AT&T has settled with TiVo, offering payments that will total at least $215 million, and potentially much more, in exchange for a mutual patent licensing deal. TiVo will receive $51 million up front, followed by recurring quarterly payments guaranteed through June 2018, for a total minimum payment of $215 million. In addition to these minimum payments, AT&T will pay recurring per-subscriber monthly license fees should the level of U-Verse subscribers exceed“certain levels”. Just what those levels are wasn’t revealed in the press release, but TiVo apparently expects the total payments to“significantly exceed” the minimums. In this case what’s good for AT&T is good for TiVo – the more subscribers they get, the more TiVo makes.

The Form 8-K TiVo filed with the SEC regarding this settlement reveals more of the details about the payments as well as the patents involved:

Under the Agreement, AT&T has agreed to pay TiVo a minimum amount of $215,000,000 (the “Payment to TiVo”) plus incremental monthly fees per DVR subscriber if the growth of AT&T’s subscriber base exceeds certain pre-determined levels. Based on currently available industry forecasts, TiVo expects that the total fees payable to it by AT&T under the Agreement will significantly exceed the guaranteed minimum Payment to TiVo. The first $51,000,000 of the Payment to TiVo is due on January 3, 2012 and the remaining amount is due to TiVo in equal installments 30 days after the end of each calendar quarter in the amount of $5 million for the first four calendar quarters and approximately $6.5 million in subsequent calendar quarters through the calendar quarter ending June 30, 2018. Any incremental additional per subscriber fees are due to TiVo on the same schedule.

Pursuant to the Agreement, TiVo granted AT&T a limited license under its advanced television patents, including the patents that TiVo had asserted against AT&T (U.S. Patent Nos. 6,233,389, 7,493,015 and 7,529,465), to make, have made, use, sell, offer to sell and import advanced television technology in connection with AT&T multichannel video programming services, including AT&T U-verse, subject to certain limitations and exclusions. AT&T granted TiVo a limited license under its advanced television patents, including the patents that AT&T had asserted against TiVo (U.S. Patent Nos. 5,809,492, 5,922,045, 6,118,976 and 6,983,478), to make, have made, use, sell, offer to sell and import advanced television technology in connection with TiVo products and services, including products and services provided to other multichannel video programming service providers, subject to certain limitations and exclusions.

We may learn more about the terms when TiVo files their Form 10-K after their fiscal year ends on January 31, 2012.

In addition to the settlement payments there is also the indirect benefit to TiVo in reducing their legal costs by no longer needing to pursue the suit. It also eliminates the distraction and allows their legal team to focus their efforts on Verizon. Speaking of Verizon, that’s where all eyes are now as they’re currently the sole remaining target for TiVo’s patent suits. With victories against EchoStar/DISH and now AT&T, it doesn’t seem unreasonable to expect Verizon to taking a serious look at their chances of victory and weighing it against the cost of a settlement. I fully expect TiVo to also be making a reinvigorated push to establish deals with the remaining US cable providers, such as Time Warner Cable, Cablevision, and Bright House Networks.

Taking a look at the top 10 US MVPDs (as of June 2011):

1. Comcast Corporation 22,525,000 – business relationship to allow VOD access to retail TiVo units, now in trials
2. DirecTV 19,433,000 – business relationship with licensing and new THR-22 DirecTiVo just released
3. Dish Network Corporation 14,056,000 – $500 million legal settlement and licensing
4. Time Warner Cable, Inc. 12,235,000 – no known agreement or licensing
5. Cox Communications, Inc. 4,838,000 – business relationship to allow VOD access to retail TiVo units, in development
6. Charter Communications, Inc. 4,413,000 – distributes TiVo directly to customers
7. Verizon Communications, Inc. 3,848,000 – ongoing patent lawsuit
8. AT&T, Inc. 3,407,000 – $215 million legal settlement and licensing
9. Cablevision Systems Corporation 3,284,000 – no known agreement or licensing
10. Bright House Networks LLC 2,139,000 – no known agreement or licensing

In addition, of course, TiVo is being distributed to customers of smaller cable MSOs Suddenlink (#11), RCN (#16), and Grande Communications (not in the top 25). Each victory, licensing deal, or business arrangement strengthens TiVo’s hand at the negotiating table. TWC, like Comcast, is large enough that they develop a lot of their technology and software in house. As such I don’t really expect them to adopt TiVo as their new platform, as Charter has. However, I would not be surprised to see them make a deal with TiVo to support VOD on retail TiVo units, just as Comcast and Cox have, in exchange for staying out of the legal crosshairs.

Verizon is more of a wildcard. They have a rocky track record when it comes to developing and releasing software updates for their FiOS STBs. And they have a small enough user base that outsourcing their software development to TiVo and benefiting from their economies of scale might benefit them. Their architecture is not all that different from Virgin Media in the UK and ONO in Spain. TiVo has already shown they can handle a hybrid cable/IPTV system with those networks, which is what FiOS is. To me that would be the ideal solution, as FiOS joining Team TiVo would increase development funding. And it is likely that they’d push the addition of features to match what they’ve implemented in house, which would benefit everyone. But they may also simply negotiate a licensing settlement like AT&T’s.

