Tuesday, March 15, 2005 - The Progress & Freedom Foundation Blog

Tivo, Comcast, Modularity and Producer Surplus

Tivo benefited today from its announced long-term deal to provide DVRs to Comcast. It is really a digital age morality tale. Recall, a Comcast-Tivo deal had been on the table last summer (NYT reg. required), but Comcast walked away when Tivo's demands proved too rich.

In other words, Tivo miscalculated its value and its substitutability in the market -- and its stock price plummeted. Consumers want an integrated video/DVR product and Tivo doesn't have the cache of, say, the iPod to demand a bulk of the producer surplus. To its credit, though, Tivo did not do what a more cynical player would do: go to the regulator to ask Comcast to "unbundle" the DVR from the programming service, or ask Senator McCain to hold hearings about how DVRs should be offered "a la carte."

Instead, Tivo and Comcast worked out a market deal, and now consumers will have the option of Tivo and Comcast bundled together, or Comcast and a cheaper Motorola-made DVR.

posted by Ray Gifford @ 3:19 PM | Net Neutrality