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Dad did you fight in the TiVo – Dish – EchoStar war? And who won?

As we reached rather gloatingly to write up the TiVo win at Dish and EchoStar, a settlement of $500 million in current and future licensing fees, we

By PETER WHITE

Published: 5 May, 2011

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As we reached rather gloatingly to write up the TiVo win at Dish and EchoStar, a settlement of $500 million in current and future licensing fees, we wondered if US investors had seen the error of their ways and gone out and bought a ton of TiVo shares. No such thing has happened.

Instead the share price slid slightly – almost as if interested investors were saying, “Yeah we knew that,” and yawned and plowed into other stocks. There were, of course, warning signs that such a settlement may happen. TiVo already had a spike in late April, when it added 20% to its share price on the news that a court had confirmed at least part of its patent infringement cash haul, along with the conclusion that Dish had infringed its Time Warp patent. The other half of the equation – did the subsequent Dish workaround still infringe? - well that would have to go to trial again. But this hike didn’t put TiVo’s value anywhere near that it once enjoyed, back when it was thought that TiVo was only going to get $200 million and before the “en banc” review of the trial was ordered, and yet TiVo is at least $300 million richer today. Go figure.

That was almost exactly a year ago and TiVo stock traded at over $18, compared to today’s $11, which would give it a value of around $2 billion, compared to its $1.1 billion today. Instead all the money went into giving Dish Network a 20% share hike, adding $1.8 billion to the value of Dish Networks, more than three times the entire settlement cost. This we will deal with in another article, because it is made up from good results, the settlement with TiVo, the purchase of Blockbuster and the appearance of a strategy that incorporates the UHF and MSS spectrum it owns or is pursuing.

Charlie Ergen, Dish CEO, joked that he wasn’t sure which would happen first – US forces finding Osama Bin Laden or TiVo settling its suit with Dish Networks and EchoStar. It is true that the TiVo –Dish battle HAS made headlines in the pay TV industry for around 7 years, almost, but not quite, as long as the chase for Bin Laden.

This is one subject where Faultline has always felt strongly that the outcome had to be a win for TiVo, and although Ergen painted the Appeal court decision that its DVR workaround software would need to be considered in an extra trial, as his own kind of victory, this was no doubt a big day for TiVo – except, it turns out, with investors.

At Faultline we have been consistent on the subject of TiVo since 2004 when it first filed suit with EchoStar and Dish. Back then the suit was more than a little “convenient” in that it targeted a direct rival to DirecTV, the company that first took the TiVo concept to market as a pay TV operator, and which for a few years back then provided TiVo with close to 75% of its revenue.

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