TiVo 2008 Annual Report Download - page 46

Table of Contents
Fiscal Year Ended January 31,
2009 2008 2007
Subscription Acquisition Costs
Sales and marketing, subscription acquisition costs $ 6,038 $ 31,050 $ 20,767
Hardware revenues (41,133) (41,798) (41,588)
Less: MSOs/Broadcasters-related hardware revenues 9,333 — —
Cost of hardware revenues 57,742 92,052 112,505
Less: MSOs/Broadcasters-related cost of hardware revenues (8,590) — —
Total Acquisition Costs 23,390 81,304 91,684
TiVo-Owned Subscription Gross Additions 187 276 429
Subscription Acquisition Costs (SAC) $ 125 $ 295 $ 214
During the twelve months ended January 31, 2009, our total acquisition costs were $23.4 million and SAC was $125. Comparatively, total acquisition
costs for the twelve months ended January 31, 2008 and 2007 were $81.3 million and $91.7 million, respectively and SAC was $295 and $214, respectively.
The decrease in our total acquisition costs for the fiscal year ended January 31, 2009 as compared to the prior fiscal year is primarily a result of a reduction in
our advertising efforts. Additionally, our TiVo-Owned hardware gross margin loss improved by $32.9 million, as compared to the prior fiscal year due to the
mix of products sold during the year. A portion of this improvement in hardware gross margin loss is due to a benefit of $4.9 million resulting from the sales
of previously impaired excess and obsolete inventory, combined with lower rebate expenses in the fiscal year ended January 31, 2009 as compared to the prior
fiscal year. We don't expect further decreases in SAC and could experience modest increases.
SAC decreased by $170 or 57% for the fiscal year ended January 31, 2009 compared to the prior-year period primarily due to decreased sales and
marketing, subscription acquisition cost spending to a lesser degree offset by a decreased number of gross subscription additions.
As a result of the seasonal nature of our subscription growth, SAC varies significantly during the year. Management primarily reviews this metric on an
annual basis due to the timing difference between our recognition of promotional program expenses and the subsequent addition of the related subscription
acquisition. For example, we have historically incurred increased sales and marketing expenses and hardware losses on sales to our retail customers during
our third quarter in anticipation of new subscriptions that may be added during the fourth quarter and in subsequent periods in addition to those added during
the third quarter.
Average Revenue Per Subscription or ARPU. Management reviews this metric, and believes it may be useful to investors, in order to evaluate the
potential of our subscription base to generate revenues from a variety of sources, including subscription fees, advertising, and audience research measurement.
ARPU does not include rebates, revenue share and other payments to channel that reduce our GAAP revenues. As a result, you should not use ARPU as a
substitute for measures of financial performance calculated in accordance with GAAP. Management believes it is useful to consider this metric excluding the
costs associated with rebates, revenue share and other payments to channel because of the discretionary and varying nature of these expenses and because
management believes these expenses, which are included in hardware revenues, net, are more appropriately monitored as part of SAC. We are not aware of
any uniform standards for calculating ARPU and caution that our presentation may not be consistent with that of other companies.
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