TiVo 2008 Annual Report Download - page 45

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compared to 26% for the fiscal year ended January 31, 2008. We continue to incur minimal costs of service for these subscriptions without recognizing
corresponding subscription revenues. Effective November 1, 2008, we extended the period we used to recognize product lifetime subscription revenues from
54 months to 60 months for the product lifetime subscriptions acquired on or before October 31, 2007 and such change is being recognized on a prospective
basis. We now amortize all product lifetime subscriptions over a 60 month period. Refer to Critical Accounting Estimates "Recognition Period for Product
Lifetime Subscriptions Revenues". There were no additions to the fully amortized active lifetime subscriptions during the quarter ended January 31, 2009
since under the revised amortization period, product lifetime subscriptions that would have become fully amortized using the previous amortization period are
not yet fully amortized subscriptions at January 31, 2009. We expect the number of fully amortized lifetime subscriptions to increase during the fiscal year
ending January 31, 2010, however we cannot predict whether the cumulative number of fully amortized active lifetime subscriptions will increase or decrease
as this will depend on churn of already fully amortized lifetime subscriptions and churn of subscriptions that will become fully amortized during the fiscal
year ending January 31, 2010.
TiVo-Owned Churn Rate per Month. Management reviews this metric, and believes it may be useful to investors, in order to evaluate our ability to
retain existing TiVo-Owned subscriptions (including both monthly and product lifetime subscriptions) by providing services that are competitive in the
market. Management believes factors such as service enhancements, service commitments, higher customer satisfaction, and improved customer support may
improve this metric. Conversely, management believes factors such as increased competition, lack of competitive service features such as high definition
television recording capabilities for our low cost product offerings, current economic conditions, and increased price sensitivity may cause our TiVo-Owned
Churn Rate per month to increase.
We define the TiVo-Owned Churn Rate per month as the total TiVo-Owned subscription cancellations in the period divided by the Average TiVo-
Owned subscriptions for the period (including both monthly and product lifetime subscriptions), which then is divided by the number of months in the period.
We calculate Average TiVo-Owned subscriptions for the period by adding the average TiVo-Owned subscriptions for each month and dividing by the number
of months in the period. We calculate the average TiVo-Owned subscriptions for each month by adding the beginning and ending subscriptions for the month
and dividing by two. We are not aware of any uniform standards for calculating churn and caution that our presentation may not be consistent with that of
other companies.
The following table presents our TiVo-Owned Churn Rate per month information:
Fiscal Year Ended January 31,
2009 2008 2007
in thousands, except percentages
TiVo-Owned subscription cancellations (278) (257) (194)
Average TiVo-Owned subscriptions 1,695 1,721 1,584
Annual Churn Rate -16% -15% -12%
Number of Months 12 12 12
TiVo-Owned Churn Rate per month -1.4% -1.2% -1.0%
Included in our TiVo-Owned Churn Rate per month are those product lifetime subscriptions that have both reached the end of the revenue recognition
period and whose DVRs have not contacted the TiVo service within the prior six months. Conversely, we do not count as churn product lifetime subscriptions
that have not reached the end of the revenue recognition period, regardless of whether such subscriptions continue to contact the TiVo service. TiVo-Owned
Churn Rate per month increased to 1.4% for the fiscal year ended January 31, 2009 and will likely increase further in future periods as a result of increasing
churn from product lifetime subscriptions, competition from other providers, a weakening economy, and the growing importance of encrypted digital and high
definition television recording capabilities which can only be accessed through either cable or satellite provided set top box or through a box which
incorporates CableCARDTM technology.
Subscription Acquisition Cost or SAC. Management reviews this metric, and believes it may be useful to investors, in order to evaluate trends in the
efficiency of our marketing programs and subscription acquisition strategies. We define SAC as our total acquisition costs for a given period divided by TiVo-
Owned subscription gross additions for the same period. In the first fiscal quarter of 2008, we revised our definition of total acquisition costs. We now define
total acquisition costs as sales and marketing, subscription acquisition costs less net TiVo-Owned related hardware revenues (defined as gross hardware
revenues less rebates, revenue share and market development funds paid to retailers) plus TiVo-Owned cost of hardware revenues. The sales and marketing,
subscription acquisition costs line item includes advertising expenses and promotion-related expenses directly related to subscription acquisition activities, but
does not include expenses related to advertising sales. We do not include third parties subscription gross additions, such as MSOs/Broadcasters' gross
additions with TiVo subscriptions, in our calculation of SAC because we incur limited or no acquisition costs for these new subscriptions. We are not aware
of any uniform standards for calculating total acquisition costs or SAC and caution that our presentation may not be consistent with that of other companies.
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