Xperi nabs first TiVo OS smart TV customer, bumps up deployment to mid-2023

As Xperi prepares to separate out its IP and product businesses later this year, executives spent time during quarterly earnings this week to discuss plans for the TiVo smart TV operating system, announcing the company snagged its first customer in Q2 and is now on an accelerated timeline.

Executives didn’t name the customer during Monday’s quarterly earnings call, but CEO Jon Kirchner disclosed it’s a leading Tier 2 smart TV OEM that makes TVs under multiple brands and is focused outside of North America.  Xperi originally expected the first smart TVs running TiVo OS in late 2023 or 2024, but now that has been bumped up slightly to mid-2023, according to Kirchner.

More details are expected this fall.

Securing its first customer for a smart TV powered by embedded TiVo OS and media platform validates “our OS strategy with this landmark win,” said Kirchner on the call.

It also reflects underlying early progress toward Xperi’s goal of becoming a leading independent TV OS platform supplier, he added.

Within the product business the TiVo smart TV OS falls under Xperi’s media platform category, which Kirchner said “is expected to drive the greatest revenue growth for us over the next several years.” 

The strategy is not just for smart TVs though, as Xperi aims to serve large target markets, smart TV, pay TV and the automotive industry automotive where partners want an independent media platform.

Currently the media platform category, which includes TiVo Stream 4K, TiVo OS, monetization and TV viewership data, only represents 4% of Xperi’s Q2 product revenues.

In the second quarter, media platform revenue was $5.5 million, down $2.5 million from Q2 2021. CFO Robert Andersen said that growth in monetization was more than offset by a contract renegotiation for Stream 4K that gave a one-time boost in last year’s second quarter.

The tier 2 market is where Xperi sees opportunity for its TiVo OS, with Kirchner pointing to the volumes of many 10s of millions of smart TV units, as well as some Tier 1s who are looking for an open-end solution. Xperi is targeting customers that want flexibility to customize their user experience, to be able to leverage various chipset providers, retain the ability to have a direct customer relationship with the end user, and participate in downstream monetization revenue long-term.

“In short, people who are looking for an OEM-branded experience powered by TiVo, not necessarily looking for a TiVo TV,” Kirchner said.

The company estimates that nearly 40% of the market is looking for an independent platform like that offered by Xperi, with a supportive industry partner that has deep domain expertise, he added. That estimate is based on work Xperi has done on the broader TV market, as well as discussions with a number of Tier 2 OEMs.

Helping to bolster its TV OS ambitions, Xperi in Q2 acquired OTT and hybrid TV software provider Vewd for $109 million, which the company expects to accelerate and scale the deployment of TiVo OS while also expanding its video-over-broadband offerings.

Notably, the Vewd buy adds key middleware technology components to Xperi’s TV technology stack, along with an installed base of approximately 15 million TVs in Europe. Kirchners said those units can be enabled for monetization over time, which he sees playing out over the next 12 to 18 months.

Both pre- and post-Vewd acquisition, discussions with OEMs continue to make meaningful progress, with very good feedback so far, he added.

“I think people are really interested in our content first agnostic platform model, where we’ve got some best-in-class, we believe, user experience and personalized content discovery capabilities, which in the end leads to longer-term greater engagement and ultimately monetization,” he commented. “So, I think we’re excited about the progress we’ve made.”

Kirchner also pointed to opportunity from AVOD with the changing landscape of TV viewing hours shifting from linear to OTT, and ad spending on CTV yet to catch up.

Looking at stats around advertising-based video on-demand (AVOD) and the next 5-7 years, Xperi and others “expect tremendous growth in advertising” in and around OTT environments.

“So I think we’re moving into a space that is large and very attractive,” Kirchner noted. “And in a way where the opportunity set for us is quite meaningful, even you capture a portion of it. But I think it really is going to come down to our value proposition.”

As Xperi plans to separate out its product and IP businesses later this year, Kirchner cited progress in the quarter “that better positions each of these businesses [IP and product] to grow and compete in the long-term as standalone entities.”

The IP licensing side of the business is called Adeia. Paul Davis is set to serve as CEO of Adeia at separation and Keith Jones was appointed as CFO earlier this month. IP revenue in Q2 was $108 million, up 6% year over year.

During the quarter the company renewed a significant long-term license agreement with a leading consumer electronics and OTT service provider, for both media and semiconductor IP portfolios. Davis said it represents underlying growth in the OTT market and Adeia’s expanding IP assets.

“It is also another proof point of the applicability and value of our IP beyond traditional pay-TV,” Davis continued.  

Earnings tidbits:

  • Xperi’s pay TV product category, representing 48% of total product revenue for the quarter, generated $60 million in revenue, down $6.8 million versus Q2 2021. While IPTV solutions saw double-digit growth in subscribers quarter over quarter, it was more than offset by a one-time meta deal that happened a year ago, along with churn from the classic TV guides business.
  • Product revenue was $126.2 million in Q2.
  • Total revenue for the quarter was $234 million, up 5% year over year.