TiVo Quietly Settles Gift Certificate Class Action

December 18th, 2006 Davis

I was thumbing through TiVo’s recent quarterly report this morning and came across an interesting TiVo tidbit that management quietely neglected to mention on their last conference call. Apparently, this November TiVo entered into a settlement agreement over a class action lawsuit that was filed late last year relating to expirations on their gift certificates.

Normally, I’m a pretty big TiVo proponent, but this was one TiVo case, where I really felt like they were in wrong. Every state has a different set of rules, but in the Golden State, you’re not allowed to put an expiration date on a gift certificate, except in very rare instances. This is largely because gift certificates are typically purchased with cash and it’s not fair for a consumer to lose out on a service just because they didn’t move quickly enough or because they received the gift on a later date. When it comes to rebates, coupons and other discounts anything goes, but once a consumer has purchased a gift certificate, it’s good for life as far as California is concerned.

This creates problems of course, particularly if companies want to wipe off liabilities off their books or if a gift certificate is for a service you no longer provide, like lifetime subscriptions.

While I can’t remember all of the details that led to this case, I do remember that from the start of it, TiVo refused to recognize any wrong doing. When TiVo was challenged over the the practices, they did modified the terms and conditions on the agreement, but it wasn’t enough to stop the class action and in December 2005, they faced a class action lawsuit over the policy.

In the end, it looks like they were able to come to an agreement, but TiVo will end up paying approximately $120,000 to settle the charges of wrong doing and to dismiss the class action before it turns into a bigger headache. From their 10Q filing,

“Consumer Litigation . On December 22, 2005, a consumer class action lawsuit against TiVo Inc. was filed in the Superior Court of the State of California, County of San Francisco. This action, which is captioned Nolz, et al. v. TiVo , was brought on behalf of a purported class of purchasers of the Company’s gift subscriptions which were allegedly sold to consumers in violation of a California law that restricts the sale of gift certificates in California containing an expiration date. In November 2006, the Company entered into a settlement agreement with the plaintiffs which is expected to result in dismissal of the action in the Company’s first quarter of fiscal year 2008. The Company has accrued $120,000 in settlement costs, which is located on the balance sheet under accrued liabilities.”

I don’t fully understand why a lawsuit ever had to proceed this far to begin with, but I am happy that TiVo was able to bring resolution to this matter. Consumers have enough to worry about dealing with the cable and satellite companies, they don’t need TiVo trying any shenanigans too. The gift certificate laws are put into place to protect consumers from all of the fine print that accompanies the various rebate schemes that we have to deal with and if TiVo wants to sell gift cards in California, they need to play by the same rules as every other business in the state.

Posted in Disclosure - I own stock in co. mentioned, TiVo | 1 Comment »

Night Swimming

December 18th, 2006 Davis

Because The Night Hosted on Zooomr

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Blockbuster Denies Taiwanese Rumor

December 18th, 2006 Davis

Dow Jones newswire had a quick snipet on Blockbuster today, that quoted a company spokesperson as denying reports that Blockbuster has sold off it’s 128 Taiwanese outlets to Webs-tv.net for $15 million. The spokesperson acknowledges that Blockbuster has submitted a proposal to Taiwan’s Fair Trade Commission to review a potential deal, but notes that “We currently maintain ownership . . . of those stores.”

When speculation on the Taiwanese deal first broke, the market had a very robust response to the news. The timing of the rumor also happened to coincide with news of a $1 million stock purchase by Blockbuster CEO John Antioco. With Blockbuster’s stock price having taken an absolute beating over the last few years, I can understand why value investors might be willing to take a gamble on the company, but the excitement over Antioco’s purchase and the potential Taiwanese transaction seemed like a misplaced catalyst to me.

It’s true that Antioco dipped into his own bank account to purchase his $1 million shares on the open market, but that’s a small pittance compared to the $5 million in stock that he pocketed from Dec. 04′ - Dec. 05′. It’s also true that by selling their Taiwanese units, Blockbuster could get rid of an under performing asset in their portfolio and clean up their balance sheet a little bit, but it’s never been likely that the Taiwanese unit would sell for very much and today’s rumored $15 million price tag clearly surprised the market. Even if Blockbuster could squeeze out a couple million more at the negotiation table, any money raised from the sale would likely be collateralized anyway and would need to go towards paying down their debt.

