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TiVo Shares Fall 17% on Analysts' Reports

Their pessimism stems from speculation that the company could lose a key distribution deal with DirecTV.

September 26, 2003|Jon Healey | Times Staff Writer

Shares in TiVo Inc. plunged 17% on Thursday after two analysts speculated that the San Jose-based digital video recorder company could lose a key distribution deal with satellite-TV leader DirecTV.

The analysts' pessimism stemmed from a letter News Corp. sent Monday to the Federal Communications Commission outlining its plans for DirecTV. In the letter, News Corp. said it would deploy 1 million DirecTV receivers with built-in digital recorders over the next year, but it made no mention of TiVo.

The FCC is reviewing News Corp.'s agreement to buy a controlling stake in DirecTV from a General Motors Corp. subsidiary, El Segundo-based Hughes Electronics Corp.

TiVo executives felt the letter was "fairly innocuous," spokeswoman Rebecca Baer said, because News Corp. didn't preclude using TiVo's technology. One reason, Baer said, is that it would take more than a year for DirecTV to replace the systems built to support TiVo recorders.

"As far as we're concerned, our relationship with DirecTV is not changed," she said.

DirecTV has been TiVo's most important distributor, accounting for more than half of TiVo's new customers in the quarter ended July 31.

DirecTV spokesman Robert Mercer said no change was contemplated at this time.

But one incentive News Corp. has for replacing TiVo is that its NDS Group subsidiary makes digital recording technology, which News Corp. uses in satellite receivers outside the U.S.

Citing Monday's letter, securities firm Thomas Weisel downgraded TiVo to "underperform" on Thursday -- the second time it has downgraded TiVo this year. Pacific Crest Securities also issued a report based on the letter, speculating that News Corp. could end DirecTV's relationship with TiVo.

However, analyst Daniel Ernst of Rodman & Renshaw, which does not hold TiVo stock, said he remained confident that the company would outperform the market.

Ernst contended that most stocks in small technology companies are viewed as short-term investments, and TiVo "is going to do phenomenally" over the next 18 months.

He added, "The other thing to keep in mind here, whatever happens with DirecTV and News Corp., TiVo has been the clear choice among consumer electronics companies who enter this market."

TiVo shares fell $1.62 to $8.14 on Nasdaq.

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Bloomberg News and Reuters were used in compiling this report.

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