TiVo 2004 Annual Report Download - page 40

Table of Contents
Index to Financial Statements
obligation to provide upgrades, fixes, new features, or software support. DIRECTV, however, also has the option under our current development agreement to
buy a royalty-bearing software and technology license from us. This license would grant DIRECTV access to our source code and technology to make,
modify (with certain exceptions), sell, and distribute DIRECTV receivers with TiVo service to add new subscribers after the expiration of our current
agreement.
Our limited operating history may make it difficult for us or investors to evaluate trends and other factors that affect our business.
We were incorporated in August 1997, and we have been providing subscription services only since March 31, 1999. Prior to that time, our operations
consisted primarily of research and development efforts.
To date, only a limited number of DVRs have been sold, and we have obtained only a limited number of subscriptions to the TiVo service. As a result
of our limited operating history, our historical financial and operating information is of limited value in evaluating our future operating results. It may be
difficult to predict accurately our future revenues, costs of revenues, expenses, or results of operations. In addition, any evaluation of our business must be
made in light of the risks and difficulties encountered by companies offering products or services in new and rapidly evolving markets. DVR services are a
relatively new product category for consumers, and it may be difficult to predict the future growth rate, if any, or size of the market for our products and
services. We may be unable to accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive
factors facing us. As a result, we may be unable to make accurate financial forecasts and adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. Such inability could cause our net losses in a given quarter to be greater than expected, which could cause the price of our stock
to decline.
We face a number of challenges in the sale and marketing of the TiVo service and products that enable the TiVo service.
Our success depends upon the successful retail marketing of the TiVo service and related DVRs, which began in the third quarter of calendar year 1999.
Many consumers are not aware of the benefits of our products. DVR products and services represent a relatively new consumer electronics category.
Retailers, consumers, and potential partners may perceive little or no benefit from digital video recorder products and services. We have only been providing
the TiVo service since 1999. Many consumers are not aware of its benefits, and therefore may not value the TiVo service and products that enable the TiVo
service. We will need to devote a substantial amount of time and resources to educate consumers and promote our products in order to increase our
subscriptions. We cannot be sure that a broad base of consumers will ultimately subscribe to the TiVo service or purchase the products that enable the TiVo
service.
Consumers may not be willing to pay for our products and services. Many of our customers already pay monthly fees for cable or satellite television.
We must convince these consumers to pay an additional subscription fee to receive the TiVo service. Consumers may perceive the TiVo service and related
DVR as too expensive. In order to continue to grow our subscription base, we will need to continue to reduce our costs and lower the price of our DVR. The
availability of competing services that do not require subscription fees or that are enabled by low or no cost DVRs will harm our ability to effectively attract
and retain subscriptions. In addition, DVRs that enable the TiVo service can be used to pause, rewind, and fast-forward through live shows without an active
subscription to the TiVo service. If a significant number of purchasers of the TiVo-enabled DVRs use these devices without subscribing to the TiVo service or
cancel their existing subscriptions, our revenue growth will decline and we may not achieve profitability.
Growth in our TiVo-Owned subscriptions and related revenues could be harmed by competitive offerings by DIRECTV and Comcast who also would be
able to offer the TiVo service. Our ability to grow our TiVo-Owned subscriptions and related revenues could be harmed by competition from our licensing
partners, such as DIRECTV and Comcast, who may be able to offer TiVo-branded DVR solutions to their customers at more attractive pricing then we may
be able to offer the TiVo service to our TiVo-Owned customers. Furthermore, if we are unable to differentiate the TiVo service from the TiVo-branded DVR
solutions offered by our licensing partners, customers who would have otherwise chosen the TiVo service may instead choose to purchase the TiVo-branded
DVR solution from our licensing partners. Additionally, to the extent that potential customers defer subscribing to the TiVo service in order to wait for future
announced, but not deployed, TiVo-branded DVR solutions from our licensing partners, such as Comcast, the growth of our TiVo-Owned subscriptions could
be reduced. If the growth in our TiVo-Owned subscriptions is reduced, our business could be harmed.
We compete with other consumer electronics products and home entertainment services for consumer spending. DVRs and the TiVo service compete in
markets that are crowded with other consumer electronics products and home entertainment services. The competition for consumer spending is intense, and
many consumers on limited budgets may choose other products and services over
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