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Minyaville Mail Bagging TiVO & GM; Plus Assorted Prickliness!

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"The Dow back to a 9-Handle? Is it okay to be afraid yet?"

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I've got unanswered e-mails stacked up in my inbox like planes over O'Hare. All e-mails are appreciated. Those which don't include vague plans to "make (me) rue the day..." are eventually answered.

But only a select few, the best of the best and those lucky enough to arrive on days when the muse is absent, make it to the mailbag. Let's jump right on in...

Jeff,



I figured I would send you an article that I happened to run across on CNET today that says roughly the same thing that I
did. It was just published today and I think is probably an important data point for your TIVO thesis, but maybe I am wrong. Again, neither I nor my employer have positions in TIVO or any cable companies but I figured it would be helpful for you.



Best regards,

Minyan JJ

MJJ,

Thanks for the note and link!

To summarize the basic gist, "Scientific-Atlantic (SFA) and Motorola (MOT) are closing the gap on TiVO's products. Generics, while arguably not as good as TiVO in many ways, are good enough when given to customers by MSOs. TiVO loses in two ways, one, by guys like the CNet dude who pitch their free-standing TiVO's in favor of the easier generics. Second, by SFA and MOT designing TiVO out of the equation."

There are a few reasons that I don't think this is a particular problem for TiVO. Let's just go bullets with the logic:

  • There is broad misunderstanding of what DirecTV (DTV) has been doing with TiVO, in terms of promotion and roll-out. In short, DTV has been doing just about nothing for TiVO. Pricing HD TiVOs at $1,000 is DTV's call, not TiVO's. Standing still with the features of the DirecTiVO product is also DTV's decision.

The CNet column misses the point that the MSOs don't actually enjoy giving away set-top boxes. It's a very expensive way to go about getting customers. TiVO has penetrated over 10% of DTV's customer base with DTV having never given the product away. They have sold at a faster rate than MSO customers have been willing to take free generics.

  • The larger point of the TiVO thesis is based on the notion that the DBS and MSO guys are going to be needing some outside help. Customer acquisition costs are high. Growth is scarce ($3,400 per Adelphia customer??!). Margins are getting squeezed.

As the year progresses I think more of these companies will reach the the same conclusion as Comcast (CMCSK)... "We need to give customers what they want... not approximations of what they want."

Cable needs customers to migrate to digital. They need to be able to sell the notion of a pending migration to digital to make their models work, leverage wise. "We're going to be stuffing free DVRs into all our markets!" isn't the answer.

Minyan TM writes:

Hi,

I don't know if you listened to the GM conference call but the dividend talk is just a negotiating tactic with the UAW. GM is threatening to use OPEB money to fund operations. That would mean GM would be paying dividends from the workers healthcare fund. This is in order to get concessions on healthcare from the union. This is a high stakes game of chicken. I'm not sure I have confidence in GM's negotiating tactics, especially after the Fiat disaster, but this seems like a smart move. The problem I see is that GM is focused on cutting costs but their product strategy is cr(ud). I agree this a slow motion train wreck but the dividend talk is a negotiating ploy.

TM

MTM,

I actually agree that it's a negotiating ploy. In fact, "Empty negotiating ploy" was probably a better explanation than "Bunkered down and crazy" all along.

I just think it's a silly ploy. "Hostile distrust", it seems to me, has been the SOP for union negotiations in Detroit ever since the Feds made Henry Ford put away the billy clubs. The idea could be to drag this sucker down to the dregs, sign the contract then unleash a beast of monster profits but that's not exactly going to save the company, long term.

If you want to send a signal of distress and commitment to saving GM you do real things that change the game for the long haul. Shaking the union tree doesn't advance the ball, neither in terms of the message it sends (as a bluff) nor as an actual statement of intent (read: "non-bluff").

I'm talking myself back into thinking the execs are out of touch, deep in an underground lair.

Minyan MV writes:

Hey Jeff,


Wondering if you have any feel on Whirlpool (WHR). I'm thinking it will keep getting dogged by higher steel prices and gross margins should suffer as a result. I was short last week and covered....thinking about rolling into some 60 puts for a punt.

MMV,

I haven't been involved in the machine guys for a while now but I hung there on the short side for a good deal of the latter stages of my hedgie life.

From my work then I can offer that Whirlpool, while faced with everything you list above, is by far the best player in the game. Maytag (MYG) is... not the best player in the game but you've got buyout risk.

I operate with the idea that the Top Guns are harder shorts, even in lousy industries. For whatever it's worth, and from what I've seen today, from research catalyzed by your note, the industry hasn't changed in terms of the quality of the players. Since I'm worried about the buy-out on the worst player (MYG) and the best (WHR) is down sharp of late, I'm inclined to look elsewhere.

Million Dollar Baby, Indeed

If you want to watch a corking good story commercial free AND, as a bonus, understand why hardcore boxing fans generally found Million Dollar Baby sort of silly, be sure to check out "Ring of Fire: The Emille Griffith Story" tonight on USA.

When you see the tragic post-ring lives of so many of the great boxers it becomes apparent that Clint really didn't have all that much of a decision to make.

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