TiVo 2004 Annual Report Download - page 47

Table of Contents
Index to Financial Statements
the DVR. Currently, we gather anonymous information about our customers' viewing choices while using the TiVo service, unless a customer affirmatively
consents to the collection of personally identifiable viewing information. This anonymous viewing information does not identify the individual customer.
Privacy concerns, however, could create uncertainty in the marketplace for digital video recording and for our products and services. Changes in our privacy
policy could reduce demand for the TiVo service, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or
otherwise harm our reputation and business.
We have limited experience in overseeing manufacturing processes and managing inventory and failure to do so effectively may result in
supply imbalances or product recalls.
We have contracted for the manufacture of certain TiVo-enabled DVRs with a contract manufacturer. We sell these units to retailers and distributors, as
well as through our own online sales efforts. As part of this effort, we expect to maintain some finished goods inventory of the units throughout the year.
Overseeing manufacturing processes and managing inventory are outside of our core business and our experience in these areas is limited. If we fail to
effectively oversee the manufacturing process and manage inventory, we may suffer from insufficient inventory to meet consumer demand or excess
inventory. Ineffective oversight of the manufacturing process could also result in product recalls.
Product defects, system failures or interruptions to the TiVo service may have a negative impact on our revenues, damage our reputation and
decrease our ability to attract new customers.
Our ability to provide uninterrupted service and high quality customer support depends on the efficient and uninterrupted operation of our computer and
communications systems. Our computer hardware and other operating systems for the TiVo service are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures and similar events. They are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. These types of interruptions in the TiVo service may reduce our revenues and profits. We currently house the server
hardware that delivers the TiVo service at only one location and continue to explore the benefits of establishing a backup facility. Our business also will be
harmed if consumers believe our service is unreliable. In addition to placing increased burdens on our engineering staff, service outages will create a flood of
customer questions and complaints that must be responded to by our customer support personnel. Any frequent or persistent system failures could irreparably
damage our reputation and brand and possibly trigger requests for refunds on subscriptions fees and hardware purchases and possible consumer litigation.
We have detected and may continue to detect errors and product defects. These problems can affect system uptime and result in significant warranty
and repair problems, which could cause customer service and customer relations problems. Correcting errors in our software or fixing defects in our products
requires significant time and resources, which could delay product releases and affect market acceptance of the TiVo service. Any delivery by us of products
or upgrades with undetected material product defects or software errors could harm our credibility and market acceptance of the DVRs and the TiVo service.
In addition, defective products could cause a risk of injury that may subject us to litigation or cause us to have to undertake a product recall. For example, we
have become aware of occasions where a part has come loose from the remote control device that comes with the DVRs that enable the TiVo service,
including occurrences where a young child has gagged on or ingested a part of the remote control device. While we are unaware of any injuries resulting from
the use of our products, if we are required to repair or replace any of our products, we could incur significant costs, which would have a negative impact on
our financial condition and results of operations.
We have begun the search process for a new Chief Executive Officer. If we are unable to hire an acceptable candidate or if the search process
takes too long, the operation of our business could suffer.
Our future performance will be substantially dependent on our ability to identify and attract a new Chief Executive Officer. If we are unable to attract
and hire an acceptable Chief Executive Officer candidate in a timely manner, our business could suffer from the uncertainty caused by the continued
management search process. Our current Chief Executive Officer has agreed to stay on as CEO until a replacement candidate has been identified and hired,
although he is not obligated to do so. He has also agreed to continue to serve as Chairman of the Board of Directors after stepping down as CEO. If our
current CEO were to step down prior to our hiring of a replacement or were he not to continue as Chairman of the Board, our business could also be harmed.
If we lose key management personnel, we may not be able to successfully operate our business.
Our future performance will be substantially dependent on the continued services of our senior management and other key personnel. The loss of any
members of our executive management team and our inability to hire additional executive management could harm our business and results of operations. In
addition, we do not have key man insurance policies for any of our key personnel which may adversely affect our ability to attract new executives.
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