While initially, Blockbuster tried to talk up the potential Webs-TV deal, with Wall St traders smelling blood in the water over rumors of how insignificant this deal may end up turning out, the company had no choice but to come out and publically deny that they’ve consumated a deal at a $15 million price tag.

With Blockbuster facing on going losses an their international stores, they may be playing a dangerous game of Deal or No Deal, with Webs-TV in the starring the role of the banker. As losses continue to build up, it will be interesting to see if the banker ends up agreeing to pay more for their 128 stores or if Webs-TV might actually lower their offering price, if Blockbuster decides to drag their feet. At the end of the day, it’s looking increasingly likely that Blockbuster will have no choice, but to exit Taiwan and while $15 million for 128 stores means that they’d only value each store at around $117,000, it’s still better then just closing their stores, like they had to do when they left Spain.

Whether Blockbuster ends up with a briefcase full of cash or a briefcase full of regionally coded DVDs will likely depend upon their ability to execute on improving efficiencies at the Taiwanese stores. If they continue to lose money, at some point they’ll be forced to get out at rock bottom prices, but if they can turn around their sagging international performance, then they may end up being able to squeeze the banker for more then $15 million to complete this deal.

Posted in Movies, DVDs | No Comments »

Tis The Season For A Snowball Fight

December 17th, 2006 Davis

Posted in Video Games | 2 Comments »

Sony, Wii Have A Problem

December 17th, 2006 Davis

It’s looking less and less like a Merry Christmas for Sony Executives. After suffering from shortfalls on their PS3 and being caught red handed trying to pull off a flog, they now have to worry about an upcoming price war with the Nintendo Wii. Already the Wii has proved to be popular beyond anybody’s expectations, but a price cut would be a knife to the heart for Sony’s PS3 plans. It’s unique game control has made it the must have gift of the season and already it’s next to impossible to find.

You’d think with all that buzz and a lower price point to begin with, that Nintendo would be happy to enjoy the lead they’ve taken on the PS3, but if you believe the rumors circulating amoung the blogosphere, Nintendo has more heartburn in store for the other consoles. In a move that neither the Xbox 360, nor the PS3 could match, Nintendo is rumored to be considering a price decrease on their Nintendo Wii starting in spring 2007. They are also expected to unveil Wii’s in various colors as well.

If this turns out to be true, it’d be terrible news for the PS3. At $600 a pop, the PS3 is the most expensive console ever launched and while it’s already proven to be popular with the hardcore gamers, it doesn’t offer much appeal to the non-core gamer who wants a more interactive experience. To make matters worse, if you compare the graphics on the PS3, you’ll find that it doesn’t offer a significant advantage over the Xbox 360, which has already been out for a year. Between the Wii’s early buzz and the expecatations that the Xbox 360 will hit 10 million consoles by the end of the year, Sony already has quite a bit of catching up to do. If it turns out that Nintendo isn’t afraid to engage in a console price war, Sony will face a tough challenge in maintaining the lead they built with their PS2.

Posted in Technology, Video Games | 7 Comments »

Know Nothing In Life But To Be Legit

December 17th, 2006 Davis

Know Nothing In Life But To Be Legit Hosted on Zooomr

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What’s It Going To Take To Get You Into This New LCD TV?

December 17th, 2006 Davis

It used to be that if you wanted to make the worst possible consumer “investment”, you’d buy a new car and drive it off the lot. While it might give you that new car smell, the first mile you drove would pretty much cost you somewhere between 20 - 30% in resell value. This hasn’t really changed all that much, but there does seem to be at least one consumer purchase that’s turned out to be an even worse investment then a new car. The big screen TV.

Pretty much the minute you buy a new TV it starts to depreciate and it looks like 2007 isn’t going to put a stop to this trend. According to research firms DisplaySearch, iSuppli and Displaybank, they expect prices to continue to fall somewhere between 30 - 40% next year.

It seems like just a few years ago we were arguing about which was better the LCD or the Plasma, but with prices on the LCD’s continuing to fall to basement levels and with screen sizes continuing to increase, it appears that the market has found a clear winner with the LCD for this format war.