AT&T is pure IPTV and they’re using Microsoft software end-to-end. It was pretty much an impossibility that they’d adopt TiVo’s software for their STBs given the infrastructure they’re using. The licensing settlement is really the best result we could hope for in this case. Cablevision and Bright House could easily adopt TiVo as their next-generation STB platform. They’re smaller than Charter, who already has, and Suddenlink, also a TiVo user, is more than half as large as Bright House.

Oh, there is another reason I think TiVo will move more aggressively to establish deals with more MSOs on the back of this settlement: Google. More specifically Google’s pending acquisition of Motorola, the largest STB vendor for cable systems in the US, and Google TV. Back in August when I looked at the announcement, and specifically at the implications for TiVo, and then more recently in November, I stated that I full expect Google to bring the Google TV platform to Motorola STBs as a standard option.

More and more MSOs are looking at OTT (over-the-top) content to increase their competitiveness, which is a prime reason MSOs have turned to TiVo, and Google TV’s Android platform and apps would be a huge boon. Google has Sage TV to provide DVR technology and placeshifting, which also allows them to compete with EchoStar’s SlingLoaded offerings. They could build the streaming client into every Android phone and tablet sold, as well as Google+, that’s a very big stick – or carrot, depending on how you look at it. If Google’s acquisition of Motorola goes through, they will do this. I’m certain of it; it just makes too much sense.

But it will all take time, most likely a few years. The acquisition itself will take time. And then the work to port Google TV to Motorola HW and/or developing new HW to better support Google TV/Android needs to be done. Then they need to land MSO clients for the new HW/SW bundle, and get it deployed. It all takes time. And that time gives TiVo a window to expand their beachhead in the industry. Once an MSO has a significant deployment of TiVo HW and/or SW in the field they’re much less likely to walk away from that investment and adopt another platform.

I expect TiVo to redouble their efforts on the back of this victory. They may even have some deals in their back pocket to announce at CES this month. But for now they can celebrate one victory in an ongoing war.

In order to launch even more new video services, we are migrating some existing services to the SDV system which is a bi-directional platform. Unfortunately, your unidirectional retail device does not support bi-directional programming delivered over the SDV system.

Please be advised, therefore, beginning on or after June 14, 2011, Bright House Networks will deliver the following packages on the SDV system and this programming will not be available on unidirectional retail devices until further notice:

[MZ: Underlining theirs. List of 24 channels omitted here.]

If you wish to receive the above services, you may contact Bright House Networks to obtain a digital set-top box or similar bi-directional device that is capable of supporting two-way communications with the SDV system.

You may continue to use your unidirectional retail device with your Bright House Networks provided CableCARD to receive video programming other than the programming delivered on the SDV system. Bright House Networks will notify you in advance of any other programming changes.

He received a second letter dated September 6, 2011 with nearly identical content:

In order to launch even more new video services, we are migrating some existing services to the SDV system which is a bi-directional platform. Unfortunately, your unidirectional retail device does not support bi-directional programming delivered over the SDV system.

Please be advised, therefore, on or after September 12, 2011, Bright House Networks will deliver the following package on the SDV system and this programming will no longer be available on unidirectional retail devices until further notice:

[MZ: Underlining theirs. List of 24 channels omitted here.]

If you wish to continue receiving the above services, you may contact Bright House Networks to obtain a digital set-top box or similar bi-directional device that is capable of supporting two-way communications with the SDV system. If you already have a digital set-top box on another television in your home, the services will remain on the channels listed above on those sets.

You may continue to use your unidirectional retail device with your Bright House Networks provided CableCARD to receive video programming other than the programming delivered on the SDV system. Bright House Networks will notify you in advance of any other programming changes.

It sure sounds like he’s going to lose a slew of channels if he doesn’t hurry up and switch to a Bright House Networks digital STB, right? That’s how Sam read the letter, and how I would as well. That is, if we weren’t savvy to the facts. Sam has a TiVo Series3 and a TiVo HD, both with CableCARD. And the letters would be accurate in as far as a TiVo with a CableCARD cannot handle SDV. Unless it has a Tuning Adapter connected – and both of Sam’s TiVo’s do. He’s already handling SDV on this TiVos, no problem. Sam is knowledgeable about TiVo, CableCARD, SDV, and Tuning Adapters, so instead of being scared into dropping TiVo rather than lose his channels, he’s filed a complaint with the FCC about the letters being a scare tactic.

The letters don’t say a word about tuning adapters being available for CableCARD devices that support them, such as TiVo. Or that tuning adapters are available from Bright House Networks for customers to use with their devices. Maybe if you’re very generous in the reading of “similar bi-directional device”, but that’s a stretch. Other cable MSOs have sent out similar letters and clearly stated that tuning adapters are an option for users of some devices, generally explicitly naming TiVo as an example. Bright House could’ve easily done the same.

How many average consumers received these letters and thought they were faced with the choice between losing their channels or giving up TiVo, or another device that can use a TA?

