America Online will develop a set-top box featuring personal television services from TiVo, the companies said Wednesday.
Investors cheered TiVo shares, which were up 66 percent in early trading. Shares were up 14 7/16 to 36 at 9:36am EDT (2:36pm GMT).
The deal would give subscribers of AOLTV, an interactive television service, the ability to program their own TV schedule. TiVo technology record television as it is being broadcast, allowing consumers to do things like pause or replay a live program. It also allows viewers the ability to search out and record programming ahead of time, for example, creating a channel that only plays Baywatch episodes.
The deal is an expansion of an earlier agreement forged between the two firms in August, when AOL made an undisclosed investment in the technology firm.
The new, three-year deal includes a $200m investment from AOL in TiVo, and gives AOL the right to purchase additional shares.
"Bringing TiVo's personal television features to AOLTV will be another way we can offer our members the best possible interactive television experience," AOL interactive services president Barry Schuler said in a release.
The AOLTV service is expected to launch later this month. It allows consumers to chat online, check e-mail and surf the Web via a wireless keyboard or a remote while watching TV. The initial product will use a set-top box running on a platform created by Liberate Technologies.
Microsofts WebTV division currently offers a similar service. Earlier this week, the company struck a deal with DirecTV and Thomson Multimedia to create a combination set-top box and digital satellite service. That product will also have digital video recording features.
Analysts have said that AOL will have a chance to develop more interesting services based around the device once it completes its merger with media giant Time-Warner.
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