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TiVo's shares are poised to move significantly once a Texas jury decides whether satellite television provider EchoStar Communications infringed on TiVo's patents for digital video recorders, analysts said Tuesday.
Investors have banked on a positive outcome for TiVo, pushing its shares up 37 percent since the start of 2006, and an unfavorable ruling could wipe out those gains, they said. In the case, set to begin on Wednesday in Federal District Court in Marshall in the Eastern District of Texas, TiVo charges EchoStar, which operates the No. 2 U.S. satellite television service, with stealing technology that allows users to record one TV program while watching another via a DVR. "The stock has run up 25 percent over the last few weeks over potentially a positive outcome," Susquehanna Financial Group analyst Michael Kelman said. "There are damages they could be awarded (and) they could be able to negotiate a licensing agreement with EchoStar." A legal win could boost TiVo shares by up to 7 percent, Kelman suggested, while a ruling in EchoStar's favor could push TiVo shares down 20 percent. He noted that even a positive result may be skewed by the recent stock gains. Representatives for both companies declined to comment on Tuesday, citing the pending litigation. Shares of TiVo traded at $7.02 on Tuesday afternoon, up 9 cents, or 1.3 percent, on Nasdaq. The case brings to a head years of legal wrangling between the companies over software that helps viewers personalize TV watching habits. Last year, EchoStar, which owns the Dish satellite TV Network, countersued TiVo, saying it used technology patented by EchoStar between 1998 and 2003, including one called "Interruption Tolerant Video program Viewing." TiVo Chief Executive Tom Rogers last month said a TiVo victory in the case could open the door to either a bounty of payments, since TiVo could then file similar suits against other DVR distributors, or more licensing agreements. "It will certainly cause people to think long and hard not only about TiVo's brand ... and the best of our engineering, but on a whole different level of what we mean in the mix if our intellectual property is upheld in the courts," Rogers said at the Reuters Global Technology, Media and Telecoms Summit. Satellite providers have used DVRs, which allow viewers to pause live television and record dozens of hours of programming, to woo customers away from cable companies. In turn, more and more cable providers are placing cable boxes with DVRs in their subscribers' homes. A court win might empower TiVo to challenge the technology in other DVRs. However, EchoStar, a far larger company than TiVo whose 2005 revenue of more than $8 billion is more than 40 times that of its rival, could perhaps outlast TiVo during an extended appeals process, even if it doesn't defeat TiVo in court. "Regardless of the outcome, this is still the first inning of a very long ball game," said analyst April Horace of Hoofer & Arnett. "The bulls think that if they (TiVo) win round one with EchoStar, all the other operators will say, 'We need to pay TiVo too.' But further licensing deals are not a guarantee." Ironically, the case comes in the same week that cable operator Cablevision Systems said it plans to introduce a video recording service as early as this year that aims to replace the living room DVR.
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