TiVo’s Patent Infringement Suit Against Motorola Could Seek $1 Billion in Damages

Motorola Mobility has produced more than 20 million DVR-equipped set-tops, the “vast majority” of which weren’t licensed, Zinn said. TiVo settled patent infringement suits against AT&T and Verizon, which deployed Motorola DVR products in the U-verse and FiOS networks. A Motorola Mobility spokeswoman declined to comment. Fitzgerald cited the potential for a $1 billion to $2 billion settlement in raising his price target for TiVo’s stock to $15 from $14 while keeping a buy rating. TiVo’s stock closed Thursday up 5.4 percent at $11.49.

The Verizon agreement, reached in October, is expected to yield at least $250 million, TiVo has said. TiVo recorded $78 million from the settlement in Q3 ended Oct. 31. “The numbers can add up pretty quickly and get rather large,” Zinn said. TiVo and Motorola Mobility completed a claims construction hearing on Tuesday and are set for a trial in Texas in May, TiVo said. Set-top developer Cisco sued TiVo in May, seeking to have TiVo’s patent found invalid, and claims construction is expected in Q3, Zinn said. Time Warner Cable, which buys set-tops from Motorola and Cisco, is a defendant in both cases. With the pending litigation, TiVo quarterly legal costs are expected to remain at about $9.5 million, Chief Financial Officer Anna Brunelle said.

"You can see what kind of numbers we have gotten in our settlements on reasonable royalty, and we would certainly be seeking a lot more” in a trial “than we have gotten in pretrial settlements,” Zinn said.

Having won settlements from AT&T, Dish Network and Verizon, TiVo has built out its cable business, recently adding Cable One, Mediacom and Midcontinent. TiVo gained $500 million in a settlement with Dish in 2011 and $214 million from AT&T earlier this year. Comcast has expanded distribution of TiVo Premiere DVRs from Boston and San Francisco to Denver, Indianapolis, Miami, Minneapolis, northern New Jersey, Portland, Ore., Sacramento and Seattle, TiVo CEO Thomas Rogers said. TiVo has distribution with nine of the top 25 U.S. cable operators, and discussions with Charter Communications continue, executives said. TiVo deployment of Premiere DVRs with Charter has been on hold since introduction earlier this year in Fort Worth, Texas, due partly to a change in management, TiVo officials said. Rogers in August said the DVR platform being considered by Charter could be extended to a cloud-based service. While Charter continues “going through an evaluation” of its hardware and advanced TV strategy, TiVo is in “a position to provide our user interface and overall software wherever they go,” Rogers said.

Swedish cable operator Con Heim remains on schedule to deploy a cloud-based TiVo platform as part of its IPTV network in first half 2013, TiVo executives said. The cloud-based platform can be “highly leveraged in terms of the likelihood that operators here in the U.S. adopt that approach,” Zinn said. A cloud-based cable service is “slightly more complex” in the U.S. because it strikes at the heart of issues “being worked out today between programmers and distributors in terms of different ways that content can be sent to the home and where it can get stored and how it can get consumed,” Zinn said.

On the hardware side, TiVo is continuing development with Pace of a six-tuner DVR/cable gateway device that’s expected to be released in 2013, Rogers said. The Pace product has gained interest from a “number of” TiVo cable customers who view it as a “high quality lower cost hardware solution” than a standard TiVo DVR, Rogers said. “When married with our software, it gives operators a great hardware/software combination at a lower cost, which we are quite happy to see, since our involvement with hardware for operators has generally not involved any margins."

With new products and services, cable operators’ share of TiVo’s total revenue is expected to double within two years, said TiVo Investor Relations Director Derrick Nueman. TiVo’s cable business will shift to be a “positive contributor” to TiVo’s EBITDA rather than “significantly negative,” Rogers said. TiVo’s cable-related Q3 service revenue grew to $7.5 million from $4 million in the year-ago quarter as the number of cable- and satellite-based subscribers increased to 1.89 million from 910,000, the company said. Among the cable operators, Virgin Media added 203,000 TiVo subscribers in Q3 and hit 1 million customers, Virgin officials have said. TiVo is installed with 30 percent of Virgin’s cable customers. Spanish operator Ono ended Q3 with 54,000 TiVo customers, up from 34,000 in the previous quarter.

TiVo ended Q3 with 2.9 million subscribers, up from 2 million a year earlier. TiVo standalone subscribers dropped to 1 million from 1.13 million. TiVo’s cable/satellite businesses gained a net 225,000 subscribers, the company said. TiVo’s monthly churn improved to 1.4 percent from 1.7 percent, the company said. Per-subscriber acquisition costs (SAC) declined to about $170, TiVo executives said.

The growing subscriber base led TiVo to make a renewed push at retail, having gained distribution recently at Walmart. TiVo recently retained New York Jets quarterback Tim Tebow as a spokesman. With hardware subsidies being reduced as SAC costs decline, TiVo is using the savings to increase marketing at retail, including promoting its TiVo Stream service, company executives said. In hiring Tebow and increasing marketing, TiVo can “increase the drive of potentially higher volume on the retail side,” Rogers said.