AT&T Owes TiVo a Lot of Money for Patent Infringement

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TIVOMessing with TiVo's (TIVO) patents is a losing proposition for rival distributors of digital video recorders, as AT&T (T) just became the most recent competitor to discover. The telecom giant has joined the crowd of those settling for past indiscretions and ironing out a licensing agreement going forward.

AT&T will pay TiVo $51 million right away, only to continue shelling out a total of $164 million over the next six years and change. If the number of customers using DVRs through AT&T's U-verse service exceed certain levels, the total tab may exceed the minimum $215 million.

This isn't the first time TiVo has struck a nine-figure settlement with a company that figured it could get in the way of copying many of TiVo's patented DVR features on its own devices. DISH Network (DISH) agreed to a $500 million settlement after years of legal fisticuffs back in May.

FiOS parent Verizon (VZ) may be next, but the company is already working on technology that would do away with all set-top boxes and DVRs in favor of a single server. However, it doesn't mean Verizon won't be liable for what it has done over the past few years.

Thumbs-up for TiVo

Armed with legal victories against two of its biggest offenders and playing nice with nearly everyone else, TiVo's been posting upbeat news lately.

The DVR pioneer added 117,000 net subscribers in its latest quarter. This may not seem like much, but this was the first time in four years that TiVo came through with net sequential additions during a three-month period.

TiVo continues to lose money, having posted deficits 12 quarters in a row, but the steady trickle of future licensing royalty payments should help clean that up in the future.

Video Killed the DVR Star

Now isn't a time for TiVo to get comfortable or cocky. Everyone is starting to pay up for trampling on TiVo's intellectual capital, but one still has to wonder how much longer the DVR will be a necessary appliance.

Sure, cable providers and satellite television companies love to push DVRs as costly accessories. Couch potatoes don't want to miss their favorite shows! However, the growing popularity of streaming across a growing variety of Web-tethered devices is making it less necessary to program what is essentially a digital VCR.

There's a reason why TiVo now has just a little more than 2 million subscribers, even with several service providers now offering TiVo gear. Between cable companies offering a wider gamut of current shows that can be streamed on-demand and the popularity of Hulu and network websites reaching out directly to fans for episodes streams, DVRs aren't as necessary as they used to be.

When's the last time you set your DVR to record something? For now, the fact that many people are still using DVRs will serve TiVo well on its own and through its growing number of licensing arrangements. However, sooner or later, TiVo will have to come to grips with either jaded audiences that no longer care about television or technology that makes the accessibility of fresh content available on the viewer's terms.

Longtime Fool contributor Rick Munarriz does not own shares in any stocks in this article.


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