TiVo 2008 Annual Report Download - page 11

Table of Contents
As part of this agreement, Comcast received a non-exclusive, non-transferable license to our intellectual property in order to deploy the TiVo service
software solution and advertising management system, including certain trademark branding rights and a covenant not to assert under TiVo's patents, which
rights extend only to Comcast Corporation, its affiliates, and certain of its vendors and suppliers with respect to Comcast products and services. Such non-
exclusive, non-transferable license to the Company's intellectual property will, under certain circumstances, continue after the termination of this agreement.
In addition, Comcast is entitled to certain most favored customer terms as compared with other multi-channel video distributors who license certain TiVo
technology. Pursuant to the terms of this agreement, Comcast has the right to terminate the agreement in the event the Company is the subject of certain
change of control transactions involving any of certain specified companies. The TiVo service software solution has launched in its initial market, the New
England Region. We expect the TiVo service to be launched in additional markets in fiscal 2010, beginning with Chicago. Comcast accepted the TiVo
advertising management system in fiscal 2009, and deployment of the advertising management system is expected in the future though no date has been set.
DIRECTV. DIRECTV is the largest provider of satellite television in the U.S. We have had a longstanding relationship with DIRECTV from 1999 to
the present to provide the TiVo service to its customer base. As of January 31, 2009, we had approximately 1.7 million subscriptions through this relationship.
In the fiscal year ended January 31, 2009, we reported $22.9 million of DIRECTV-related revenues, which include subscription revenues, DIRECTV-related
advertising revenues, and revenues from engineering services provided to DIRECTV. This represented 9% of our total net revenues.
DIRECTV currently pays us a recurring monthly per-household fee for access to the technology needed to provide its customers the TiVo service. We
incur limited recurring expenses. We also recognize revenue from DIRECTV for engineering services work on integrated DIRECTV satellite receivers with
TiVo service and the related service infrastructure. We are continuing to provide DIRECTV with engineering services related to currently installed hardware
and updates and feature enhancements for existing platforms and customers.
Additionally, DIRECTV distributes features that enable advanced automatic recording capabilities and the delivery of promotional video to DIRECTV
receivers with TiVo service. Subject to certain restrictions and exceptions, both DIRECTV and TiVo may sell advertising and audience research measurement
data, with each party retaining all their respective revenues generated from such sales.
DIRECTV currently does not have the right to continue to distribute DIRECTV receivers with TiVo service to new customers. Instead, DIRECTV has
been offering a new DVR to compete with the existing DIRECTV receivers with TiVo service. Additionally, DIRECTV has added high definition
programming in a format that is not compatible with the existing TiVo-enabled high definition DVRs previously distributed by DIRECTV. As a result, we
have seen a reduction in the number of DIRECTV receivers with TiVo service subscriptions, a trend that we expect to continue.
On September 3, 2008, the Company extended its current agreement with DIRECTV for the development, marketing, and distribution of a new HD
DIRECTV DVR featuring the TiVo ® service. Under the terms of this non-exclusive arrangement, TiVo expects to develop a version of the TiVo service for
DIRECTV's broadband-enabled HD DVR for a launch to consumers as soon as possible in calendar year 2010. DIRECTV, upon deployment of the HD
DIRECTV DVRs with TiVo service, is entitled to recoup, over time, a portion of certain development fees through a reduction in certain subscription fees.
The new agreement also extends the mutual covenant not to sue with respect to each Company's products and services throughout the term of the new
agreement.
Under this new agreement, DIRECTV will pay a substantially higher monthly fee for households using the new HD DIRECTV DVRs with TiVo (when
and if the new version of the TiVo service is deployed) than the fees for previously deployed DIRECTV DVRs with TiVo service. DIRECTV will continue to
pay the current monthly fee for all households using only the previously deployed DIRECTV DVRs with TiVo service. The fees paid by DIRECTV are
subject to monthly minimum payments that escalate during the term of the agreement starting in 2010 and those minimum payments are substantially higher
than in the prior agreement. The Company will continue to defer a portion of these fees as a non-refundable credit to fund mutually agreed development, with
excess development work to be funded by DIRECTV. DIRECTV also has certain additional annual obligations to market and promote the new HD DIRECTV
DVR featuring the TiVo Service once it has launched.
Cox. On August 22, 2006, we entered into a non-exclusive licensing and distribution agreement with Cox Communications (otherwise referred to as
Cox). Pursuant to the agreement, we have agreed to develop a TiVo-branded software solution for deployment on Cox's DVR platforms, which would enable
Cox to offer our DVR and advertising software to its customers and advertising clients respectively. In addition, we have agreed to develop an advertising
management system for deployment on Cox platforms to enable the provision of local and national advertising to Cox subscribers.
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