TiVo 2004 Annual Report Download - page 4

Table of Contents
Index to Financial Statements
PART I
ITEM 1. BUSINESS
General Development of Business
We are a leading provider of technology and services for digital video recorders, or DVRs, a rapidly growing consumer electronics category. Our
subscription-based TiVo service improves home entertainment by providing consumers with an easy way to record, watch, and control television. The TiVo
service also offers the television industry a platform for advertisers, content delivery, and audience measurement research. The TiVo service requires a TiVo-
enabled DVR or set-top box. These may be purchased at major consumer electronics retailers throughout the United States or through our website. As of
January 31, 2005, there were over 3.0 million subscriptions to the TiVo service.
We currently derive revenues from three sources:
• TiVo service revenues. Consumers subscribe directly to the TiVo service, by paying us either $12.95 per month or a one-time "product lifetime"
fee of $299. In addition, DIRECTV pays recurring per-household monthly fees in order to offer the TiVo service to its satellite TV subscribers.
• Technology revenues. We have developed technology supported by our portfolio of intellectual property rights that enables us to offer TiVo-
enabled DVR software, hardware, and service solutions to customers like DIRECTV, Pioneer, Toshiba, Humax, and Sony.
• DVR hardware revenues. We engage contract manufacturers to build DVRs, which we then distribute to retailers or sell directly to consumers.
We do this to enable our service revenues and, as a result, do not intend to generate significant gross margins from these hardware sales.
We continue to be subject to a number of risks, including delays in product and service developments; competitive service offerings; lack of market
acceptance and uncertainty of future profitability; dependence on third parties for manufacturing, marketing, and sales support; intellectual property claims
against us; and our dependence on our relationship with DIRECTV for subscription growth. We conduct our operations through one reportable segment. We
anticipate that our business will continue to be seasonal and expect to generate a significant number of our annual new subscriptions during and immediately
after the holiday shopping season. To date, we have incurred significant losses and have had substantial negative cash flow. During the fiscal year ended
January 31, 2005, we had net losses of ($79.8) million. As of January 31, 2005, we had an accumulated deficit of ($657.1) million.
Industry Background
Consumer Demand is Driving Widespread Adoption of DVR Technology. DVRs offer a compelling value proposition to consumers by providing the
means to effectively sort through, select from, and organize the growing volume of broadcast video content. Consumers are also interested in the ability of
DVR technology to easily fast forward through commercials. IDC predicts as many as 30 percent of U.S. households will use DVRs in 2008, a ten-fold
percentage increase over its penetration estimate for March 2004.
Television Distributors See DVR Technology as a Competitive Asset. Nearly all of the major television distributors in the United States including
Comcast, DIRECTV, EchoStar, Time-Warner Cable, and others, are offering DVR technology to their customers and have indicated they consider DVR
technology a competitive tool. For example, major satellite companies have used TiVo and other DVR technologies when advertising against their cable
company competition. These operators are looking for ways to more effectively attract consumers to their own offerings. DVR technology is also offered by
satellite service providers in Europe.
DVR is Changing the Television Advertising Industry. The proliferation of DVRs, and their ability to easily skip through television programming, is
requiring television advertisers to evaluate new and different ways to reach out to consumers.
Our Solution
We have created a unique set of technologies that meet the needs of consumers, television distributors, and the advertising community.
Compelling, Easy-to-Use Consumer DVR Offering. The TiVo service, combined with a TiVo-enabled DVR or TiVo-enabled DVD recorder, has many
features that we believe dramatically improve a consumer's television viewing experience. Depending upon the model, TiVo-enabled DVRs are able to
support analog cable, digital cable, satellite, or over-the-air broadcast television, including high definition television. The TiVo service can automatically
record a consumer's favorite shows, all season long, even if the schedule changes, and can even skip reruns. The TiVo service allows consumers to search for
shows to record by subject, title, genre,
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