TiVo 2005 Annual Report Download - page 27

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Table of Contents
The lifetime subscriptions to the TiVo service that we currently are obligated to service commit us to providing services for an indefinite
period. The revenue we generate from these subscriptions may be insufficient to cover future costs.
We offer a product lifetime subscription option to the TiVo service that commits us to provide TiVo service for as long as the DVR is in service. We
have announced our intention to eliminate the product lifetime service option, however, we still may offer product lifetime subscriptions, in the future. We
receive the product lifetime subscription fee for the TiVo service in advance and amortize it as subscription revenue over four years, which is our estimate of
the service life of the DVR. If these product lifetime subscriptions use the DVR for longer than anticipated, we will incur costs such as telecommunications
and customer support costs without a corresponding revenue stream and therefore will be required to fund ongoing costs of service from other sources. As of
January 31, 2006, we had approximately 100,000 product lifetime subscriptions that had exceeded the four-year period we use to recognize product lifetime
subscription revenues and had made contact to the TiVo service within the prior six-month period. This represents approximately 13.3% of our cumulative
lifetime subscriptions as compared to 11.4% in fiscal year ended January 31, 2005. If the useful life of the recorder were shorter or longer than four-years, we
would recognize revenues earlier or later. Our product is still relatively new, and as we gather more user information, we may revise this estimated life.
We share a substantial portion of the revenue we generate from subscription fees with some of our retail customers and consumer electronics
companies. We may be unable to generate enough revenue to cover these obligations.
In some of our agreements, we have agreed to share a substantial portion of our subscription and other fees with some of our retail customers and
consumer electronics manufacturing companies in exchange for manufacturing, distribution and marketing support, and discounts on key components for
DVRs. These agreements require us to share substantial portions of the subscription and other fees attributable to the same subscription with multiple
companies. These agreements also require us to share a portion of our subscription fees whether or not we increase or decrease the price of the TiVo service.
If we change our subscription fees in response to competitive or other market factors, our operating results would be adversely affected. Our decision to share
subscription revenues is based on our expectation that these relationships will help us obtain subscriptions, broaden market acceptance of digital video
recorders, and increase our future revenues. If these expectations are not met, we may be unable to generate sufficient revenue to cover our expenses and
obligations.
Bundled pricing with varying commitment terms for the TiVo service may involve increased acquisition costs.
We have elected to offer the TiVo service at various price points bundled with a TiVo-enabled DVR as part of the subscription fee. The bundled TiVo
service and DVR offerings may involve higher acquisition costs including, for example, the offering of a no cost DVR in exchange for a commitment to pay a
specified subscription price for a minimum period of time from one to three years. If we incur these increased subscription acquisition costs without a
corresponding return in expected future revenues, our business could be harmed.
We engage in various advertising, marketing and other promotions that are regulated by state and federal laws and regulations and any
violation of these laws and regulations could harm our business.
We engage in various advertising, marketing, and other promotional activities, such as offering rebates and gift subscriptions to consumers, which are
subject to state and federal laws and regulations. An evolving network of state and federal laws is increasingly regulating these promotional activities. If we
were to violate any of these laws or regulations governing these promotional activities, we could be subject to suit, penalties, and/or negative publicity in
which case our business could be harmed.
On December 22, 2005, a consumer class-action lawsuit against TiVo Inc. was filed in the Superior Court of the State of California, County of San
Francisco. This action, which is captioned Nolz, et al. v. TiVo, was brought on behalf of a purported class of purchasers of our gift subscriptions, which were
allegedly sold to consumers in violation of California law that allegedly makes it unlawful to sell gift certificates in California containing an expiration date.
We intend to defend this action vigorously; however, we could be forced to incur material expense in the litigation, and in the event there is an adverse
outcome, our business could be harmed.
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