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TiVo Inc. (TIVO - Analyst Report) recently announced that it is expanding its partnership with ONO, the largest cable operator and a premier provider of broadband communication and entertainment services in Spain. Under the terms of the extended agreement, TiVo will now provide its services to ONO’s customers in Valencia.

To date, TiVo’s services were solely available to ONO’s subscribers in Madrid and Barcelona. The extended partnership will allow ONO subscribers to access high-definition (HD) and 3D video content along with digital video recording (DVR) services from TiVo. We believe that the extended availability of TiVo services will boost subscriber growth going forward.

Most recently, TiVo also entered into a partnership with Pace, a leading developer of technologies and services for the broadcast and broadband industries. Per the agreement, Pace will install TiVo’s software in its set-top boxes and gateways. We believe that the partnership will enable TiVo to expand its services in the U.K. and France, as well as in the emerging markets of China and India, where Pace has a strong presence.

Over the last couple of years, TiVo has been relying on partnerships and strategic alliances to drive subscriber growth. TiVo has a number of partnerships with major companies including Comcast Corp. (CMCSA - Analyst Report), Charter Communications, RCN, and Suddenlink. TiVo also expanded its services globally through partnerships with ONO, Virgin Media Inc. and Canal Digital (in Scandinavia).

These partnerships have helped TiVo to post strong fourth quarter subscriber growth. Net subscription additions for the quarter were 234,000 compared with 223,000 subscription losses in the year-ago quarter.  The solid subscriber growth enabled TiVo to report earnings of 6 cents per share, much better than the Zacks Consensus Estimate of a loss of 25 cents, as well as the year-ago quarter loss of 30 cents. For further details please see TiVo Sees Profit on More Users.

Besides subscriber additions from these partnerships, TiVo is also benefiting from back-to-back legal settlements with AT&T Inc. (T - Analyst Report), DISH Network (DISH - Analyst Report) and EchoStar Corp. (SATS - Snapshot Report). We believe that the out-of-court settlements recognize the value of TiVo’s intellectual property and provide incentive for companies to enter into commercial arrangements with TiVo.

We believe that in addition to the immediate cash payoff, the legal wins also open up major new markets and licensing opportunities for TiVo. Recently, TiVo entered into a licensing agreement with AT&T AdWorks LLC, a division of AT&T. The agreement is expected to improve TiVo’s rating service offerings going forward.

Moreover, the settlements are expected to lower litigation expenses that TiVo incurs every quarter owing to its ongoing patent disputes.

We remain optimistic about TiVo’s long-term growth potential due to new partnerships, product launches and international expansion. However, pending patent litigation issues, rising subscription acquisition costs and higher R&D expenses are expected to impact TiVo’s profitability over the next few quarters.

Thus, we have a Neutral recommendation on TiVo over the long term (6-12 months). Currently, TiVo has a Zacks #3 Rank, which implies a Hold rating for the short term (1-3 months).

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