A Case Study on TIVO


Prepared by, Ng Eng Chong HT093129M

Does TiVo’s pricing strategy make sense? Why/why not? 7. To what extent is the TiVo business model affected by network externalities? What are the implications for its business model? 5. What are the most salient for Tivo Adapters ? 3. Why has TiVo apparently not been successful in “crossing the chasm”? What will it take for TiVo to penetrate the mass market? . For TiVo. what are the pricing implications? 6. What are TiVo’s core competencies? Is the company effectively leveraging these in its current strategy? 4. why not? If not. Do you believe that TiVo’s business model is sustainable over the long term? If so. Who are the key competitors facing TiVo? Given this competition. why? If not. Table 7.Questions: 1. describe the six factors that affect customers’ purchase decisions (see Chapter 7.1). what insights do you get about the relative value that each stakeholder adds in this process? 2. Draw a supply chain (or value net) that traces the various stakeholders Involved in the TiVo value chain and their respective exchanges. what recommendations do you have for this company? 8. From this.

Producers Content Producers Stakeholders: TV stations. the values added by the stakeholders is as follows : (i) Film/Movie/video makers. E. Retailers Video Recording Hardware Customers Broadband Stakeholders: Broadband service provider Advertising Stakeholders: Advertisers In the traditional value chain where the value delivery component is vertically disintegrated. (iv) Broadband service provider: Provide the necessary infrastructure to deliver the broadcasted content in EM or wired signals (v) Display makers: Build display devices such as TV monitor to convert the signal from the service provider into pictures and sounds (vi) DVR manufacturers: Build devices to record live TV in digital format and provide subscriptions to access exclusive broadcasted programs (vii)Software vendors: Provide OS platform and application software for display monitor and video recorders (viii) Retailers: Sell the TVs and DVRs independently to consumers. Producers: Create contents in form of video/animation/music which is sold to broadcasters (ii) Broadcasters such as TV stations and Cable TVs: Sell broadcast time to advertisers and package contents into fixed TV schedule. . Cable TV station Broadcasters Cable OS Platform Application Services Satellite Delivery Stakeholders: DVR manufacturers Software vendors. (iii) Advertisers: Buy the TV time slot to market their products or services to the mass viewers.g The company that manufactures video recording hardware do not do any broadcasting.(1) Traditional Value Chain: Stakeholders: Film/Movie/video makers.

and other DVR manufacturers.Tivo’s Value Chain: Broadcasting Delivery Video Recording Hardware OS/ Application software Customers *optional Advertising *optional However. advertisers. combining several components into a DVR box. and provides software features to skip the advertisement in the recorded media. Tivo delivers broadcasted content branded as Tivo service. There are many big players in the traditional business model market and Tivo’s vertical integrated model threatens the value of the stakeholders such as broadcasters. . makes recording equipment that houses software and large storage device. Tivo’s business model is vertically integrated.

Its hardware which supports Multi-stream cable cards causes a lot installation issues to the consumers in US market. laptops and pcs. (iv) Trialability: The extent where Tivo DVR can be tried on a limited basis or it can be returned if users are not satisfied with the product. It’s a very disruptive marketing to Tivo who is selling the hardware at a premium cost. (vii) Observability: The benefits of Tivo is observable to everyone. Tivo has problems to penetrate into new market without modifying their hardware. (v) Ability to communicate product benefits: The ease and clarity of the benefits of using Tivo DVR can be communicated to the users. Secondly.(2) 6 factors that affect’s customer purchase decisions: (i) Relative advantage: The benefits of adopting Tivo technology compared to the other’s DVR service providers. Tivo hardware has compatibility problems with the cable cards provided by the cable TV providers. The most salient factors for Tivo adopters is relative advantage. Tivo faces competition from cable and satellite operators which bundled the DVR box in their plans and the DVR box is given free to the consumers. . In different countries where Cable cards are not supported. (ii) Compatibility: The extent of the media format recorded by Tivo whether it is standard and viewable in different devices such as mobile phones. (iii) Complexity: The consumer usage model of Tivo DVR technology whether it’s user friendly or difficult to use.

Main functionalities: (i) Record and play back broadcasted TV programs or cable TV in (ii) Bypass advertisement within the shows (iii) Combine satellite TV. personal movie. and DVR hardware manufacturing is not effective as it’s too vertical and it’s not focusing on its core competencies in the DVR application software programming. and keyword. . (ii) Record multiple streaming movies (iii) Record shows from web browsers (iv) Play MP3s. cable TV. music and web into a box Additonal functionalities: (i) Create wish list to search and record by actor. and view digital photos on TV screens (v) Create schedule recording through mobile phones As highlighted in question (1).(3) Tivo’s core competencies in the personal video recording market are in its proprietary technology in DVR application software programming to provide interactive television experience to the users. software programming. Tivo’s strategy to influence the whole value chain in broadcasting market.director.