But wait, Sam has CableCARDs and Tuning Adapters from Bright House. They know this, so why send him the letters at all? Or why not note that his devices using the TAs will handle the switch transparently? They have a reason, but not a very good one; they claim their computer systems aren’t sophisticated enough to distinguish between customers with CableCARDs and TAs, and customers with only CableCARDs. OK, having seen my fair share of poorly designed corporate databases in my day I’ll give them the benefit of the doubt on that. But if they know they have this issue then why not simply add the information to the letter to avoid unnecessary Fear, Uncertainty, and Doubt? Or is that the point, to use FUD to get people to switch STBs?

I know, never ascribe to malice that which is adequately explained by incompetence. But sometimes you have to wonder.

I’ve included the letters and his filing as images for your ease of viewing, click for larger versions:

Via InvestorVillage.

• Comcast: Checking their website it doesn’t look like anything has changed since last week. There are still FAQs saying that you need a professional install, but CED Magazine is reporting that they’re allowing self-installs now:
  

  “Certain markets have had limited self-install options for CableCards since about 2007,” said Comcast spokeswoman Jenni Moyer. “Beginning in early August, we’ll start rolling out a CableCard self-install program across our footprint where customers will be able to go into our sales, service or payment centers and pick up a CableCard self-install kit, go home, install it, and then call in to activate it.”

  Comcast doesn’t ship the CableCard self-install kits to customers.

• Time Warner Cable: As expected, TWC has started allowing CableCARD self-installs. They’ve even created help guides for InfiniTV, Moxi, and TiVo.
• Cox Communications: They were already allowing CableCARD self-installs before the mandate. They have an instruction sheet online.
• Charter Communications: Their website gives mixed signals. The FAQ still says professional installation, but they have a self-install page. I think they just missed updating the page:
  

  Due to the technical complexity associated with the pairing of the devices, all installations of a CableCARD MUST be completed by a Charter Technician. Self-installation of CableCARDs is NOT an option for customers and thus customers cannot pick up a CableCARD from a local office

• Verizon FiOS: As with Cox, they were already offering CableCARD self-installs. You can order your CableCARD online.
• Cablevision: They’ve also been offering CableCARD self-installs. The information is on their site.
• Bright House Networks: They allow self-installs for Road Runner broadband, which means they should be allowing CableCARD self-installs as of August 8th. But I can’t find info on self-installs on their site, and there is a page that still says they’ll be allowed soon:
  

  CableCARDs are professionally installed by Bright House Networks. The option to install a CableCARD yourself will be available in the near future.

  If anyone knows of information on their site indicating CableCARD self-installs, leave a comment.

• Suddenlink Communications: According to their CableCARD FAQ they are allowing self-installs.
• Mediacom Communications: I couldn’t find a good reference on their website, but a post on their support forum by one of their reps on Saturday indicates they are allowing users to pick up CableCARDs and do self-installs:
  

  You can pick-up or have a tech install a cable card for you for a minor fee. This would be $1.99 per month for each card.

• Insight Communications: I couldn’t find anything useful on their site. Searching their site for ‘CableCARD’ only returns four hits. It looks like they offer broadband self-installs, so they should be covered by the August 8th mandate. If you have more info, let us know in a comment.
• CableOne: Same as Insight, nothing clear from their site. It seems like they offer broadband and cable box self-installs, so they should also be covered under the August 8th mandate. Leave a comment if you have any info, thanks.
• WideOpenWest Networks: Their website still says they require a technician to install CableCARD, it is under the ‘Equipment’ section of the FAQ.
  

  Can I install a CableCARD by myself?

  No. To ensure that your installation is performed properly, a technician is required to install and activate your CableCARD. Please contact us to set up an installation appointment.

  They do seem to allow cable modem self-installs, so they should be under the mandate.

• RCN: I couldn’t find a good page on their site, but I did find a forum post on DSLReports dated July 28th, by Jason Nealis, RCN’s Sr. Director, Video Product and Video Operations:
  

  The way this will work is that a customer can receive a kit via mail or they can pick one up at a local office.

  In the Kit it will have instructions on whom to call, basically you will install the card and then go thru a IVR and have the work order closed and a hit sent to the card.

  Then you will have to call in with your pairing information and have the card paired to receive encrypted channels.

OK, I think that’s deep enough. These smaller provider’s tend to have sites that aren’t as useful when it comes to finding info, and those I’ve listed already cover the vast majority of cable customers in the US.

If you have any additional info, please leave a comment.

EDIT 8/11: Matthew Zinn, Senior Vice President of General Counsel for TiVo, today made a blog post about the new CableCARD rules which included a few useful links:

In the meantime, for additional information regarding CableCARDs and consumers’ rights visit www.fcc.gov/guides/cablecard-know-your-rights or www.fcc.gov/guides/digital-cable-compatibility-cablecards-plug-and-play.

If you have questions as to whether your cable operator is complying with the CableCARD rules, you can email the FCC at CableCARDEnf@fcc.gov or call (202) 418-1160. To file a complaint, visit www.fcc.gov/complaints.

If your cable provider isn’t following the new rules, report them to the FCC.