Analyst’s are now predicting that the 70 inch flat screen LCD may become the norm in the near future and with more price cuts in store, consumers may be better off by waiting to make their next big screen TV purchase for these new price points to emerge.

A few years back, I purchased a 60″ Sony Wega for my own entertainment needs and while the set itself has provided an enormous amount of pleasure, if I would have waited just 2 years, it would have knocked $1,400 off of my purchase price. With the resell value on my TV being about half of what I paid for it, I’ve lost about 25% a year on my entertainment investment. This isn’t to suggest that I have any regrets, nor is it to suggest that you approach an entertainment purchase in the same way that you would an investment purchase, but it is worth considering before you plop down a couple grand on the centerpiece of your home theater system. I’ve gotten a lot of use out of my TV and I still love it, but you can bet that as soon as the new 70″ flat screen LCDs become affordable that I’ll be selling my Wega on Craigslist and looking to trade up for a larger flat screen.

To a certain extent, it does sting a little bit to think of how much I’ve blown on a television, but at the same time I’m thrilled to see prices continue to fall. The more affordable these TVs become, the more that we’ll see advancements in HDTV technology. While the price cuts may impact the resell value of my own TV, I’m happy to see consumers benefit from the price competition and the efficiencies that are continuing to work themselves through the home entertainment market.

Posted in Technology, Movies, TV | 1 Comment »

Nearly Half Of All Consumers Not Interested In Downloading

December 17th, 2006 Davis

ABI Research conducted an interesting study on current attitudes towards digital downloading and found out that 48% of all consumers say that they would never pay money to download a film.

In many ways this study is a little surprising and in many ways it’s not. 48% is a pretty high number to say the least and with just about everyone planning on unveiling their own digital download service, many companies may be in for a bit of a shock when they find out that consumers really aren’t demanding these services yet.

On the other hand, there could be hope if the studios get their acts together and offer a more compelling downloading product. I think that part of why this number is so high is in large part because of how weaksauce the current downloading systems are. First they give you limited selection, then they make you pay almost as much as a DVD, just to rent a downloaded film and finally they make it a royal pain in the neck if you want to watch it on your TV set. Oh and to top it all, for doing the right thing and buying your movie instead of stealing it off the bit torrent networks, you get a large heaping dose of DRM with your file. No wonder half of the population isn’t interested in this.

While the report didn’t give the percentage, I wonder what it would have been if they asked about downloading music instead. In the music industry there is plenty of variety, 99 cents is a reasonable price to pay, you can buy unprotected mp3s at places like emusic and you’re allowed to put them on you mp3 players, your laptop, I can even get my music onto my cell phone.

When I see things like Walmart’s latest scheme, where you not only pay to buy your DVD, but then they make you pay again if you want to download the film on top of it, I say no way. It’s simply not worth the extra $2 for me to wait 6 hours to download some film when all I have to do is pop that same DVD into my laptop.

What the content owners don’t realize is that they really aren’t competing with DVDs when it comes to digital downloads, they are competing with the Pirate Bay. Instead of penalizing consumers for buying their product, they should be offering DRM free products at a reasonable price. If they would open up their complete archives for downloading at $3 per movie, they’d be able to compete with the pirates, but at $9.99 for a DRM file, they’ll continue to see leakage to the darknet.

While I don’t condone piracy, I do believe that consumers should have more control over their entertainment choices. Looking back, had it not been for Napster, we never would have seen pay music services take off, yet here we are seven years later and we still haven’t seen a viable movie download service come to market. If the studios want to keep dragging their heels then that’s their right, but with consumers now creating their own content and with fragmentation spreading throughout our culture, the six studios who’ve controlled what we watch, when we watch and how we watch it are quickly losing control. If the studios want to convince that other half of the population to join in on the digital revolution, then they need to offer a more compelling solution to their customers.

Posted in Movies, Media, VOD, DVDs, DRM | 1 Comment »

Boyz In The Hood

December 16th, 2006 Davis

Warning NSFW

Posted in VOD | 1 Comment »

DVD Play Fast Forwards Into Arizona

December 16th, 2006 Davis

DVD Play is the oldest of the DVD kiosk providers, but also one of the smallest. While the company doesn’t have nearly as many kiosks as Redbox or TNR Entertainment, they do have an important agreement with Safeway to provide DVD rental machines to their stores. According to their website, the company currently has approximately 170 machines, mostly at Safeway locations. All but one of these machines are located in California.

