moves fast on the Internet…as you know.

  24. Kmiller14, While I hope others occasionally find me entertaining and informational, this blog has always been just a hobby. I don’t claim to be a journalist, just a lover of tech. I did remove the link and quotation marks as requested and apologized for putting Jerry in any sort of awkward position. That’s about all I can do for an event that occurred in the past. Having said that, I very clearly see the continued feedback/concerns here and on the TCF in how I applied his quote – it won’t happen again.

    Next up, as far as MZ goes, I was very upset he was let go. Especially because he’s a pal and I lobbied extremely hard while I worked at Sling and after for him to land a job there. When your legal name is Megazone folks may not take you seriously. But MZ obviously has a lot to offer. The post in question is here. And his comments in the forum were notable – when I was with Sling, Palm was a pretty tight collaborator. And here MZ was saying Sling was taking a wait and see approach to WebOS. As it turns out, he was apparently uninformed about the business dealings and spoke out of turn. I agree that it’s pretty shitty how it appeared to play out.

  25. Newsflash: Dave Zatz is human. I’ll keep reading if you jeep posting.

  26. “While I hope others occasionally find me entertaining and informational, this blog has always been just a hobby. ”

    So you are a pretend journalist as a hobby… cute.

    But seriously, your articles get decent exposure. And journalist or not, you have a moral obligation to get the context right when quoting others.

    I realize that these events are in the past, but bottom line is that if you took your “hobby” seriously megazone might still have his job.

    Maybe a message board is public, but always get permission from any source if you are going to post a quote in an article that will get picked up on Yahoo or Google. That is simply the right thing to do. You should have figured that out long before now.

    Lecture over.

  27. Yep, that line wasn’t meant to absolve me – I’m obviously prepared to have this discussion and take my lumps. I was merely attempting to make the point that without an editor around for sanity checks and formal publishing guidelines, as a hobbyist I will occasionally misstep.

  28. I wouldn’t say I was uninformed, more that some people were not happy that I stated things in a public forum. Even more that I shared my personal opinion, despite prefacing it as such, as it didn’t necessarily mesh with the official position.

    I am pissed about losing my job – it was the best job I’ve ever had and I’m not likely to find anything like it again soon. I miss both the people and the work and I still get pissed off when I think about it. But I don’t blame Dave for what happened, it just sucks all around.

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