Please see update at the end of this article…

You’ve probably seen these deals from time to time, if you’re a serious bargain sniper online. Brief periods where the latest-and-greatest TiVo is sold, typically from an obscure-but-reptuable retailer, for an insanely-low price like $99.

I finally was able to lock in the purchase on one, a TiVo HD Premier for just $99. To compare, the standard retail price is $299. So, what’s going on here? I’m going to argue TiVo not only knows, but is totally happy and encouraging this practice.

TiVo said long ago that they were transitioning to having two roles in the industry. First, a cell phone-like contract model, as well as an embedded model to sell TiVo integration with HDTV manufacturers. TiVo has succeeded on the first front, and struggled on the second. Licensing TiVo firmware to third-parties failed in the DVD Recorder era, with those boxes winding up being coveted for their subscription-free rates, as well as the ability to do more than TiVo’s own boxes (primarily, their ability to burn unencrypted DVD Video discs of recordings, even recordings transferred from other TiVo units in a house).

Odds are, if you have a TiVo HD already, it is already out of, or close to the end of its contract. TiVo doesn’t have many HD subscribers. With only a few hundred thousand CableCARD users in the United States, most of those account for probably the vast majority of TiVo HD users. Let’s face it, very few people are using TiVo HD with ATSC (over-the-air) HD, those people have (or should have) defected to Windows 7 Media Center, and its free ATSC recording.

So, what is TiVo to do? The same thing the federal government is doing… triggering inflation.

Think about it. Customer A is a TiVo subscriber. His contract is up, but there’s no incentive for him to renew his contract (TiVo runs budgets to close to the bone to do that). Because of the economy, he’s not likely to upgrade TiVo boxes. However, Customer A sees a $99 offer for a TiVo HD Premier. He then goes onto eBay, and finds that first-gen TiVo HD boxes are selling for $99. Customer A sees it as a nearly-free upgrade, and sells his TiVo HD on eBay, and buys the $99 TiVo HD Premier box.

In case you’re wondering… I’m Customer A. But, ideally (for TiVo) so are thousands of other TiVo users.

Enter Customer B. Customer B can’t afford a TiVo HD at retail. He/she (I’m just going to use she to make this simple) would like a TiVo, and is willing to pay the $14.99/month service fee, but can’t afford the box. She then goes on eBay, and finds a ton of TiVo HD units selling for $80 to $100. She sees this as a great deal, and buys a TiVo HD. Ideally, she’s smart enough to also add on a SquareTrade plan, in case the TiVo’s hard drive fails three months after purchase.

Now, TiVo wins big time here, as does Customer A and B. The producer surplus is a big win for TiVo, because they just picked up a new subscriber at the $14.99/month near-pure profit. TiVo also didn’t have to subsidize a box for Customer B. All TiVo had to do was give Customer A a brand new TiVo HD Premier at-cost.

Best of all, these releases are so brief that TiVo doesn’t have to worry about customers being gunshy of buying a TiVo HD Premier at $299. These sales are so short, that the average joe will not even hear about them, let alone anxiously hit reload on sites that provide news on deals (ahem).

So, TiVo gets to play a fun game of price discrimination, meanwhile I get a shiny new TiVo with better features. And, someone else gets to enjoy paying $14.99/month to TiVo forever. Full disclosure: I threatened to cancel TiVo and bargained my way down to paying only about $9.99/month… no, I didn’t tell them who I was or what I do to get it.

Update: Hours after this post, TiVo dramatically changed their terms of service, making much of this article obsolete. See the following blog post to recap.