DVD Play’s system is set up very much like the other DVD kiosk players, except they use smaller machines and charge more for their rentals. Their machines only hold 500 discs and they typically offer between 25 - 50 movie choices at any given time. Recently, I asked the Safeway manager near my house about how popular the machines were and he estimates that they rent about 20 DVDs per day from his location. Because the DVDs are $1.50 for the rental and $1.00 for each day after, it means that they need to rent less to be profitable. If DVD Play demonstrates success at these price points, it will be a good test case in how elastic DVD rentals are, once you increase the price over the $1 per night.

One thing that was clear from my conversation with the Safeway manager was that he was really happy to have the machines in his store, regardless of the number of rentals that they achieve. He felt like it added to customer satisfaction and that it gave the store something that they haven’t been able to offer before. In a news article from the Payson Roundup, he’s clearly not the only manager who feels this way. In the article they reveal that DVD Play has started their expansion outside of California and is now rolling out kiosks in Northern Arizona and they also discuss some of the less tangible benefits that Safeway is seeing as a result of this rollout.

“We don’t own or service the kiosk,” said Dan Dillon, Safeway store manager. “We have a contract with the company that does own it, but we’re glad to have it. This is just one more convenience for our customers. People can pick up their prescription, grab some flowers, get a coffee at Starbucks, and then a movie — all in the same ten minutes.”

When looking at the DVD kiosk market, there are really two different customers that need to be served. There is the consumer, who ultimately rents the DVD, but then there is also the retailer who is providing the floor space for the machines. In watching the growth of this industry it’s become clear that retailers like these machines even more then the customers do. Renting DVDs can be a real pain for a grocery store. It takes staff, inventory systems and precious floor space. On the other hand, putting a DVD kiosk near the exit of a store barely takes up any floor space, needs little servicing and has it’s own automated inventory system built in.

Recently, DVD Play hired Dennis Lucas as an Executive Vice President. Lucas was a brillant acquistion for the company and previously had spent most of his career working his way up the corporate ladder of the Albertson’s organization. Just like Netflix depends upon the postal system to act as a distribution partner, the kiosk companies use grocery stores to act as theirs. With Lucas’ extensive background in the grocery industry, he brings skills that will prove invaluable in how DVD Play is able to better serve their grocery partners and demonstrate these less tangible benefits. I see hiring Lucas as being akin to when Netflix hired the former postmaster general to act as their liaison to the post office. While it’s still early for Lucas at the company, I have high expectations for what he can bring to the operational side of DVD Play’s business, as well as to the negotiation table.

DVD Play’s expansion into Arizona makes a lot of sense from a geographical standpoint and could represent a real turning point for the company. DVD Play was founded in 1999 and while they’ve seen slow but steady growth, it’s been anything but explosive. While the company may have gotten off to a slow start, more recently things have been progressing quite nicely for them. At the end of 2004, things looked pretty bleak, but in 2005 the company saw a 200% growth increase and by the end of 05′ they had rented over 4 million DVDs. In 2006, growth has continued to accelerate and they added another 1 million DVDs to this total in the first six months of this year alone. This works out to be an average of approximately 32 DVDs rented a day from their machines.

With the pickup in volume, DVD Play conducted a second round of VC financing and raised another $20 million to help fund further expansion. This brought the total capital that they company has raised to $40 million.

The company plans to use this capital to expand into 1,000 locations by the end of 2007 and has previously said that they would target California, Texas and Florida as ideal locations for this growth.

While DVD Play may have gotten off to a slow start, their recent success and their expansion into Arizona is another clear signal that the DVD kiosk industry is strong, healthy and growing. While I don’t fully understand why it has taken consumers so long to embrace this technology, it’s clear that consumer habits are changing and that more and more businesses and people are becoming comfortable with using kiosks. As video stores continue to come under pressure from a variety of competition, the DVD kiosk will serve an important role in capturing customers who still want instant gratification, at a fraction of the cost of operating a full scale retail store.

Posted in Technology, DVDs, Kiosks, Disclosure - I own stock in co. mentioned, Netflix | No Comments »