TiVo (TIVO) wants back in your home and the company is making great strides to get there.  Americans, and consumers around the world for that matter, are inundated with "boxes." They stack them one by one like legos underneath beautiful flat-panel screens. Currently the pay video market is fragmented to an almost unbelievable degree.  Consumers pay for cable television, Netflix (NFLX), Hulu, and other subscription services. To make matters worse, many services require different hardware.  Despite all of this, most consumers still can't stream live TV to their mobile devices.  TiVo is aiming to change this. The company wants to bring us one "box" for all services and mobile devices.

Despite pioneering “pause and playback” TV, TiVo has been a marginal player in the TV industry for many years.  The company sells its service directly to consumers who then replace their cable set-top box with TiVo.  This direct business is a large but declining portion of TiVo’s revenue.  The future, however, lies in getting the cable operators to offer TiVo enabled set-top boxes and paying TiVo subscription revenue. Cable and satellite operators appear to be calling on TiVo’s services at an increasing rate.  In 2011, TiVo had three cable operators utilizing their service.  Today, the company boasts more than 3.5 million subscribers through fifteen cable operators around the world in addition to the nearly one million consumers that subscribe to the service directly.

TiVo has settled numerous patent disputes over the last few years. These settlements have resulted in companies such as AT&T (T), DISH Network (DISH), Google (GOOG), among others paying TiVo for use of its patents. Revenue from TiVo’s licensing settlements accounted for 41% of the company’s total revenue last year. The licensing agreements have breathed new life into TiVo and given the company much needed time to reshape its core business.

TiVo is reshaping its business by actively pursuing agreements with cable providers to offer TiVo service either as a basic or premium service to its subscribers.  This year the company purchased privately-held, cloud-based search and recommendation service, Digitalsmiths Corporation.  By selling Digitalsmiths’ services directly cable operators, TiVo is developing relationships with providers around the world.  TiVo’s ultimate goal is to become the only set-top box consumers will need to access cable television, video on demand services such as Netflix, and stream live TV to any mobile device.

To be sure, there are a big challenges to TiVo’s ultimate goal. Firstly, the company’s direct to consumer business is in decline, losing about 20% per year. The rate of growth in the cable operated market is greater, but TiVo gets much less average revenue per user (ARPU) through cable subscribers. This means TiVo must sign up around seven or eight cable subscribers to recoup the revenue of one direct subscriber.  Another challenge is that some cable operators are developing their own TiVo-like devices and services.  While they may not match the level of intuitiveness that TiVo provides, they may be a cheaper alternative.  TiVo needs to quickly develop and deploy cloud based DVR service, live TV streaming to any device, and extremely intuitive search and recommendation services in order to draw in cable providers on a larger scale.

The good news is that TiVo can now afford to take the steps it needs to be more than a relevant player in the market.  The company has about $740 million of cash and short-term investments on its balance sheet and only $173 million in total debt.  This gives TiVo some fire power if it needs to make bolt-on acquisitions in order to boost its offerings.  Though it’s a long road ahead, the short-term signs are good that TiVo can accomplish its goals.  The company added 1.1 million cable subscribers last year.  TiVo’s partnership with Virgin in the U.K. has turned this into an international growth story as nearly 60% of U.K. cable households now have TiVo.  In the first quarter of fiscal 2015, ended April 30th, TiVo added another 341,000 cable subscribers as the company once again became profitable.  TiVo is expected to be profitable for the fiscal year 2015.

With TiVo in approximately 4.5 million homes globally, the company has a long runway for growth if it gets its technology and service offerings right. So far the company seems to have corrected course and be on the right track.  To be certain, owning shares of TiVo is speculative right now. However, I don’t believe that the market understands what TiVo is trying to do.  I’m tucking a small TiVo position into the speculative corner of my portfolio and hoping I can get rid of all these “boxes” under my TV.