Is TiVo watching you?

The Privacy Foundation says the digital video recording service is misleading subscribers by gathering more information about viewing habits than meets the eye.

You're watching TV, but is someone watching you? On Monday, the Privacy Foundation released a report accusing digital video recording company TiVo of misleading subscribers. The Denver-based nonprofit group claims that TiVo's service can gather more information about its subscribers' viewing habits than the company is letting on.

The group also criticized TiVo for displaying a more explicit privacy policy online than it does with the printed materials included with the set-top boxes.

"These guys are sending a mixed message," said Richard Smith, one of the authors of the advisory. "And when they do admit it, they bury it in a legal statement that consumers don't read."

A TiVo representative responded by saying that the company does collect information about what its subscribers are viewing but that--contrary to the Privacy Foundation findings--it strips names out of the data. The TiVo representative added that the company upgraded its privacy policy in September to indicate that it would be doing so.

TiVo has plans to sell the anonymous information to networks and advertisers but has yet to do so, the representative said.

A digital-video recorder is a set-top box that can perform functions similar to those of a VCR, but instead of using a videotape, shows are stored on a hard disk drive. The set-top boxes can also perform other functions, pause live programming, and schedule the recording of future shows.

Set-top boxes that use TiVo's recording service connect via a phone line to a server to download a schedule of shows and times. The service can even suggest which shows the viewer would like based on previous selections.

It's when the boxes call the server that information about the subscriber's viewing habits are transmitted to TiVo headquarters in Alviso, California, according to the Privacy Foundation. P.J. McNealy a Gartner analyst, defended TiVo.

"No one wants to be a target of the Privacy Foundation, and TiVo certainly doesn't want to be mentioned as a company that abuses people's information. But they haven't done anything wrong," McNealy said.

After initial high expectations from Wall Street and industry research analysts, interest in TiVo has cooled because consumers have not taken to stand-alone set-top boxes. TiVo has signed up 154,000 subscribers so far.

Still, digital video recording is growing in popularity as an additional feature to other TV services, gradually finding its way into rival set-top boxes, such as DirecTV receivers and upcoming AOLTV boxes.

Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum.

Let the editors know what you think in the Mailroom. And read other letters.