TiVo 2008 Annual Report Download - page 26

Table of Contents
The product 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 and will negatively impact our TiVo-
Owned Average Revenue per Subscription.
We offer a product lifetime subscription option to the TiVo service that commits us to provide the TiVo service for as long as the DVR is in service.
We received the product lifetime subscription fee for the TiVo service in advance and amortize it as subscription revenue over 60 months for product lifetime
subscriptions which is our current 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 subscription revenue stream and therefore will be required to
fund ongoing costs of service from other sources. Additionally, if these product lifetime subscriptions use the DVR for longer than the period in which we
recognize revenue, our average revenues per subscription (ARPU) for our TiVo-Owned subscriptions will be negatively impacted as we continue to count
these customers as subscriptions without corresponding subscription revenue thus lowering our average revenues across our TiVo-Owned subscription base.
As of January 31, 2009, we had approximately 225,000 product lifetime subscriptions that had exceeded the 60 month period we use to recognize product
lifetime subscription revenues and had made contact with the TiVo service within the prior six-month period. This represents approximately 34% of our
cumulative lifetime subscriptions as compared to 26% in fiscal year ended January 31, 2008. We will continue to monitor the useful life of a TiVo-enabled
DVR and the impact of higher churn, increased competition, and compatibility of our existing TiVo units with high-definition programming. Future results
will allow us to determine if our useful life is shorter or longer than currently estimated, in which case we may revise the estimated life and we would
recognize revenues from this source over a shorter or longer period.
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.
We advertise, market, and sell our services directly to consumers; many of these activities are highly regulated by constantly evolving state and
federal laws and regulations and violations of these laws and regulations could harm our business.
We engage in various advertising, marketing, and other promotional activities, such as offering gift subscriptions to consumers, which are subject to
state and federal laws and regulations. A constantly evolving network of state and federal laws is increasingly regulating these promotional activities.
Additionally, we enter into subscription service contracts directly with consumers which govern both our provision of and the consumers' payment for the
TiVo service. For example, consumers who activate new monthly subscriptions to the TiVo service are required to commit to pay for the TiVo service for a
minimum of one year or be subject to an early termination fee equal to the number of months left unpaid on their commitment if they terminate prior to the
expiration of their commitment period. If the terms of our subscription service contracts with consumers, such as our imposition of an early termination fee, or
our previously offered rebate or gift subscription programs were to violate state or federal laws or regulations, we could be subject to suit, penalties, and/or
negative publicity in which case our business could be harmed.
The nature of some of our business relationships may restrict our ability to operate freely in the future.
From time to time, we have engaged and may engage in the future in discussions with other parties concerning business relationships, which have and
may include equity investments by such parties in our Company. While we believe that such business relationships have historically enhanced our ability to
finance and develop our business model, the terms and conditions of such business relationships may place some restrictions on the operation of our business
in the future.
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