"The fact that a company spent a zillion dollar of cash five years ago isn't nearly as important as the expected rate of return on that investment from TODAY going forward."
I agree wholeheartedly. But you are seeming to indicate that TiVo already has a proven return on their investment already. Since they don't, I still view the investment with some measure of skepticism.
"Furthermore, the statement that it is nothing more than a $30M debt is very misleading and stupid as this is a non-cash ASSET...i.e. it doesn't require repayment in the future. Should the revenues not flow from this investment, the Company eventually takes a non-cash writedown of this asset....which would reduce shareholder equity (an accounting convention) but have ZERO EFFECT on CASHFLOWS."
I was speaking of debt in the literal sense, not the accounting sense. if I spend $10MM to build a new building for my business, whether I borrowed from the bank or spent the money out of my own pocket, it's still a debt. I either owe this money back to the bank or I owe it back to myself. If I never recover the funds to pay the debt back to myself, that's fine, I can write it off, as you suggest. I also agree that it has no affect on cash flows if it doesn't return anything. If I started with nothing and ended up with nothing, but spent $30MM, I'd say that's a bad thing, wouldn't you? I know the rest of TiVo shareholders sure would.
"So investment in future cash flow is bad? I'm not sure I understand that. Besides, as valuationguy points it, it's past cash flow. You're arguing accounting as if it's just being moved around, but actual money was spent and is now generating cash, right? That's not just moving $$ around."
No. The investment itself is not inherently bad. Investment in potential cash flow that never returns what you invested plus a profit is bad. If it returns, that's great. But you guys are acting as if it's a foregone conclusion that it will, when so far, the only real success TiVo has had in this area is Virgin, and that relationship is still VERY new. At one point in time, DirectTV was a huge success as well, but look what happened there.
"The $$$ we're talking about is also not to "try" to bring future cash as if they are building something and taking a huge risk (like making a new product to sell), it's tied to service contracts with terms and guarantees."
Wrong. Each of these is essentially a "new product to sell". For example, how many millions of dollars did TiVo spend on developing the soft-TiVo for Comcast? And how much revenue have they seen from all of this development work? There is nothing like the "divide by zero error" to really kill an investment return, is there?
Even the pure-play "here is our TiVo box for you to sell through to your customers" requires some level of integration testing and work on TiVo's part for each MSO they sign up, albeit less than the Comcast debacle.
"There are undoubtedly assumptions in the contract terms with these MSOs, but I seriously doubt the risk is very high that the costs won't be recovered...and generate substantial positive cash flow (and profit)."
There you go again, assuming nothing could possibly go wrong. After all, TiVo has been very clear about how much it is spending on these development efforts and how they are recovering and accounting for these costs from their efforts with each MSO. Oh wait, no they haven't. In fact, even those of us that have been following them as closely as we have for so long can't figure out exactly what they are doing. Sorry, but this whole area is a big, unproven black box that TiVo is putting in front of us and asking us to invest in. And you can assume and "doubt the risk is very high" all you want, but it doesn't change the fact that you don't know that it's going to work out any more than anyone else. I just say, let's wait until more facts are in with respect to cash flow coming IN to the business instead of just assuming that it will, just because we made this lovely $30MM investment.