As a Tivo Lifetimer, I find the move a curious one. My suspicion is that Tivo is trading larger licensing fees from manufacturers against the possibility that people won't subscribe to the service. At the same time, they're hoping that at least some people will subscribe, increasing Tivo's paying user base.
I base the larger licensing fee theory on the specs of the first Tivo Basic device described in the article. It's a Toshiba DVD player with an 80GB Tivo built in. The cost of this new toy? $549 retail. Assuming Tivo is getting a larger cut, at least it'll help offset the possibility that the owners don't subscribe. But with DVD players going for $100 or less, how many people are going to shell out an extra four fifty for this thing in the first place?
Second, I think that one of the reasons that Tivo has such a ravenous fan base is because the box is currently so much cooler with the subscription service than without it. Cancel your subscription and your Tivo becomes worthless, relatively speaking. Sure, it'll still do a few tricks, but nothing like when you're paying that monthly service fee.
Now, however, the Tivo Basic service basically removes only a few features, while the previous free service removed all but a few. I have to think that this move could backfire, with people saying "If I only get three features for my $12.95 a month, forget it." Hopefully, Tivo will use the drug pusher tactic and give away a month or two of full service for free. Once you've had a taste of the season pass, it's hard to quit.