TiVo just wants to be free

TiVo followed expectations this week by announcing that its hardware would now be free—sort of. Though there is no longer an upfront fee, the monthly service charge has been boosted substantially, spreading the cost of the unit out over a longer period of time.老域名购买

The new prices look like this:

The price for a TiVo box and a one-year service commitment is $19.95 a month or $224 prepaidThe price for a TiVo box and a two-year service commitment is $18.95 a month or $369 prepaidThe price for a TiVo box and a three-year service commitment is $16.95 a month or $469 prepaid

Of course, if you want to pay up front, TiVo has no plans to stop you, and in fact they offer a fairly substantial discount for doing so. A two-year plan paid monthly is US$454.80, so the prepaid plan saves you US$85.80. The older option to prepay for a lifetime subscription on the device is disappearing, however; under their new business model, there will never come a time in which you are not paying for TiVo service.

What’s behind the move? Two things. First, TiVo needs to boost its subscriber numbers, and giving customers the ability to walk out of the store with a free piece of hardware may help convince tentative customers to give it a try. (For TiVo’s sake, we hope there will be some kind of one-month trial to let these sorts of customers give the service a shot, but so far we’ve heard nothing.)

Second, the company is still bleeding money. In the quarter that just ended on January 31, TiVo lost US$19.5 million. While that’s much lower than the US$33.7 million the company lost a year ago, it’s still a massive amount of cash, especially when you consider that total revenues were only US$60 million. (The company’s not about to die, though; with little long-term debt and US$150 million in assets, they can operate at this level for quite some time.) By eliminating the Lifetime option, TiVo wants to design a system where the cash never stops coming. The question is whether the new scheme will bring in more money or will turn long-time customers away. Those who are already sold on the service and want to upgrade to a new unit tend to like the thought of paying once; under the new plan, they’ll be paying as long as they use the box.

TiVo’s move is part of a broader trend in the technology world to subsidize the cost of hardware in exchange for earning a guaranteed and consistent monthly revenue stream. The cell phone industry is the obvious best example of this, but you can see it even in software products like Microsoft Money, which refuses to access the Internet after two years and forces you to upgrade. Companies love this sort of thing for obvious reasons and consumers often go along with it if they feel they are getting a good upfront deal in return. Will the new service model work out for TiVo? That’s still an open question, because DVRs from cable providers are usually leased for US$6-15 a month, subtantially lower than TiVo’s costs. The company is also competing against the rise of PC DVRs, which use something like MythTV or Windows Media Center Edition and generally have no monthly fees.

Being the most expensive product in the market isn’t necessarily the best way to sell more units, but it doesn’t have to hurt—just look at Apple. The iPod has always been a pricey music player, but people have been willing to pony up the cash because of its best-of-breed looks and functionality. If TiVo can do the same thing, the higher monthly fees may not work against it. If cable company DVRs are good enough, though, it could be “game over” for TiVo.

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