TiVo 2004 Annual Report Download - page 28

Table of Contents
Index to Financial Statements
Of the total service revenues and technology revenues for the fiscal years ended January 31, 2005, 2004, and 2003, $6.8 million, $19.7 million and
$22.1 million, respectively, were generated from related parties.
• Service Revenues. Service revenues for the fiscal year ended January 31, 2005 increased 74% or $45.6 million over the service revenues for the
fiscal year ended January 31, 2004. This increase was primarily due to the growth in our subscription base. Service revenues for the year ended
January 31, 2004 were $61.6 million, 57% higher than service revenues for the year ended January 31, 2003. During the year ended January 31,
2005, we activated 1.7 million new subscriptions to the TiVo service bringing the total installed subscription base to above 3.0 million as of
January 31, 2005, nearly five times greater than the installed base as of January 31, 2003. Consumer demand for TiVo-enabled DVR and DVD
products was driven by broad availability and strong support in the retail channel, consumer rebate programs, and increased consumer awareness
of TiVo. We intend to generate continued TiVo-Owned subscription growth by managing our relationships with leading retailers like Best Buy,
Circuit City, Target, and others. We anticipate fiscal year 2006 will have continued service revenue growth as our subscription base grows.
Revenues from advertising and research services included in service revenues, while not material during these periods, have increased.
• Technology Revenues. In the fiscal year ended January 31, 2005, we derived 5% of our net revenues, or $8.3 million, from licensing and
engineering professional services. Technology revenues for the fiscal year ended January 31, 2005 were 47% lower than the same period last year
due to our decision to pursue fewer licensing agreements in the fiscal year 2005. Additionally, in the quarter ended October 31, 2004 we reduced
our technology revenues by approximately $766,000 after we determined it was unlikely we would receive estimated revenues from one
customer. One related party customer generated $2.0 million, $5.8 million and $5.3 million of technology revenues or 1%, 4%, and 6% of net
revenues for the fiscal years ended January 31, 2005, 2004, and 2003 respectively. A different customer generated $4.6 million and $2.3 million
of technology revenues, or 3% and 2% of net revenues for the fiscal years ended January 31, 2005 and 2004, respectively. During fiscal year
2004, we recognized $2.9 million of licensing and engineering professional services revenue with little corresponding costs from two customers
due to the one-time recognition of revenues for two projects for which we have no further obligations.
• Hardware Revenues. Hardware revenues, net of allowance for sales returns, for the fiscal year ended January 31, 2005 were 65% of our net
revenues. For the fiscal years ended January 31, 2005, 2004, and 2003, one retail customer generated $49.5 million, $28.3 million, and $22.7
million of hardware revenues, or 29%, 20%, and 24% of net revenues, respectively. Although volume of units sold increased for the fiscal year
ended January 31, 2005 by 200% from the year ago period, hardware revenue from these units was lower per unit as we decreased our sales price
per unit by nearly 22% to both our retail customers and consumers.
• Rebates, revenue share, and other payments to channel. We recognize certain marketing-related payments as a reduction of revenues on our
statements of operations. Rebates, revenue share, and other payments to channel increased for the fiscal year ended January 31, 2005 as
compared to the respective prior fiscal year due to higher rebates, revenue share, and market development funds paid to retailers. The primary
contributor to the increase in rebates, revenue share, and other payments to channel was consumer rebate expenses. Consumer rebate expenses
were $37.1 million and $2.2 million, respectively, for fiscal years ended January 31, 2005 and 2004. Fiscal year 2004 expenses reflected the
reversal of the rebate accrual for rebate programs that ended on April 30, 2003. Other significant contributors to the increase were revenue share
and market development funds paid to retailers. These marketing-related payments increased by $5.2 million and $4.3 million, respectively, for
the fiscal year ended January 31, 2005, as compared to the same prior-year period. We expect our fiscal year 2006 payments to be lower as a
result of decreased investment in subscription acquisition activities.
Cost of service and technology revenues.
Fiscal Year Ended January 31,
2005
2004 2003
(In thousands, except percentages)
Cost of service revenues $ 29,360 $ 17,705 $ 17,119
Cost of technology revenues 6,575 13,609 8,033
Cost of service and technology revenues $ 35,935 $ 31,314 $ 25,152
Change from prior fiscal year 15% 24% 26%
Percentage of service and technology revenues 31% 40% 42%
Costs of service and technology revenues consist primarily of telecommunication and network expenses, employee salaries, call center, and other
expenses related to providing the TiVo service. Additional expenses included are expenses related to providing engineering professional services to our
customers, including employee salaries and related costs, as well as prototyping and other material costs. Cost of service revenues for the fiscal year ended
January 31, 2005 increased 66% or by $11.7 million as compared to the prior fiscal year. Total customer care center expenses increased by 130% or by $5.5
million compared to the same prior-year
26