These lead to a few implications to its business model: (a) Tivo might need to engage in aggressive strategy to compete in broadcasting market. . The broadcasters are less inclined to standardize their cable cards which can be used in Tivo. Therefore they go directly into the consumer market by giving away free TV boxes which is bundled into the monthly subscriptions and they eliminate the advertisement-avoidance technology in their products. the advertising revenues are the incentives for broadcasters to invest in the program quality to increase its number of audiences. The advertisement-avoidance technology featured by DVR product like Tivo which allows users to skip the advertisement diminish the network externality effect in the traditional business. The broadcasters are unwilling to support the Tivo DVR as they need to forfeit their lucrative advertising business which is their core revenue. Therefore the network externality effect exists in the traditional media business. (b) Tivo needs to find other ways to find new revenue stream such as exploring the subscription based model for its DVR. Therefore Tivo users faces a lot of installation problems which involves the broadcasters cable cards.(4) In the traditional media industry. electronic instruments and software programming. So as the number of audiences increases the value or profit of the broadcasters increases as there are more advertisers attracted to pay for the high-priced advertisement. This leads to certain implications to the business model: 1. Lack of support and compatibility from the broadcasters. service delivery. 2. Increase in pressures from the broadcasters.

Internet on TV Google TV. Sony. Pioneer. Starhubs. Dish Network. Toshiba Broadband service provider Singtel. etc. MediaZone.(5) Broadcasting & TV DirectTV. Telechannel Other DVR Manufacturers Sony. Comcast. Liberty. Walt Disney. Competition Landscape IPTV JumpTV. . Apple TV Console game device Playstation by Sony Xbox by Microsoft Other media players Laser disc players – Panasonic. These factors drive down the pricing of DVR as there are more substitutes or alternatives available. M1 The competition in the personal television market is very intense from big players with strong finance capability and emerging technologies which deliver the content through the Internet at lower cost driven by the increasing bandwidth and advancement in hardware integration technology from computer to TV set.

e. the hardware is sold at entry barrier price of $299. As the DVR requires constant updating of the new program information. (Captive product pricing strategy) For broad consumer market. (d) Introduce different pricing for the subscription plans. they can buy it at premium price where the profit margin for such category is higher. (b) Maximize profit by offering premium hardware at premium prices.(6) Tivo’s Pricing for its latest product is as below: Justification: Tivo prices its product with the following strategies: (a) Penetrate market with entry barrier pricing to fuel adoption. Subscription fee is one method to cover these costs. . However the hardware cost is covered with compulsory subscription fees. (Price lining/versioning strategy) For consumers who like to have higher storage capacity.99 with all hardware functionality enabled. there is an ongoing costs occur.g A consumer might pay for monthly service at first before subscribing into product lifetime as they are not sure whether Tivo can deliver values up to their expectation. (Price lining/versioning strategy) To maximize the profit. higher premium audio and digital quality. Tivo use different pricing for its subscription and product lifetime subscription. keeping up with the changing schedules and providing back-end services to the customers.

For example. maintain customer loyalty and prevent other players from entering the market. Recommendations: (a) Pursue new mass distribution partnerships with cable distributors at international scale. The emerging Internet and broadband technology fuels the broadband service providers to provide video on demand through the means of Internet by bundling the box into their subscription plan to protect their exclusivity. cable card is standardized and used widely in US but it’s not in Canada. Video recording may get less popular if consumers can watch from peers sharing network. (b) Innovate creative advertising methods to increase new revenue stream from advertisers (c) Pursue new market such as computing on TV. (c ) Direct competition from video-on-demand Big Players such as Apple and Google. watching youtube and download music. Different countries have different rules and regulations regarding the standardization of cable TV streaming. Next generation mainstream consumers may use Internet services to purchase movie or watch movie through P2P network on the TV as it’s more convenient. It’s vertical value chain affects many stakeholders such as broadcasters which will pressurize business model of Tivo. its neighbour country. . bridging the PC entertainment into TV such ability to download movie from Video-On-Demand stores.(7) Tivo business model may not sustainable over the long term. (d) Change of behaviour of mainstream consumers. This is due to the following reasons: (a) Hard to penetrate into mass overseas market. (b) Emerging technologies and lower entry barrier. Apple launched its Apple TV which makes use of its ITUNES to download and play movies at affordable price of $5 per movie. The video-on-demand concept is diminishing the needs for users to record video directly from cable TV as now they can directly buy the movie at lower cost.

the broadcasters have little interest to work with Tivo. Therefore. Its adoption of advertisement-avoidance technology in its DVR has caused a conflict of interest with its stakeholders. Tivo needs to seek out for partnerships with the major broadcasters. . the free bundled box by broadcasters makes the DVR market extreme difficulty to enter.(8) Tivo has failed to cross the chasm due to its lack of capability to bring the broadcasters/cable TVs together to provide mainstream video recording solutions to the mass majority. To penetrate into the mass market. abandon its advertisement-avoidance technology which causes a conflict of interest with the broadcasters and advertisers and fully capitalize on its proprietary technology in providing value added software applications in DVR which will enhance the values for all its stakeholders by increasing the number audiences. Tivo is hardly able to compete with zero cost product without charging extremely for its subscription fees which deters it from penetrating the mass market. Secondly. This causes complexity in the installation of cable cards from different cable TV and the mass majority are concern of the successful installation of DVR box.

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